In a recent earnings call for the second quarter of 2024, Liberty Latin America (LLA) showcased a period of significant growth and strategic advancements. CEO Balan Nair emphasized the company's increase in high-speed broadband and postpaid mobile subscribers, adding 62,000 subscribers in the first half of the year. Financial highlights included an adjusted OIBDA of $763 million, with notable growth in Panama and Costa Rica.
The call also addressed the impact of recent hurricanes on network infrastructure, the aggressive repurchase of company equity and convertible notes, and the strategic acquisitions and partnerships intended to bolster the company's market presence and drive stakeholder value.
Key Takeaways
- Liberty Latin America added 62,000 high-speed broadband and postpaid mobile subscribers in the first half of 2024.
- The company reported an adjusted OIBDA of $763 million, with significant growth in Panama and Costa Rica.
- Over $300 million of equity and convertible notes were repurchased as part of the company's buyback activity.
- Liberty Latin America announced a strategic combination with Millicom in Costa Rica and acquired spectrum and subscribers from DISH.
- The company faced challenges in Puerto Rico but remains optimistic about returning to growth in the region.
- Recovery efforts are underway following hurricane damage, with the successful use of parametric insurance to mitigate financial impact.
Company Outlook
- CEO Balan Nair projected positive revenue growth for 2025, driven by investments in network infrastructure and data centers in Panama, Costa Rica, and Mexico.
- The company is focused on returning Puerto Rico to growth and driving fixed and mobile volumes across its markets.
- Liberty Latin America is doubling down on cost takeouts and is optimistic about the acquisition of Tigo's fixed business in Costa Rica and the DISH Boost and spectrum transaction for Puerto Rico.
Bearish Highlights
- Cable & Wireless Caribbean experienced flat broadband subscriber performance due to price increases.
- Liberty Puerto Rico reported postpaid subscriber losses linked to migration completion and the sunset of the ECF program.
- The company encountered billing and collection issues, resulting in $12 million of bad debt.
- Puerto Rico's revenue decline and operational issues were acknowledged, though future improvement is anticipated.
Bullish Highlights
- Strong growth was reported in the postpaid mobile segment and the launch of the first commercial 5G offering in Costa Rica in July.
- Healthy revenue growth in the first half was led by mobile.
- The company's enterprise growth and resilience in the wholesale business were noted.
Misses
- Bad debt of $12 million was driven by billing and collection issues on new systems.
- Integration costs and inventory impacts associated with migration amounted to $7 million in Q2.
Q&A Highlights
- The company discussed strategies to address billing challenges for certain customers.
- Nair addressed the impact of the hurricane season on operations, noting that networks have been rebuilt following power outages.
- The company's leverage levels are expected to decrease as adjusted OIBDA expands, with current total debt at $8.1 billion.
Liberty Latin America's second quarter earnings call painted a picture of a company that is navigating challenges while capitalizing on strategic growth opportunities. With a clear focus on improving its market structure through acquisitions and network investments, Liberty Latin America is poised to strengthen its position in the telecommunications sector. Despite the setbacks faced in Puerto Rico and the transient impacts of natural disasters, the company's proactive risk management and confident outlook suggest a path toward sustained growth and resilience.
InvestingPro Insights
Liberty Latin America (LLA) has been making headlines with its strategic moves and growth initiatives, as highlighted in their recent earnings call. To complement the insights from the call, let's delve into some real-time data and tips provided by InvestingPro that could offer a deeper understanding of the company's financial health and market performance.
InvestingPro Data shows that Liberty Latin America has a Market Cap of approximately $1.76 billion. Their Gross Profit Margin for the last twelve months as of Q2 2024 stands at a robust 77.26%, indicating strong operational efficiency. Despite a slight decline in Revenue Growth of -2.06% over the same period, the company has maintained an impressive gross profit, which aligns with the CEO's optimistic outlook for the company.
InvestingPro Tips reveal that management's confidence in the company is reflected through aggressive share buybacks, which is often a sign that the company's leadership believes the stock is undervalued. Moreover, analysts are predicting that Liberty Latin America will turn profitable this year, which could be a pivotal moment for the company's financial trajectory.
It is also noteworthy that the stock has experienced a significant uptick, showing a 30.01% return over the last six months. This may indicate growing investor confidence in the company's future, despite the fact that LLA does not pay dividends, which is a testament to its growth-focused strategy.
For investors looking for more comprehensive analysis and additional InvestingPro Tips, there are 7 more tips available at https://www.investing.com/pro/LILAK, which could provide further insights into Liberty Latin America's market position and future prospects.
Full transcript - Liberty Latin America Ltd (LILAK) Q2 2024:
Operator: 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 Danilo Fernandes, Senior Director of Corporate Business, C&W Panama.
Danilo Fernandes: Good morning and welcome to Liberty Latin America's Second Quarter 2024 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 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 facts. Actual results may differ materially from those expressed or implied by these statements. For more information, please refer to the risk factors discussed in Liberty Latin America's most recently filed annual report on Form 10-K and quarterly report on Form 10-Q, along with the associated press release. Liberty Latin America disclaims any obligation to update any forward-looking statement or information to reflect any change in its expectations or in the conditions on which any such statement or information 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 which is accessible under the Investors section of our website. I would now like to turn the call over to our CEO, Mr. Balan Nair.
