Liberty Latin America Ltd. Q3 FY2022 Earnings Call

Good morning, ladies and gentlemen, and thank you for standing by. Today's call is being recorded. I would now like to turn the call over to Beverly Reyes, Vice President, Securities & Corporate Governance Counsel of Liberty Latin America. Please go ahead.

Good morning, and welcome to Liberty Latin America's Third Quarter 2022 Investor Call. At this time, all participants are in listen-only mode. Today's formal presentation materials can be found under the Investors 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 and will be available under the Investors section of our website. 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 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 the quarterly report on Form 10-Q most recently filed with the SEC, along with the associated press release. Liberty Latin America disclaims any obligation to update any forward-looking statements 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.

Thank you, Beverly, and welcome, everybody to Liberty Latin America's third quarter results presentation. I'll begin with our group highlights and an overview of our operating results. Chris Noyes, our CFO, will then follow with a review of the company's financial performance. After that, we'll 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.lla.com. Starting on Slide 4 and our highlights for the quarter. The Group reported revenue of $1.2 billion in Q3. Without VTR which was still consolidated in the period, our revenue would have been $1.1 billion, an increase of 3% on a rebased basis, driven by top-line growth across most broad reporting segments, particularly Liberty Costa Rica, and our Cable & Wireless Caribbean businesses. Our internet and mobile postpaid subscriber bases have grown by over 400,000 over the past 12 months, and by 80,000 in the third quarter. All markets have significant penetration opportunities, which will support further subscriber growth. This is a principal operational focus and driver of our financial performance. The ARPU and margins for postpaid subscribers and a fixed RGU have similar characteristics. On October 6, we closed our joint venture with Claro, Chile to create the 50-50 owned Claro VTR. We now have a new management team working to deliver significant synergies. We are optimistic about the future of Chile. Our combination will start the consolidation and rationalization of this market. Chile is an incredible country. Our new Claro VTR leadership is putting a growth plan together for our review in the near future. Finally, we continued our buyback activity and repurchased over $150 million of stock up to the end of Q3. This reflects our view that the most compelling capital returns are in our own company. The threshold for any other inorganic activity is extremely high. Turning to Slide 5. High-speed and reliable internet connectivity is the foundation of our fixed service proposition. And here we show our broadband adds by market. Starting with Cable & Wireless in the upper left of the slide, where we continue to build momentum following a slow start to the year. Q3 performance was once again driven by Jamaica where we added 4,000 RGUs in line with the prior quarter. However, there was also a stronger contribution from other markets in CWC, sales efforts, and integrated converged offerings gain traction. Moving to Liberty Puerto Rico in the center of the slide, you can see from the chart that we've delivered steady growth here for a number of quarters and continued during Q3. In fact, we delivered stronger performance driven by the strength of our network and back-to-school demand, despite the impact of Hurricane Fiona at the end of the quarter. On the furthest right side of the top row, Costa Rica had another positive quarter. The lower third quarter additions were driven by some temporary changes to our TV channel lineup, which has since been reversed, and we anticipate continuing to deliver healthy additions in future periods. Moving to the lower left, and C&W Panama where we delivered an improved number of internet adds sequentially. We continue to see an opportunity to increase penetration across our homes passed in Panama from the 25% level we have today. Finally, VTR continued to be challenged. But as mentioned, we are very optimistic regarding the potential for recovery through operational improvements and some market repair. Overall, the Group continued to deliver broadband adds. And as illustrated in the lower right chart, these are particularly robust if you exclude the impact of VTR, which will no longer be consolidated in LLA's results from Q4 this year onwards. Moving to Slide 6, and our mobile performance. We have highlighted postpaid adds as this is a driver of growth in recurring revenue, which is our focus. As indicated before, the ARPU and margin for postpaid are similar to fixed RGUs. One of the drivers for the high margins is that we generally do not provide significant handset subsidies outside of Puerto Rico. In addition, the postpaid subscribers give us better visibility of who our customers are. Starting in the top left of the slide and C&W, additions in Q3 would double the prior year amount and maintain a strong momentum sequentially. Jamaica was the largest contributor within C&W with 10,000 adds, marking its best ever quarterly performance, as our FMC plans are working. Moving to Puerto Rico, we continue to add subscribers in the quarter. However, we were affected by retail disruption related to Hurricane Fiona. As we will cover later, our network was the most resilient during that period, which should bode well for future performance. Next to the right of the slide in Costa Rica, which is our largest operation by total mobile subscribers, our net postpaid adds were consistent sequentially, and double the prior period as we added 31,000 customers in the quarter. On the bottom left of the slide, we present Panama's performance. