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 Oskar Nooij, MD, Capital Allocation and Business Control. .

Good morning, and welcome to Liberty Latin America's Second Quarter 2019 Investor Call. [Operator Instructions] Today's formal presentation materials can be found under the Investor Relations section of Liberty Latin America's website at www.lla.com. [Operator Instructions] As a reminder, this call is being recorded..

Today's remarks may include forward-looking statements, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical fact. Actual results may differ materially from those expressed or implied by these statements.

Additional information or factors or risks that could cause results to differ is available in Liberty Latin America's most recently filed Form 10-K and Form 10-Q. Liberty Latin America disclaims any obligation to update any of these statements to reflect any change in its expectations or any conditions on which any such statement is based.

In addition, on this call, we will refer to certain non-GAAP financial measures, which are reconciled to the most comparable GAAP financial measures, which can be found in the appendices to this presentation and on our Investor Relations website. .

I would now like to turn the call over to Liberty Latin America's CEO, Mr. Balan Nair. .

Thank you, Oskar, and welcome, everybody, to our Q2 results presentation. As always, I'm joined by my senior leadership team from across the region, and I'll get them involved as needed during the Q&A..

The structure of this call will be familiar to you. I am going to start by taking you through our highlights for the second quarter, providing some greater detail on progress we are making in each of our product areas before wrapping up with a strategic update for the group.

Chris Noyes, our Chief Financial Officer, will then follow up with some prepared remarks, reviewing our financial performance and touching upon our 2019 financial guidance. After that, we will get straight to your questions. As a point of housekeeping, we will both be working from slides, which you can find on our website at www.lla.com..

Beginning on Slide 4 with our key highlights for the second quarter. Building on the good start we made to the year, we continue to drive solid operational momentum in the second quarter, adding over 110,000 fixed and mobile subscribers. In fact, in fixed, our 67,000 additions represented our best Q2 performance for over a decade.

And in mobile, Cable & Wireless continued its up -- improving trend, contributing to our 44,000 net adds. We also delivered robust financial results as we saw year-over-year rebased revenue and OCF growth of 3% and 8%, respectively..

Thirdly, we continue to drive innovation by providing leading broadband speeds as well as enhancing our video platforms. We have an exciting pipeline of product launches for our customers coming up in the future as well. And we continue to upgrade and expand our fixed networks, having added 330,000 homes last year.

We passed or upgraded 160,000 homes in the second quarter, taking our year-to-date activity to roughly 240,000 homes. As I've mentioned previously, these investments deliver great returns for us and should drive top line growth as we progress through the year. Finally, we have previously talked about our focus on cash flow.

And following our good first half of the year, I am pleased to confirm that we are raising our 2019 guidance for adjusted free cash flow by 20% or $25 million to approximately $150 million..

In the next few slides, I'll provide an update on our fixed, mobile and B2B businesses. Turning to Slide 5 and our fixed business, starting on the left with RGU additions. We saw an improved first half performance, adding 140,000 net adds, which was 45,000 more than in the first half of 2018 and included additions for each of our reporting segments.

From a product perspective, broadband was once again the largest driver of growth as we added 95,000 RGUs in the first half. This success continues to be driven by leading networks and speeds..

In Chile, where we added 31,000 broadband RGUs in the first half, we were recently recognized as having the fastest broadband speeds in South America by a study including operators from Argentina, Brazil, Colombia, among others.

Our video and voice subscribers grew as we were successful in bundling our products, particularly in the cable and wireless markets of Panama, Jamaica and Trinidad. And Puerto Rico continues to perform well with second quarter additions at 5,000, reflecting a more stable rate of growth following our excellent recovery from the hurricanes in 2017..

On the right-hand side of the slide, we highlight the increasing rate at which we are upgrading and expanding our fixed footprint, a key driver of growth for us. In the first half of 2019, we added or upgraded 80,000 more homes than in the same period last year.

This has resulted in a total of 240,000 additional homes passed or upgraded in the first half, and we are on track with our previously provided outlook of at least 400,000 homes for the year.

Penetration rates in our markets remain relatively low, and expanding the reach of our leading networks strengthens our competitive position to provide customers with increased value and drive more market share.