Balan Nair: Thank you, Danilo. And welcome everyone to Liberty Latin America's second quarter and first half results presentation. I'll begin with our group highlights and an overview of our operating results by reporting segment. Chris Noyes, our CFO, will then 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 will invite them to contribute as needed during the Q&A following our prepared remarks. As a point of housekeeping, we will both be working from slides, which you can find on our website at www.llla.com. Starting on slide 4 and our highlights, we continued to grow our high-speed broadband and postpaid mobile bases in the first half, adding 62,000 subscribers in total across the group. This was close to 200,000 additions, excluding Puerto Rico, where we experienced specific challenges related to the completion of mobile subscriber migration and the sunset of the ECF program, which I'll cover later in the presentation. We reported adjusted OIBDA of $763 million in the first half. This included double-digit rebased growth in Panama and Costa Rica, in addition to high single-digit growth in Cable & Wireless Caribbean. We expect these businesses to continue their momentum in the second half and growth for the overall group to improve as we drive better results in our Puerto Rico operations. We have been aggressive with our buyback activity this year, including the redemption of our convertible notes in July. We have now repurchased over $300 million of our equity and converts, which is equivalent to the total capital allocated during 2023. Finally, we continue to look at inorganic ways in which to drive additional stakeholder value, and we are excited to announce our combination with Millicom in Costa Rica. This will improve the market structure, drive synergies, and importantly, allow us to invest in fiber and 5G, delivering even better services for the Costa Rican people. Turning to slide 5. I'll begin our operating review with Cable & Wireless Caribbean. On the left of the slide, we present our internet and mobile postpaid additions where, over the past 12 months, we've added 80,000 subscribers in total. Q2 saw flat broadband subscriber performance as our price increases resulted in higher churn during the quarter, which was in line with our expectations. Importantly, we continued to deliver year-over-year revenue growth, and we expect underlying improvements in the second half, although anticipating some one-time impacts resulting from Hurricane Beryl, primarily in Jamaica. Postpaid mobile adds remain robust, driven by another solid quarter in Jamaica, where we've now added subscribers for 16 consecutive quarters. Moving to the center of the slide, we generated 4% revenue growth in the first half of this year, as our consumer momentum was bolstered by strong B2B performance through the award of some notable projects. Lastly, for Cable & Wireless, I want to provide an update following Hurricane Beryl, which impacted our operations in Jamaica, Grenada, St. Vincent, and the Grenadines in early July. Most importantly, we were very grateful that our colleagues were safe through the storm. These territories did, however, suffer some infrastructure damage, and we have had teams working around the clock to get our services back up and running. We are pleased to confirm that, on average, across our impacted markets, over 90% of our fixed and mobile network coverage is online, and this number continues to grow. As ever, in these situations, we are dependent on the power companies reinstating networks, so that we can deliver services, and this is an ongoing process. Chris will discuss in more detail, but our expected operational and financial impacts are manageable, and we expect our parametric program will cover the cash flow impact. C&W Caribbean remains on a great trajectory, and we are working with our communities to recover as soon as possible. Moving to slide 6 and our C&W Panama segment, starting on the left of the slide. We delivered another solid quarter of Internet subscriber additions and robust revenue growth. Our go-to-market strategy is now delivering consistent results across our high-speed network, and we expect this to continue through the rest of the year. In mobile, we reported an exceptional quarter, adding a record number of over 50,000 postpaid subscribers as we successfully won a significant number of customers who came into the market following Digicel's exit earlier this year. As well as fixed network investments, we are also investing in mobile with successful 5G trials during the May elections, showing technology leadership in the market. Moving to the center of the slide, we drove 6% top line growth in the first half, with contributions coming from all of our product areas. Overall, we are creating an exciting platform in Panama and are well-positioned to continue the momentum we have built during the first half of the year. Turning to slide 7 and Liberty Puerto Rico. Starting on the left of the slide, we reported a stable quarter of Internet subscriber adds. Fixed revenue was flat year-over-year as growth in our RGU base over the past 12 months was offset by reduced ARPU following retention offers, including for our ACP base, who, as we indicated on the first quarter call, have mostly stayed with us. In mobile, our postpaid subscriber performance was impacted by certain factors. Following completion of the migration from AT&T in April, we experienced some disruption across our platforms, which led to increased churn in Q2. We also saw the final quarterly impact of ECF funding being removed for schools in Puerto Rico. This drove a total of 39,000 subscriber losses in Q2 and 74,000 of losses over the past year. As mentioned on the last quarter's call, ARPU for these customers is less than half our average across the base. We expect our operating performance to improve and saw some greenshoots in our prepaid segment during the second quarter as we added over 2,000 subscribers, which was only our second positive quarter since we acquired the AT&T operation in 2020. In the center of the slide, we show the revenue mix by product in Puerto Rico and a first-half year-over-year decline of 11%. Chris will cover the financial puts and takes in greater detail within his section. I will provide more color on our Puerto Rico story in the next slide, but I want to be very clear that our long-term message remains consistent. We had expected greater sequential adjusted EBITDA expansion in the second quarter. However, some unanticipated factors affected our performance, and this has led to a small shift in our target timeline to achieve certain milestones. The full effect of synergies