Greetings and welcome to the Liberty Latin America Investor Call for the Third Quarter of 2023 (Operator Instructions). The official presentation materials for today are available at www.lla.com, under the Investors section of Liberty Latin America’s website.
Instructions for a question-and-answer session will be provided after today’s official presentation. Please note that this conversation is being recorded and will be accessible on our website under the Investors section.
The company’s expectations on its outlook, our recently announced pending deals, future growth possibilities, and other information and statements that are not historical fact may all be included in the forward-looking statements made in today’s remarks.
Actual outcomes might be very different from what these assertions suggest or imply. Please see the risk factors included in the most recent Form 10-K annual report and Form 10-Q quarterly report that Liberty Latin America filed with the SEC, as well as the related press release, for further information.
Any amendment to any forward-looking statements or information to reflect a change in Liberty Latin America’s expectations or the circumstances upon which any such statement or information is based is disclaimed.
Furthermore, throughout this conference, we will make reference to a few non-GAAP financial terms that are reconciled to the most comparable GAAP financial measures. These are available in the presentation’s appendices, which are available on our website under the Investors section. Now, I’d like to pass the call along to Mr. Balan Nair, our CEO.
Matt, welcome to the Liberty Latin America Third Quarter Results Presentation. Thank you to all of you. I’ll start with a summary of our operational results broken down by reporting segment and our group highlights. Our CFO, Chris Noyes, will next give an analysis of the business’s financial performance. We will then directly address your questions after that.
My executive team from around the area is with me as usual, and I will extend an invitation to them to participate as required in the Q&A that follows our prepared statements. To keep things tidy, everyone of us will be using slides.
Let’s start with Slide 4, which contains our third quarter highlights. We experienced again another successful quarter of operations, adding 44,000 new Internet and postpaid mobile users. We have added about 225,000 members to these 2 products in the last year, demonstrating the power of our commercial office. Due to activities in Cable & Wireless Caribbean and Panama, we are also continuing to invest in our networks, which have passed over 100,000 houses, all upgraded in the quarter, and 285,000 households year to date.
For the quarter, we recorded adjusted OIBDA of $428 million, which is 10% more than the same period last year. With the exception of Puerto Rico, which we will discuss in a later slide, this is our strongest rebased growth record in the last two years.
It is important to note that structural efficiency gains throughout our operations, not one-offs, are the main cause of this notable rise. Throughout the quarter, we repurchased $112 million worth of shares and convertible notes as part of our ongoing capital allocation for our buyback programme.
We have repurchased $111 million of our shares through the end of Q3, and we have lowered the outstanding balance of our convertible bond, which is due in two years, by 45% to $220 million. Ultimately, we are advancing with our major business integrations. Synergies are already paying off in Panama, as seen by the 25% growth rate in Q3 adjusted OIBDA. Additionally, approximately 225,000 clients in Puerto Rico have switched to our platform. We expect that the procedure will now proceed.
Even yet, it’s still a really fantastic result because we were able to finish a project this size that took several years within a few months of our original goal. Highlighting the two accretive deals we announced this week excites me as well. First, the purchase of customers and spectrum in the U.S. Virgin Islands and Puerto Rico; and second, the sale of mobile tower equipment in several of our regions. I’ll discuss both agreements after I wrap up this part.
Going to Slide No. 5. I’ll start the C&W Caribbean operations evaluation. Despite it being the low season, full-stream performance in the sector, the improvement in tourism that we first observed in the first half of the year persisted in the third quarter. commencing with our subscription advertisements on the left side of the slide,
With 20,000 postpaid advertisements on the Internet and mobile devices, of which more than 50% originated in Jamaica, we produced yet another successful quarter. Our FMC approach keeps these two product lines doing well, increasing volume and lowering churn rates.
Let’s go to the middle of the presentation to see our revenue breakdown by product. The revenue of C&W Caribbean is well-diversified, as seen by the pie chart, where the main components are B2B and consumer fixed, followed by consumer mobile. We have accomplished over 100,000 net additions in the previous 12 months, mostly from internet and mobile postpaid subscriber growth, which drove the 1% year-over-year rebased increase.
If the transit business had continued as we had previously said, this rebased growth rate would have increased by about 300 basis points.
We are now on Slide 6 of our C&W Panama section. beginning at the slide’s left. Over 60,000 RGU net additions across all of our service bundles within the past 12 months have demonstrated fixed momentum. With 93% of our houses connected by FTTH or HFC, we have a robust network. Next year, we want to remove all residual copper from 100% of our homes. We announced our first postpaid loss quarter in mobile in more than three years.