And finally, we see high demand for fixed connectivity across the region, which creates an opportunity for us to continue to grow our footprint beyond 2019, which underpins our growth prospects..

Moving to mobile. On Slide 6, you can see our improving trend as we continue to offer leading speeds and expanding LTE, starting with subscriber performance on the left.

In the second quarter, the group added 44,000 net adds driven by an impressive 76,000 mobile subscribers in Jamaica following our Paint Jamaica Blue campaign, which we launched in early April. We also see an opportunity for us to expand ARPU in Jamaica in the second half and into 2020 as we continue to increase our value proposition..

In Panama, we saw a more challenging second quarter in our net adds with increased competitive intensity. However, the net add churn that we saw was in the low-end base, while we focused on more profitable mid- and higher segment customers. As a result, for the first time in a long time, we saw a sequential mobile revenue increase in Panama.

We have been very focused in the Bahamas. And although we saw net losses again in the second quarter, we are confident that we have the right plan, management team and priorities that we expect will lead to improved performance as we move to 2020.

Importantly, we achieved a significant milestone in the second quarter with sequential mobile revenue stability in Cable & Wireless and are looking to build on this platform in coming quarters as we sharpen our focus towards customers with higher ARPUs and more profitable economics..

driving LTE penetration in our customer base. As shown in the chart, our LTE base has grown by over 40% over the last 12 months and stands at 42% of all residential customers at the end of the second quarter. This has been helped by our strong mobile networks where we are speed leaders in key markets.

We are also focused on expanding our LTE coverage and are now at a little over 75% on a population basis across our markets. Increasing the penetration of high-speed mobile connectivity is important to improve the quality and breadth of services our customers can enjoy and in turn should drive increased data consumption and ARPUs..

Turning to Slide 7 and our B2B operations. Starting on the left, our B2B revenue is up 5% on a rebased basis in the first half to nearly $600 million, 1/3 of LLA's total revenue. This growth represents increasing data demand partly offset by legacy product headwinds.

As the markets we operate in evolve, we have developed a unified approach and common road map to leverage our products and capabilities effectively across LLA and deliver best-in-class solutions tailored to our customers' needs..

Moving to the center of the slide, you can see the breakdown of our B2B businesses. Cable & Wireless has the largest operation, generating over 90% of the group's B2B revenue. Within this, there are 2 areas to highlight. Firstly, services provided in Cable & Wireless' consumer markets. B2B here is growing steadily.

However, there is typically less of a market share opportunity as we are the incumbent. Here, there are opportunities to grow as we migrate customers to more advanced products and enter new segments..

our subsea business, which underpins our operations while also providing connectivity to other operators in the region. We own a unique asset in the region, which will continue to be driven by increasing bandwidth demand, and there is plenty of opportunity to expand into newer geographies.

And C&W's B2B-only markets, which represent the fastest growth area. These are newer markets for the group, where we are an attacker with relatively low market share and can leverage our product and network capabilities as well as our product development center in Colombia to support our growth..

Puerto Rico and VTR, while smaller contributors to the group overall, have been growing strongly and were up over 30% in the first half of 2019 on a combined rebased basis. Although we have historically targeted small businesses, we believe there is ample opportunity to expand our service offering to larger businesses in those markets..

On Slide 8, on the left side, you can see the strategic priorities I shared with you last quarter. These are the 5 strategic priorities we are focused on and will continue to focus on through the rest of the year. On the right, I wanted to wrap up by outlining some of our key focus areas within this for the second half of 2019..

First, we will continue to drive innovation and offer leading propositions in our markets with revitalized office focused on our customers first and foremost. These new products will apply across all of our businesses in fixed, mobile and B2B. Second, we will continue to expand the reach and capabilities of our networks.

For fixed, we have a target of upgrading or adding at least 400,000 homes in 2019, and we'll continue working towards this in the second half of the year. And in mobile, we will further expand our LTE coverage -- population coverage target of 90% by the end of 2019..

We are committed to transforming our business to improve our customer experience, providing moments that matter to our customers. Through a frictionless experience, we are confident that we will drive efficiencies for our business over time. We are making good progress with this priority.