and cost savings are still expected in the third and fourth quarters, as we had previously indicated. These synergies, operating cost improvements, and top line sequential growth with FMC (NYSE:FMC) should drive adjusted OIBDA to more than $45 million per month in the second half – however, now towards the end of the year – still setting us up for significant expansion in adjusted OIBDA for 2025. Moving to slide 8, we wanted to provide an overview of execution to date, challenges we faced, and our next steps to drive significantly improved results in Puerto Rico, starting with the commercial side of the business. In terms of execution, we have consistently reported solid subscriber additions across operations over many years. Fixed revenue represents 40% of our Puerto Rico total, and so this remains a strong foundation for the business. In mobile, we were able to maintain a stable postpaid base until migration began. This is a market structure where we can stabilize and grow share. The prepaid performance I mentioned on the prior slide is just the beginning. In terms of challenges, during and following the migration, we have seen subscriber losses across our postpaid and prepaid bases, albeit some Q2 improvements in prepaid, which was the first segment to be migrated. We were also impacted by the ECF program sunset, which is now completed. Importantly, we now have a tremendous opportunity to leverage full service products to drive FMC penetration from current levels of around 25%. In mobile, we have a market share around 20%, and there is clearly significant room to grow as we ramp up our commercial efforts. The acquisition of DISH's Boost subscribers and spectrum, which we expect closing in Q3, is an exciting addition and catalyst here. Moving to operational aspects, the key execution point here was completing the migration in April. This is a complex undertaking for any operator, and we experienced challenges, in particular related to mapping and billing, as we tried to convert an extensive number of legacy AT&T plans with associate coding to our new platform. We are now through the worst of the disruption and are stabilizing platforms, so that our commercial colleagues can start driving top line growth. Finally, the financial areas. From an execution perspective, we have successfully managed to sustain and grow our fixed revenue for a number of years. We have also mostly exited the TSA and expect minimal costs in the second half. Challenges have centered around certain migration-related costs, which are now mostly behind us. As mentioned, the unanticipated factor in Q2 was a decision with our customer relationship in mind to write off $12 million of bad debt. Looking forward, we expect to drive top line growth through our commercial initiatives, cost efficiencies from our headcount reduction, and other initiatives and drive synergies. To reiterate, we remain very confident of our longer-term plans and excited by the opportunity to return to growth in Puerto Rico. Turning to slide 9 and Liberty Costa Rica. Starting on the left of the slide, we delivered a solid fixed subscriber performance with net adds similar to the first quarter. We've referenced a challenging competitive backdrop in Costa Rica's fixed market in previous calls, and this was one of the drivers for the transaction with Millicom that we have announced. I'll provide more color in that deal in a later slide, but we think it will be great for all stakeholders, particularly our customers. In mobile, we reported another strong quarter, with growth concentrated in the higher value postpaid segments where net adds were over 60% higher compared to the prior-year quarter. Following successful trials, we were first-to-market with a commercial 5G offering in July, further reinforcing our technology and service leadership in the market. Moving to the center of the slide, we reported healthy rebased revenue growth of 6% in the first half, led by mobile. Next, to slide 10 and our final segment, Liberty Networks. On the left side of the slide, we present revenue for current and prior year first halves. Enterprise continues to be our fastest area of growth, rising by 11% on a rebased basis year-over-year. This performance was driven by connectivity growth and higher value-added services penetration as customers migrate their mission-critical operations on our cloud infrastructure. To help drive this growth, we host events such as our annual data center and cybersecurity summit. These are great forums for our teams to showcase our capabilities to customers, whilst at the same time getting valuable insights into their needs. Despite facing a year-over-year decline in IRU non-cash revenues, our wholesale business continues to demonstrate resilience. Importantly, we are building a strong foundation of monthly recurring revenues, which bodes well for our future prospects. In the center of the slide, we present our revenue split and highlight the strong financial profile of the business. Liberty Networks has an adjusted OIBDA margin of above 50%, and given its relatively low capital intensity and operating free cash flow drops over 40%. Finally, to slide 11 and an update on inorganic moves we are making to drive additional value. Firstly, taking the left of the slide and last week's announced agreement to combine our operations with Tigo in Costa Rica. This transaction will create significant value. In particular, it will improve the fixed market structure, create cost synergies through enhanced scale, bring cross sell opportunities for FMC across the Tigo customer base, create network synergies given significant footprint overlap, and enable FTTH investment synergies and compete with the existing three FTTH networks in the country. Secondly, an update regarding the acquisition of spectrum and subscribers from DISH, which we announced last November. We received HSR clearance and anticipate the transaction receiving FCC clearance in Q3. The purchase consideration will be spread across four annual payments from the date of closing, with $99 million due at completion. Our commitment to Puerto Rico and the US Virgin Islands is reflected in this deal, where we will acquire a combination of over 100 megahertz of spectrum and over 110,000 Boost subscribers. Upon completion, this transaction will provide us with valuable spectrum that will allow us to add more capacity, increase speeds, and further strengthen our 5G mobile network, as well as increase our scale in the prepaid market. With that, I'll pass you over to Chris Noyes, our Chief Financial Officer, who will take you through our financial performance before we move on to your questions. Chris?