Our revenue stream and moving to the middle of the slide combined fueled 10% growth for the quarter. Our biggest products in Panama in terms of revenue are B2B and mobile. Fix is one of the fastest growing product areas, although being the smallest. The first half of the year’s positive trends persisted, with fixed and B2B seeing robust revenue increases of 7% and 26%, respectively, over the previous half.
Our strong commercial strategy, which aimed to increase penetration in our expanding fiber-to-the-home network and across triple play options, contributed to the growth in fixed revenue. Prepaid and postpaid churn were both lower in the mobile space.
to our integration update located on the slide’s lower right corner. The integration of Claro Panama’s operations has advanced significantly. We’ve consolidated nearly all of our networks, including 99% of the overlapping sites. This is on top of the business development, which includes optimising personnel, sales channels, sponsorships, and advertising. Despite the fact that integration expenditures peaked in the quarter, these initiatives have produced considerable efficiencies that support our financial growth.
After Liberty Puerto Rico and Slide 7. We produced again another exceptionally strong quarter in net additions, starting on the left side of the graphic. Our network’s ongoing improvements and our business endeavours have helped us add 6% more subscribers in the last 12 months.
switching to a phone. We were able to keep our postpaid base comparatively steady, with 7,000 net losses over 900,000 members. We expect to be able to increase market share from our current #2 position when the migration efforts are finished. Our recently disclosed acquisition of Spectrum will help us even more with our expansion goals.
Now let’s move on to the highlights of the section and the centre of the slide. The quarter saw an 11% increase in fixed revenue year over year, led by improvements in all fixed services. Following the reduction of subsidy levels in the first half of the year, we maintained our subsidy optimisation approach in the mobile space, focusing investments on high-value customers in conjunction with the launch of the new iPhone 15. Our sales volume exceeded that of the competitors by almost 50%.
As we expand the platform, we keep an eye on and administer these technologies. However, the TSA, third-party contractors, and the double cost of software licences will affect our expenses. We have also increased our investments in equipment repair, recruiting more people to manage migrations, and staffing our call centres with more workers. These choices result in one-time expenditures to guarantee the greatest client experience and to reduce migration-related attrition. It is currently anticipated that integration will be completed by April 2024. We do not consider this to be a substantial change in the context of such a significant and expansive undertaking, as I previously stated.
beginning at the slide’s left. In Q3, we saw a resumption to growth in Internet subscribers, indicating positive stabilisation in our most competitive fixed market. We had our best quarter of the year in mobile. With 275,000 more postpaid customers, net additions increased. With our constant growth, FMC has surpassed 20% penetration in our fixed base.
advancing to the slide’s centre. Consumer mobile continues to be our most profitable product, accounting for over 60% of sales. After that comes our customer fixed business, which makes up little more than 30%, and a tiny but rapidly expanding B2B business.
Our integration efforts are now almost finished, and early in the upcoming year, we plan to move a few smaller TSA-supported tasks.
Now let’s move on to Slide 9 and the Liberty Networks section. traversing the revenue performance graph in the centre of the slide. 70% of the segment’s revenue comes from wholesale, which had 8% rebased growth in Q3 thanks to increased affiliate capacity utilisation and a sizable client we recognise on a cash basis. The wholesale businesses typically support strong cash flow conversion with consistent low single-digit top line growth, largely in USD-denominated revenue, and fewer capital expenditure requirements.
As seen on the left of the slide, our distinctive multi-ring architecture adds dependability and, more significantly, continues to set us apart from competing networks in the area. The remaining 30% of sales, or enterprise, had a 14% growth in revenue due to increased demand for our IT as a service and connectivity products. For the group, this is a high-growth sector with tremendous prospects throughout our regions, especially in Latin America, where there is low service penetration overall and we have a low market share.
Now let’s move to the right of the slide and go over some of the segment’s highlights. We just won the Global Carrier Awards’ best marketing team category after successfully branding Liberty Networks in Q2.
We also keep implementing cutting-edge fixes to enhance our network’s redundancy and resilience. As an illustration, we successfully implemented Google Moonshot technology Taara.
And now for Slide 10, which is a rundown of the deals we have been announcing over the last few weeks. First, Spectrum and its customers were purchased from DISH. This agreement to purchase around 120,000 Boost customers and 100 megahertz of Spectrum further demonstrates our dedication to Puerto Rico and the U.S. Virgin Islands.
We will get important spectrum from this sale, which will enable us to expand the capacity, speed up, and fortify our industry-leading 5G mobile network in addition to growing our market share in the prepaid sector. It is noteworthy that the purchase consideration will be distributed into four yearly installments starting on the closing date, which is anticipated to occur in the upcoming year. We anticipate that local sources will provide the money for these payments.