Since June, we have created a single technology and innovation team, which will drive efficiency improvements as well as deliver an exciting road map of new products. And in July, we've welcomed our first employees at our new Panama operations center.

We will be growing our capabilities there in the second half, and Panama will be the heart of our operations and at the center of optimization plans to drive scale, leverage common technologies and balance our shared and local expertise..

Last, we are focused on integrating our recent UTS acquisition as soon as possible and further building on the strong initial contribution to the group. In Curaçao, we have a unique position as a national champion, and we intend to do good things for the market and consumers, for example, our recent mobile data upgrades to UTS and flow customers.

Cabletica, which we acquired last year, is integrated well and is performing strongly..

And with that, I'll now pass you over to Chris Noyes, our Chief Financial Officer, who will take you through our financial performance.

Chris?.

Thank you, Balan. I will begin on Slide 10 with a high-level snapshot of our second quarter financial results. We reported $983 million on revenue and $387 million in OCF, reflecting rebased growth of 3% and 8%, respectively. Our Q2 2019 reported results benefited from the inclusion of Cabletica and UTS.

With respect to OCF, our margin improved to 39.4%, up 110 basis points from Q2 2018 as we drive operating leverage across our business. Our P&E additions totaled $166 million in Q2 or 17% of revenue.

This result reflects much lower capital intensity as compared to $218 million or 24% of revenue in last year's Q2, which included $42 million of hurricane restoration spend. Moving to adjusted free cash flow. We delivered $68 million in Q2, significantly above the prior year period driven primarily by lower cash CapEx..

On Slide 11, I will summarize our Q2 performance for each of our 3 reportable segments. Starting on the left, C&W delivered $607 million of revenue, down less than 1% on a rebased basis, which reflects an improvement over Q1 rebased results.

As in prior quarters, mobile revenue remained challenging year-over-year especially in Panama and the Bahamas, although sequentially from Q1, we saw signs of revenue stabilization, reflecting the positive impact of our commercial offers..

Largely offsetting the mobile decline, we continued to deliver rebased growth in B2B, helped in part by increases in managed services revenue and rebased growth in our fixed residential business driven by the strength of broadband.

Reporting $235 million in OCF, C&W posted 3% rebased growth, which was supported by a net decrease in operating costs as C&W improved its OCF margin to nearly 39%. For the quarter, P&E additions were $82 million or 14% of revenue and included over 95,000 new or upgraded homes..

Moving to our VTR/Cabletica segment. We posted rebased growth of 3% in revenue and 6% in OCF, bringing revenue to $275 million and OCF to $112 million. Top line growth was supported by volume increases across fixed, B2B and mobile, while OCF growth was also helped by decreases in interconnect and mobile access costs.

Our P&E additions were $63 million or 23% of revenue, which is consistent with the prior year and included over 55,000 new homes passed..

And lastly, Liberty Puerto Rico generated significant year-over-year rebased growth with revenue of $104 million and OCF of $52 million and incurred P&E additions of $19 million or 19% of revenue. That business has clearly recovered. And as the inset chart depicts, we are fast approaching pre-hurricane levels..

Moving to Slide 12. We are highlighting the improvement in rebased OCF growth on a sequential basis, with C&W moving from a 2% drag on OCF in Q1 to 3% growth in Q2 and VTR/Cabletica doubling their rebased growth from 3% in Q1 to 6% in Q2 as VTR returned to growth. Additionally, we show the quarterly progression on OCF over the last 6 quarters.

Important to note that we will face difficult comparison in H2 2019 from a rebased growth perspective as Q3 2018 benefited from $11 million in FCC funding and Q4 2018 benefited from $64 million in insurance settlements..

OpEx and OCF less P&E additions, both measured as a percentage of revenue. We have reduced our OpEx to revenue by 110 basis points to 37.3% for H1 2019 as compared to 38.4% for H1 2018 driven by improvements in both Puerto Rico and C&W.

We also improved our OCF less P&E additions metric in the first half to 23.3% of revenue, reflecting a combination of an increase in our OCF margin and significantly lower capital intensity. The takeaway from this slide is that we are tracking to deliver our medium-term targets that we laid out on our 2018 year-end earnings call..