Chris Noyes: Thanks, Balan. I'll now take you through our financial results in greater detail, starting with our group revenue and adjusted OIBDA performance on slide 13. Sequentially, reported revenue grew by 2% to $1.1 billion and adjusted OIBDA was 4% higher at $389 million in the second quarter. Revenue progression in the quarter reflects the positive financial results of the operational actions Balan highlighted. OIBDA growth was bolstered by operational leverage with our margin improving by 75 basis points to 34.8%. Year-over-year revenue was 1% lower on a rebased basis, and adjusted OIBDA declined by 12%. Revenue declined slightly as positive momentum in C&W Panama, C&W Caribbean, and Costa Rica was more than offset by declines in Puerto Rico and Liberty Networks. With respect to adjusted OIBDA, C&W Panama was our best performing segment, posting double-digit rebased growth and C&W Caribbean delivered high-single-digit rebased growth. Similar to revenue, the growth in these segments was more than offset by significant declines in Liberty Puerto Rico and Liberty Networks, both of which we'll discuss in subsequent slides. Moving to slide 14 and our P&E additions and adjusted FCF results for Q2. On the left, we incurred P&E additions of $180 million in Q2 or 16% of revenue. This compares to $192 million or 17% of revenue last year Q2. During Q2, we built and/or upgraded nearly 100,000 homes and launched initial 5G service in Costa Rica and Cayman. On the right, we posted adjusted FCF before partner distributions of negative $7 million, partner distributions in Bahamas of $11 million, which brought our adjusted FCF to negative $18 million for Q2. This result compares to adjusted FCF of $31 million for Q2 2023. The primary driver of the year-over-year change was principally related to our lower adjusted OIBDA. Slide 15 recaps our segment results. Starting with C&W Caribbean, we reported $368 million of revenue in Q2, reflecting 4% rebased growth. Specifically, we achieved another quarter of growth in all three business categories, posting 2% in fixed, 5% in mobile, and 5% in B2B on a rebased basis. The main drivers of higher residential fixed and mobile revenue were higher ARPUs, driven by price increases across a number of markets and year-over-year subscriber growth in broadband and postpaid. The positive B2B performance was driven by project-related revenue, particularly in the Bahamas. We posted adjusted OIBDA of $157 million, representing 8% rebased growth, fueled by the aforementioned revenue growth and discipline on direct and indirect costs. As a result of our operating leverage, our adjusted OIBDA margin improved by over 150 basis points year-over-year to 43%. As Balan mentioned, Hurricane Beryl impacted our Jamaica, Grenada, and St. Vincent operations in early July. Damaged or destroyed network, residences, and businesses, and loss of power has impacted certain of our customers in these markets. We currently expect to be impacted in revenue and adjusted OIBDA by $10 million to $20 million in H2 and will incur an additional $10 million to $20 million of P&E additions to repair, replace, and/or strengthen our infrastructure. Good progress is being made on our recovery efforts. Next, moving to Cable & Wireless Panama. CWP generated $197 million of revenue, reflecting 9% rebased revenue growth. As in the Caribbean, we recorded rebased top line growth across all business lines, with 4% in fixed, 4% in mobile, and 17% in B2B. Growth was mainly fueled by increased sales activity in broadband, increases in prepaid recharge activity, and B2B project loans. We posted $65 million of adjusted OIBDA on Q2, representing 10% rebased year-on-year growth, with performance driven by revenue growth. Turning to Liberty Networks, we generated $119 million in revenue and $63 million in adjusted OIBDA, resulting in rebased declines of 1% and 13%, respectively. Wholesale revenue declined due to a roughly $6 million decrease in non-cash IRU amortization and accelerations year-over-year, which was partially offset by double-digit growth in enterprise driven by growth in connectivity and IT as a service, mostly in Colombia, Dominican Republic, and Honduras. Our year-over-year decline in adjusted OIBDA was due to the aforementioned lower IRU revenue and a bad debt adjustment for two large customers of roughly $5 million. Second from the right, Liberty Puerto Rico, Q2 revenue was $309 million, reflecting a 12% rebased decline year-over-year. Residential fixed revenue was down 1% on the back of broadband volume gains in the past 12 months, which were more than offset by lower ARPU, primarily due to retention discounts in part related to ACP retention activities. Mobile, however, declined by 21% on a rebased basis, driven by mobile subscriber losses in connection to the migration and by a $9 million reduction in equipment sales due in part to the migration impacting commercial activities. B2B revenue declined 6% on a rebased basis driven by the ECF sunset, which led to a reduction of 39,000 subscribers in the quarter and 74,000 in the last 12 months. Adjusted OIBDA decreased substantially year-over-year as we reported $71 million, which reflected a rebased decline of 48% as compared to Q2 2023. The negative year-on-year performance was impacted by lower revenues discussed above and higher OpEx related to the migration integration activities and impacts, partly offset by lower direct costs, including TSA and roaming. On a sequential basis, adjusted OIBDA improved by 3% as revenue declines or more than offset by lower direct and indirect costs. I'll discuss Puerto Rico's Q2 results more in the next slide. Concluding with Costa Rica on the far right, we delivered Q2 revenue of $147 million and adjusted OIBDA of $53 million, reflecting 4% rebased revenue growth and rebased adjusted OIBDA growth