Second, we are happy to report that we have reached a deal with Phoenix Towers, a top-tier partner, which crystallises the value of about 1,300 of our infrastructure assets related to mobile towers at a highly desirable cash flow multiple. Upon closing, we will sign long-term leasing agreements with PTI that will allow us to carry on providing our clients with industry-leading mobile services and facilitate network growth, including upcoming 5G rollout plans throughout the Caribbean and Latin America. We plan to repurchase shares and pay down third-party debt with the profits of the deal.
As the year draws to a close, several of our companies are generating strong top lines and adjusted OIBDA growth, so all in all, we feel extremely optimistic. Our continued focus is on completing the integrations in Puerto Rico and Panama, which will accelerate our progress and boost cash flow in the upcoming years. Based on the deals I just discussed, the management team believes there are many opportunities for the firm to develop in the future.
After that, I’ll turn the conversation over to our Chief Financial Officer, Chris Noyes, who will go over our financial performance with you before answering any questions you may have. Chris, hello?
Now, beginning on Slide 12, I’ll walk you through our financial results in more depth. Recall that we separated our operations in Chile at the beginning of Q4 2022. Therefore, the operational results of VTR are not included in our stated results for 2023.
On a rebased basis, revenue increased by 1% to $1.1 billion in the third quarter. Many of our markets saw strong commercial traction, with double-digit growth in C&W Panama and Liberty Networks driving performance. A business decision to end our longstanding noncore B2B voice transit contract, which was generating around $10 million in quarterly revenue, had an impact on C&W Caribbean’s reported revenue in Q1 2023, as previously announced. This decision will have a similar effect in Q4.
Our highest quarterly result in the last two years, rebased increase of 10% to $428 million, was announced. This growth was driven by structural efficiency gains. With additional growth expected in Q4, the group’s rebased growth to far has been 5%. With this, we are well-positioned to meet our aim of mid- to high single-digit rebased adjusted OIBDA growth for LLA this year.
Our P&E increases in Q3 totaled $187 million, or 17% of sales, as seen in the third column. Our quarterly expenditure on CPE, new builds, upgrades, and capacity accounted for about 60% of the total. We reached over 100,000 residences in the quarter by gradually increasing our new construction and upgrade operations.
We are on course to meet our 2023 revenue forecast objective of 16%. Our quarterly adjusted free cash flow (FCF) was $33 million, as shown in the previous chart. Our adjusted free cash flow production for the year, as in prior years, is expected to be significantly weighted towards Q4, which reflects our seasonally strong financial performance and advantageous working capital swings. Our objective for adjusted free cash flow (FCF) is still set at $300 million, excluding the distribution to noncontrolling interests.
Recent events have brought further unpredictability to the aim this year, such as the delayed migration of Puerto Rico and the reliance on sizable payments from B2G and B2B clients, especially in Panama, which may extend into next year.
Slide 13 displays the results of our segment, starting with C&W Caribbean on the left. In the third quarter, we recorded $361 million in sales, which is 1% rebased increase plus $150 million in adjusted OIBDA, for a 14% rebased growth year over year. Rebasing revenues to account for the transit impact from the previous year period would have resulted in a 4% increase. Our postpaid initiatives, prepaid ARPU after price hikes earlier in the year, and increased inbound roaming were the main drivers of our growth in residential mobile.
Reduced direct expenses, such as those associated with programming, and increased operational leverage throughout several of our islands propelled our robust adjusted OIBDA rebased growth. With a margin of almost 42% at the end of the quarter, we were over 400 basis points ahead of the same period last year.
Transferring to Panama Cable & Wireless. In Q3, CWP generated $190 million in sales and $59 million in adjusted OIBDA, which reflects growth in both revenue and adjusted OIBDA that is 10% and 25% rebased, respectively. Contract wins in our B2B sector and an increase in residential fixed subscribers over the previous year drove rebased top line growth. As a result of the Claro Panama integration, adjusted OIBDA increased significantly in the third quarter.
Liberty Networks, in the centre column. We produced $64 million in adjusted OIBDA, representing an 11% rebased increase, and $113 million in sales, representing 10% rebased growth. Rebased sales increase year over year was accompanied by strong results in our enterprise and wholesale divisions, as Balan pointed out. Our revenue results were the main driver of adjusted OIBDA increase. Our operational free cash flow margin was a very healthy 45% of revenue for the quarter, and our adjusted OIBDA margin was little less than 60%.