Moving to Slide 14. We have remained active in the capital markets. In the last 4 months, we have issued over $900 million of attractively priced debt at C&W and will fully retire C&W's 2022 legacy notes this month. As a result, C&W's maturity profile will be substantially weighted to 2026 and beyond.

Additionally, in June, we generated roughly $350 million in net proceeds from issuing a 2% convertible bond at LLA and purchasing capped calls to reduce potential dilution..

The hexagons on the left detail relevant items of our debt and liquidity at June 30. Of note, we finished June with a total liquidity position of $2 billion, consisting of over $900 million of cash and nearly $1.1 billion of available undrawn RCFs..

As depicted on the right, we are reconfirming our 2019 OCF of greater than $1.525 billion at the FX rates provided on February 20, 2019, which included CLP at 670 and our 2019 P&E target of approximately 19% of revenue.

As Balan mentioned earlier, we are raising our adjusted free cash flow target in 2019 from approximately $125 million to approximately $150 million, following our strong result in H1..

The following items are important to note with respect to our 2019 guidance. First, while FX volatility may impact our reported OCF, we reaffirm the statement we made on our 2018 year-end earnings call that our 2019 OCF guidance implies low to mid-single digits rebased OCF growth.

Second, our capital intensity was 16% for H1 2019, and we expect much higher spend in H2 as implied by our guidance target. Third, we expect our adjusted free cash flow in H2 will be substantially weighted to Q4 given the timing of our interest payments, which are concentrated in Q3..

Finally, moving to Slide 15, we feel very good about our operational progress to date, and the results are starting to come through. Both C&W and VTR returned to rebased OCF growth in Q2, capitalizing on revitalized customer value propositions and strong commercial selling efforts as each posted solid fixed and mobile subscriber growth.

Our H2 OCF performance will be supported by not only our strong first half subscriber gains but also our continuing focus on improving costs and driving operational leverage. And lastly, we are increasing our 2019 adjusted free cash flow target by 20% and reconfirming our other 2019 guidance targets..

With that, operator, we are ready to take questions. .

[Operator Instructions] Our first question comes from James Ratcliffe from Evercore. .

Two, if I could, one on operations and one on strategy. On the operations side, Puerto Rico's margins are back to almost 50%. And you've indicated in the past that's sort of the leading benchmark there.

How much upside opportunity is there at Chile in Cable & Wireless and how much of the operational benefits you've been putting in place have we seen thus far? And secondly, you mentioned the $1.9 billion in liquidity, and your neighbors in the building just got a very large check.

Can you talk about what the M&A landscape looks like and also your views on potential collaboration with Liberty Global?.

Thank you, James. So the first question on the operations, we are quite focused on our operational efficiencies. But structurally, the different markets are -- they're just different. In the Cable & Wireless, you have numerous islands that are somewhat fragmented.

So I doubt -- if I'll be straight up, I doubt that we'll ever get to those kinds of margins in some of those islands that we operate in. But both Chris and I feel very strongly and my management team as well that there's at least quite a few points that we can gain on the OpEx efficiencies to get us to a number that I think you'll like..

Now on the second question on the liquidity, well, we don't comment on M&A and -- but we feel that the pipeline in our region is strong. There are quite a number of assets that, I think, would be very attractive to us. But we are quite patient.

And as you can see from 2018, we -- there were a lot of deals that were rumored that we were engaged in and didn't come into play, and it's mostly because we know how to do the math. And we'll be very disciplined in -- on the M&A front. As for Liberty Global, that's really up to them. You'll probably hear more from them tomorrow. .

And just to add, James, on the OCF margins, I mean, a key target that we have is that OpEx efficiency to the low 30s as a group. So as you saw on the slides, we were kind of upper 30s as a company. So we have a number of points we could see to get at, which a decent amount of that fits within the Cable & Wireless sphere. .

Our next question comes from Matthew Harrigan from Benchmark. .

Two questions. One, your operations have been more than satisfactory, and I'm sure you're surprised at where your stock price is. I mean clearly, it's a function of the emerging market macro and all that. You don't have an authorization in place for buybacks unlike your predecessor company.