of 1%. All three business lines contributed to the positive top line performance with the main driver of organic growth being mobile revenue, which was 8% higher year-over-year on a rebased basis. Sequentially, our growth was impacted by fixed ARPU pressure and lower mobile equipment sales. Adjusted OIBDA only expanded modestly year-over-year as a result of incremental costs related to our strong commercial activity, including the net impact of equipment sales. Moving to slide 16, I will present a detailed review of our financial performance in Puerto Rico. Revenue for Q2 was $309 million, representing a sequential decline of $18 million from the $327 million reported in Q1. The decline is due to residential mobile subscriber losses and the loss of ECF subs previously mentioned. In H2, we expect to stabilize the mobile subscriber base as we move past the operational issues on our new platforms and then start to gain momentum through the launch of new offers. Our direct costs and OpEx for Q2 of $238 million continues to be impacted by a number of migration-related items that we expect will largely drop off during H2. Q2 includes incremental bad debt of $12 million, driven by billing and collection issues on our new systems, as well as the decision to not pursue collections on historic billings for certain customers that experience migration issues. We expect bad debt to return to a more normalized level by the end of the year. We incurred approximately $9 million of TSA costs in Q2, which will drop off significantly in Q3 and will be negligible by the end of the year. And we incurred $3 million of integration OpEx in Q2, as well as inventory impacts associated with the migration of $4 million during the quarter. These costs should largely drop off by year-end. Finally, we expect to generate significant additional OpEx savings in H2 from the initiatives that started in Q2, and that will continue for the rest of the year. With all of this in mind, we are still targeting to reach $45 million of monthly adjusted OIBDA at some point in the back half of H2. Turning to slide 17. At the end of Q2, on a consolidated basis, we had $8.1 billion of total debt, $600 million of cash, and $800 million of availability under our revolving credit lines. We had gross leverage of 5.3 times and net leverage of 4.9 times, a modest increase from Q1. Leverage levels should trend down towards year-end as adjusted OIBDA expands. Q2 was an active quarter in terms of equity-related activities. We repurchased $22 million of stock, increasing our year-to-date total to $83 million. In addition to open market buybacks, we also entered into a derivative cap call arrangement. The highlight of this arrangement is that it provides us with a leveraged strategy to repurchase upwards of 6 million shares or 3% of LLA in H2 2025 at attractive prices. Subsequent to quarter-end, we purchased and canceled the remaining $140 million of outstanding convertible notes due July 2024. As a result, substantially all of our debt is due in 2027 and beyond. Managing risk is a critical component of our treasury function. We utilize weather derivatives triggered off of Cat 3 to Cat 5 wind speeds to provide us with recovery to the extent that we experience significant nat cat hurricane events. Payouts are defined in advance based on established values and wind speed as well as the hurricane path. With respect to Hurricane Beryl, our parametric weather derivative program was triggered twice. And as a result, we expect to receive $44 million of net proceeds into LLA during Q3. We still have a sizable protection for C&W and Puerto Rico for the remaining storm season. To wrap up our prepared comments, we are making progress operationally as seen today, but we still have work to do in Puerto Rico in order to return to BAU. LLA did grow revenue adjusted OIBDA sequentially to Q1, but in Puerto Rico, we're probably three months behind of where we thought we would be at this time as delays and challenges in our operational systems hindered us. We have made good progress of late and are on track to see enhanced financial improvement in H2, especially Q4. Outside of Puerto Rico, our businesses in Panama, Costa Rica, and Caribbean have performed very well both operationally and financially. A call out to our Panamanian operation as the team capitalized on the exit by the third player, dramatically expanding its mobile subscriber base during the second quarter. We knew that 2024 was a tale of two halves, and then H2 would be the lion's share of our financial performance. That remains true to this day. We are focused on returning Puerto Rico to growth, driving fixed and mobile volumes across LLA, doubling down on cost takeouts across the group and recovering from Hurricane Beryl. Within the Caribbean, Hurricane Beryl will impact our Q3 results, but it's temporary. In the last month, we've been quick to recover. We anticipate the cash impact will be covered by the payout under our parametric program, and we are optimistic that we'll come out stronger than the affected markets in terms of network quality and ultimately market share. In terms of capital allocation and M&A, we have been busy this year, significant equity repurchases equating to 12 million shares or about 6% of LLA at what we think are really attractive levels and also entered into a derivative transaction for another 6 million shares. In July, we also repaid the remaining amount due under our convertible bond. With respect to M&A, we announced the acquisition of Tigo's fixed business in Costa Rica in July, and we are on the home stretch of closing on the DISH Boost and spectrum transaction for Puerto Rico. Both of these transactions should improve our ability to serve our customers and drive incremental growth and value. With that, operator, please open it up for questions.