Liberty is the second from the right. Puerto Rico. Adjusted OIBDA of $116 million showed a rebased reduction of 11% as compared to Q3 2022, while sales of $351 million showed a 4% year-over-year decline. On the next slide, I’ll go into more depth about this.
Finally, we have Costa Rica on the far right. We achieved $135 million in sales and $50 million in adjusted OIBDA for the third quarter, which reflects a 21% rise in rebased adjusted OIBDA and flat rebased revenue. The decreases in fixed home revenue from lower video RGUs and ARPU owing to increasing retention discounts and lower ARPU plans outweigh subscriber-driven growth in mobile, resulting in flat revenue year over year.
the Costa Rican colon has strengthened against the US dollar throughout the course of the past year since some of our expenses are in US dollars.
I’ll now turn to Slide 14 for a thorough analysis of our Puerto Rico financial results. Revenue is shown first in the upper part of the slide. Sequentially, revenue increased due largely to B2B and mobile fixed growth, offsetting a decrease in FCC funding that went into effect in June of this year. We revealed a $15 million, or 4%, drop in sales from the previous year. Following rate hikes and the adverse effect of credits given to consumers in relation to Hurricane Fiona in the previous year, the residential fixed market continued to develop strongly.
The 23,000 net new broadband subscribers added during the previous 12 months also contributed to the growth. The year-over-year decline in residential mobile was primarily caused by lower ARPU, which included the effect of higher contract asset amortisation, and lower roaming income as a result of an alteration to our contract with AT&T this year. The decrease in FCC funding in June had an effect on other revenue, even though the previous year had benefited from higher revenue recognition in USVI.
Moving to the lower half of the slide, higher direct and operational costs were the reason for a sequential decline in adjusted OIBDA. This includes increased equipment expenses associated with the release of the iPhone 15, which had great sales, as noted by Balan, and complimentary phones that we provided to consumers as part of their migration. A one-time credit relating to the CARES Act in Q2 also contributed to a rise in labour expenses.
The primary causes of the year-over-year decrease in adjusted OIBDA are lower revenue and higher OpEx, which also includes the effect of higher professional services and IT-related expenses associated with the migration. Due to cost duplication in our operations, we expect expenses to continue running higher than usual in the upcoming quarters.
We had $8 billion in total debt on a consolidated basis, $600 million in cash, and $900 million available on our revolving credit lines. It’s important to remember that over 95% of our debt has fixed interest rates, and 96% of it is due by 2027 or later. Our balance sheet’s lengthy term and fixed interest characteristics, along with its substantial liquidity, provide the organisation a strong capital structure.
We have done an excellent job of lowering leverage levels so far this year, and as of the end of Q3, we had 4.3x net leverage. We have repurchased approximately $182 million of our conversion and $111 million of our stock year-to-date, including a total of $112 million in Q3, as shown in the bottom right corner of the presentation. Crucially, we have retired around 45% of our conversion this year, and we will have plenty of cash to handle redemption next year with $220 million still owed by July.
Our steady increase in B2B sales and subscriber base contributed to the quarter’s top line rebased growth. A robust quarter of growth was fueled by operational leverage and synergy realisation, which resulted in a double-digit increase in adjusted OIBDA. Our main focus remains on integration and execution. Although there has been some shift in the timeline, these projects are intrinsically quite complicated, and we are generally confident in their execution and the advantages we will receive when they are finished.
We kept making investments in our top networks throughout the quarter, and we also bought back our stock in covetable notes at competitive rates. We have been active inorganically, as the commentary today points out, and this is still one of our main value-generating levers. We anticipate having a successful fourth quarter and will provide everyone with an update in February. Now, operator, could you kindly invite questions?
As you can plainly see, I’m quite pleased with this quarter’s profit performance. Furthermore, I believe that this increase is absolutely positive. The fourth quarter appears to be going really nicely, in my opinion. Then, as the following year approaches, we will enter the market with a foundation of revenue and OIBDA that, in my opinion, we can also expand upon. The company is doing well.
It’s only a phase, but I’m sure there will be a lot of worries over Puerto Rico. On to the migrations, shall we? The network is now operational. It’s operating rather smoothly. The stack of IT has risen. We must complete the migration. In a year, we will have recovered the costs and no one will recall the migration or anything else. And at its core, this is a very solid, excellent company. The fixed network is expanding quite rapidly. The prepaid industry will expand. Postpaid company, I believe our strategies are excellent. The Spectrum purchase we recently completed. We recently acquired a prepaid company, which I believe will help Puerto Rico. Thus, with that in mind, our C&W business is running.