Given where your stock price is, is there an imperative to get something going there?.

And then secondly, on the technology side, I think when you first came out of the block, I mean, there was talk about a lot of commonalities with Liberty Global, your sister company, and Verizon and all that.

I think in your markets on the middle income side, it feels like you're probably inclined to put a little less silicon into the home now and be a little more facile on some of the strategies there.

Can you talk about how -- your technology strategy and how it's kind of diverging a little bit from Liberty Global as an indicator of what markets you operate in?.

Sure. The first question on the where stock currently sits, yes, we certainly do think it's tremendously undervalued, but it's kind of self-serving to say that. But we know our LRP, we know our plans and we see the upside coming at us. As to the buybacks, we do not have a Board-authorized buyback plan at this point.

And if we needed to put one in, we can put one in very quickly. But as we look at our capital allocation, it's back to -- buyback certainly is 1 of the 3 things we would look at. We have tremendous internal projects that deliver great IRRs like our new builds and as well as the inorganic opportunities in our region.

And like -- I think I said that in the last call as well. I mean we'll evaluate all of them against our stand-alone plan. And if the stock gets to a point where the IRR is a lot better than a stand-alone plan, I mean, and -- or some of the other alternatives, we can get an authorization in very quickly and move quickly on that..

On the technology front, I think we have a slightly different road map than Liberty Global in some areas. But for the most part, we try to keep together with Liberty Global because of the combined scale. So buying DOCSIS modems with, I mean, the combined scale makes a lot of sense.

We are more heavily on mobile, so there's a lot of things that we do on mobile that some of our sister companies do not do. So we'll continue innovating on that front. I think you'll hear some really interesting things. So it's really positive things in the next quarter call. We're keeping it to ourselves for now..

And on the video front, we are on the same road map as Liberty Global, where we're going to launch the Eos box in Chile. But in some other areas where we are quite fragmented, we are looking at other options as well that I think in the next call or the call after that, I think we'll be ready to announce those.

But my Chief Technology Officer, Vivek Khemka, is very busy. He also runs our product teams, and he's got a lot cooking up in the pipeline. .

Our final question comes from Kevin Roe from Roe Equity Research. .

Balan, in Panama, could you update us on the consumer broadband competitive dynamic and your go-to-market strategy there?.

the fixed network and mobile network. In our fixed network, we are an attacker in the market. In the mobile network, we are the incumbent. In a lot of cases, we carry the highest ARPUs. And as you know, and I've talked about this before as well, it's a 4-player market, and it's one player too many in that market.

So consolidation will come, and we think rational -- mobile -- rationality will come back into the mobile marketplace..

But our management team is focused on the high end of mobile in Panama. You'll see the net adds fluctuate back and forth. Most -- if the net adds move in Panama, it's mostly the low-end prepaid. And there's lots of low-end prepaid these days because of what some of the competitors are doing in the marketplace.

So if you're chasing net adds, a very quick way to chase in Panama is just offer 1 box for 7 days unlimited and you'll get lot of net adds. But it's really the very low end that's just churning back and forth..

On the fixed side, I think we're an attacker, and it's a positive story. And for the longest time, our competitor there has been cherry-picking our customers. And our management team is fighting back, and we're seeing the early results. We are cable guys, and we're fixed guys in many ways and this is our bread and butter.

And we know that business in and out. We know how to price it. We know how to go for it. And you're starting to see that in that place and as well as other markets as well. It's not unique to Panama. It's across our operations. But in all of these operations, we have good competitors. We learn from them.

We compete with them effectively, and we are very rational in these markets. .

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

Well, thank you so much, operator. And thank you, everybody, for taking the time to join us this morning. You'll see clearly from our results today that we are making progress. This is a very exciting journey for me and my management team. And I think a lot of other good things will come along as well.

We are really looking forward to the second half of this year. Have a great day, and thanks again for your support. .

Ladies and gentlemen, this concludes Liberty Latin America's Second Quarter 2019 Investor Call. As a reminder, a replay for the call will be available on the Investor Relations section of Liberty Latin America's website at www.lla.com. There, you can also find a copy of today's presentation materials..