Operator: [Operator Instructions]. Our first question today is from the line of Vitor Tomita of Goldman Sachs (NYSE:GS).
Vitor Tomita: We have two from our side. Both of them would be on Puerto Rico. The first one is if you could give us some more color on the retention discounts that you applied to ACP subscribers. Mainly, if those discounts affected revenues only starting in June, if they were applied to the entire ACP base or to a smaller percentage of it and if you see risk of potential churn or bad debt issues going into Q3, particularly on non-discounted subscribers, if there are any? The second question from our side would be also on Puerto Rico. If you could go into a bit more detail on the drivers for the further EBITDA improvement in Puerto Rico that you expect in the second half of the year. Basically, how much of that improvement will depend on cost cuts versus expected revenue improvement in there?
Balan Nair: I'll ask Eduardo to also jump in here. On the ACP, we have roughly about 85,000 subscribers in fixed and about 3,000 mobile, so very little exposure in mobile. On the fixed, we've been able to retain the bulk of it, more than 90-some percent. I think the effective discount – and Eduardo, you can jump in here – I think was about $14 was the effective discount that we provided. Let me put it a different way. The subsidy was about $30, and our effective subsidy was about $14. So you're close to $14, $15 on the effective discount, but we've been able to retain the bulk of our customers on ACP. Now, there's another group of customers, and this particularly hits mobile, and it's another program called ECF, where we actually have kind of like a little dongle for our customers. It's a very low ARPU on that, and that was what really impacted our operating numbers with that disconnect on the ECF side, and you see that manifest itself in the postpaid numbers. On the EBITDA side, we're actually quite bullish on our outlook when we guided to the $45 million towards the end of the year on a monthly basis for EBITDA. There's a number of drivers around that, specifically, of course, the TSA dropouts. We have a whole bunch of one-off costs that don't recur again, and then it's a couple of additional drivers of recovery here. One of it is cost takeout. And as we probably – I don't know if you recall, we said we were taking out about 300 headcounts in Puerto Rico, which we've effectively completed. And in addition to that, there's a number of line items that we've been looking at, both on the cost of goods sold and the actual OpEx line that we are very well on our way to take those costs out. So those would add into our monthly OIBDA. And then finally, we will be launching our new campaigns, and after the campaign launch, it's going to drive additional gross adds. It will have a slight impact on our OpEx because of customer acquisition, but it will drive revenue and bottom line as well into the fourth quarter, which is kind of why we've kind of pushed $45 million towards the end of the year because there is some slight additional cost in customer acquisition as well. But that's how the ladder builds back into the $45 million. Eduardo, you want to give a little bit more color on the ACP and maybe if you want to share thoughts on OIBDA?
Eduardo Diaz Corona: We believe that the results on ACP at the end of the program were quite successful. We were able to retain over 92% of the base. And when we think about the impact overall of that base, the ARPU reduction overall is only about 4%. There are some discounts that we did mostly on retention, as Balan mentioned, on some customers that were probably in more, let me call it, dire circumstances to continue with the service. But in general, the impact on the ARPU is also coming from customers downgrading their plans, given the fact that the subsidy finished. And so, you have both combinations, if you will, some retention offers with discounts and customers downgrading their services to be able to meet their budget needs. But, overall, I would say, very successful. And in the case of mobile, a very small number, and we were able to retain most of those customers as well. So that would be on ACP. In terms of EBITDA improvements, certainly, we're looking to extract all the opportunities that the integration of both our mobile operations and fixed operations can give us to become really a convergent company. And the teams are working extremely hard. I think that, in terms of sales, the last couple of months have shown very, very good traction. Not necessarily where we wanted to go, but I think that we're starting to see the improvements now that we control our systems and, therefore, are able to build our offers and certainly leverage our base, both on the fixed and mobile sides to create cross-selling options. I hope that gives you a better color.
Operator: Our next question today is from the line of Michael Rollins (NYSE:ROL) of Citigroup.
Michael Rollins: Just following up on Puerto Rico, so if you take the expectation to get to a monthly run rate of $45 million, does that put the 2025 EBITDA contribution for Puerto Rico at roughly $540 million? And if not, what would be the variances?
Chris Noyes: Well, I wouldn't straight line the number. Here's how I'd look at it. And the big part of our business is always about opening balances. And it's opening balances at the monthly level, at the quarterly level. And certainly, if we build our 2025 budget, it would be the opening balance in December going into January. Our goal is to get to the $45 million by the end of this year in the last couple of months. And then, we'll have going into 2025, an opening balance of both subscribers and fixed and postpaid, as well as with our B2B trajectory. I expect that to not be $45 million every month for the year 2025. So you'll start seeing growth coming in. And as the year progresses, since we add net adds, the first quarter net adds will certainly drive the second, third, and fourth quarter. And then the second quarter net adds, third and fourth. So I suspect by the end of 2025, just shoot me if you're still at $45 million. It's going to be a better number. And then you can just figure out how you want to model EBITDA for 2025.
Michael Rollins: And as you look at the broader portfolio, does 2025 mark the year where you would expect rebased revenue growth for the entirety of the portfolio to be positive for the year? Or are there still just significant variability between markets and products where it's just harder to assess when you get to that sustainable rebased revenue growth level? Thanks.
Balan Nair: There will be revenue growth positive in 2025. That's a given. And let me explain why I feel so confident of it. We have essentially five segments here. Our Cable & Wireless Caribbean business, we've spent a lot of years rebuilding that platform, building not only a great team supporting that platform, but also an infrastructure and a product base. So for the most part, we've eliminated most of – all our twisted pair copper. By 2025, actually, by the first, second quarter, 2025, there'll be no more copper, but we're no longer relying on that. So you don't have any headwinds there on copper. It's a wobbly market. And we continue to grow both on fixed, postpaid mobile as well. And we think, for sure, between all of the competitors in that market, whoever we are facing, I think for sure that's going to be the drivers for price increases in our products next year. So you've got a great network, great products, and very high probabilities of price increases. Then you move to our Panama business. We've also rebuilt that business quite a bit. And you see the tremendous growth this year. And with our management team and our new management team in Panama, very focused not only in the top line growth, but the efficiency of the business, you'll see top line growth and expansion in the OSCF margin in that business. And that's clear as day. We are investing in the network, almost all of it now, fiber and very new HFC, we are 5G in that network. It's one of our best mobile networks as well. And clearly, we will be back in the front driver seat. We are already the leader in mobile. And we're doing a very good job as an attacker on the fixed side. And our general manager there together with the team has been really focused not only on the top line, but as well on the operations and the platform. Then you look at Costa Rica. With our current – the deal that we just announced, we're going to bring market consolidation. But even pre-market consolidation, we are investing, also have invested in our mobile networks and our fixed networks. We are building fiber rapidly there. And our HFC network there is very strong. So you'll see us doing really well. We are already today doing well in mobile and fixed. And our general manager there and the leadership team are also focused on the platform. Then you look at our Liberty Networks, our subsea business. Our subsea business has been going through a number of changes. And our general manager there together with the new leadership team has been very focused on getting us more from an NRR and non-recurring revenue model to an MRR, a monthly recurring revenue model. So you're seeing the subscription model grow. And what you see in your numbers as we report in the second quarter, it's just some of the washing out of some of the old IRUs where we've collected the cash. It's just an accounting treatment on both revenue and OCF. It always gets reversed back at the working capital level. So we have been cleaning that up and you'll see the year-over-year starting next year to be not dependent on IRUs. And it's mostly going to be driven on monthly recurring revenue, real growth. And as we reported today, the enterprise business, double digit growth, and that's mostly all MRRs. And our subsea networks we announced the last time as well, we're building new routes and we're really excited about that platform. So now I've covered you four platforms that we are really bullish on. And then let's go back to Puerto Rico. Puerto Rico 2024, the first half is all about doing the migrations and cleaning up the after effects of migrations. The third quarter and the fourth quarter – third quarter is all about rebuilding the story, relaunching the brand, getting our new propositions on our new network and our new IT systems. And then you start harvesting the beginnings of it in the fourth quarter. And then in 2025, you're off to the races there. We're going to put up some big numbers in Puerto Rico. Of course, year-over-year, it's going to be big numbers given the challenges this year, but it's also going to be good numbers in 2025. We've got a great management team there, and it's really committed. So in all of our markets, we've invested in the networks, in the systems and in the people. And I think we've got a great platform. And if it weren't for the migration that we were doing this year in Puerto Rico, you can clearly see we'd be putting up double-digit growth this year. This is a great platform. So all we are seeing right now is just a bump in the first half of the year and the third quarter's rebuilding and then fourth quarter's selling. And then you build into that momentum into 2025. Hopefully that was helpful, Michael.
Operator: Our next question today is from the line of Matthew Harrigan of Benchmark Company.
Matthew Harrigan: I was going to go for Puerto Rico 540 question as well. But beyond that, I think a fair amount of level 4 data center activity, I think particularly in pure cell and some hyperscalers seem pretty active, in particular the Caribbean, I think more than Central America. Is there a tailwind there for your network business off that? And then, secondly, very broadly, clearly, you don't have any direct exposure to Venezuela, but is there anything on the political or regulatory side that could be positive, create opportunities across your markets and they are fairly open-ended? Thanks and congratulation on the results.
Balan Nair: I'll now ask Ray Collins to also jump in here in a bit on the data center, Ray. On the data center business, we have a number of data centers. Actually, we do have a data center in Curaçao, which we support for internally and external customers as well. It's a great island. It's an island that's very, very rarely – and I touch wood here – impacted by hurricanes. It's a great location for us to build our data center. And we've been building also micro data centers for specific customers in a number of markets. But I think as we look at the data center business, the three areas that could be real good opportunities for us is Panama, Costa Rica, and Mexico. And Mexico, as you know, we are building fiber going into the Cancun area and Querétaro in Mexico, where the data center business has been growing. So we are building connectivity into that. And then of course, you look at Panama and Costa Rica, they're both countries where the CHIPS Act has flowed money and you can see Intel (NASDAQ:INTC) building plants in Costa Rica. So we are also focused, hyper focused on that. And so on the data center business, it's kind of how we're looking at. But you really have to have the contracts with the large hyperscalers for you to really allocate significant amount of capital in the space. And then on Venezuela, we follow every political change and challenge in our region. And we'll see how that plays out. And we have absolutely no plans right now to go into Venezuela, even though we have a good business into Venezuela with our subsea. We have really good customers there. They pay us in US dollars. And we are very appreciative of that. And we like those businesses. If the world changes in the future, of course, Venezuela would be a great market at some point in the future when their political turmoil changes. The other market, of course, is Argentina as well. Once the political turmoil changes there, it could be a really good market. These are all dislocated markets. And clearly, Ray Collins from our M&A team, Chris Noyes, John Winter, and myself, we look closely at all these markets. And when the time is right, we'll be very opportunistic. But right now, I don't see it. Ray?
Ray Collins: Yes, just to add on the data center business. We also provide data center to data center connectivity in our B2B business and in our networks business. And actually, one of the drivers of the new system, which we announced, is really connecting some of the hyperscale data centers that we see. The build that you see in Querétaro in Mexico, where we're connecting from Veracruz back up to a new connectivity that we'll put into the Appalachia coast of Florida, connecting into Virginia and Georgia, and then down to Colombia. So the new network that we've announced is really all about serving that hyperscale data center traffic. As Balan said, we don't have current plans to build data centers ourselves for hyperscalers, but we see a strong tailwind from enabling and connecting the various deployments that we see in the region.
Operator: And our next question today is from the line of Gabriel Vaz de Lima of Morgan Stanley (NYSE:MS).
Gabriel Vaz de Lima: I just wanted to get a bit more color on the possible regions impacted by the hurricane season this time around. Any kind of color you can provide to us in terms of what kind of impacts we should expect and how this could impact your businesses in Jamaica and the regions that were already impacted?
Balan Nair: Well, the Hurricane Beryl that went through us impacted three of our operations, Grenada, St. Vincent, and Jamaica. And in many cases, the biggest driver of our challenges have been power outages. Primarily, if you look especially in Jamaica, where our customers went offline, not because the network went down, but because of power. We have significant amount of towers in Jamaica, which only like seven towers got damaged. And by the way, we did a deal with – if you recall from the last quarter with PTI, and PTI is responsible for rebuilding those towers. And so, from a mobile tower standpoint, we're good. From a fixed network standpoint, for the most part, our network withstood it. We have some network that we have to rebuild. And we're going to rebuild our backbone. It's about 170 kilometers of our backbone. We're going to underground the whole backbone. And that's built into our budget as well. Now, in one or two smaller islands, Curaçao, Union Islands of St. Vincent and Grenada, it was damaged significantly. And we've gone back in there, rebuilt the mobile. And on the fixed side, we are using an alternative technology with fixed wireless access to get customers back up quickly and as well cost efficiently. So, when you look at this year's hurricane season, we got hit pretty early, but the team is resilient. We've rebuilt what we needed to rebuild. Some of the cost impacts that Chris alluded to was really around some credits that we will be giving back our customers, because they didn't have power and didn't have our network service. And we'll give them some credits back if they didn't have the service. All in all, we feel really good. And by the way, our team did a tremendous job on the insurance. This parametric insurance clearly delivered. And as Chris pointed out, we've closed out with our brokers and the insurance consortium. And we will be paid for the damage. And it should relatively have very little financial impact to us with this hurricane.
Operator: Thank you. And this will conclude today's question-and-answer session. I'd like to hand back to Balan Nair there for any additional or closing remarks.
Balan Nair: Thank you, operator. And thank you, everybody, for joining us this morning. As you can see, our business is moving. And we've got momentum behind us in all of our businesses. And I would say the same in Puerto Rico. And I hope to share with you in the third quarter some more positive data out of Puerto Rico. As Eduardo pointed out and Chris pointed out, we're seeing greenshoots already. Our prepaid business is growing there. And that was the first group of customers we migrated. And already, a lot of the systems, et cetera, have started to get better. And as we look even at our customer sentiment, for all the new customers we've vetted on the, what we call, NPS, Net Promoter Scores, of our customers, it's been extremely positive. It's actually one of the best in our whole company. And then for existing customers, it's in two buckets, the ones that we migrated successfully and cleanly. And that's 80% of our customers, they are feeling good. The 20% of customers that we had challenges in billing, of course, we need to rectify that. And we will. And you'll see some of that results in the third and fourth quarter of this year. I remain very bullish about our business. And I thank you so much for your support.
Operator: Ladies and gentlemen, this concludes Liberty Latin America's second quarter 2024 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 materials.
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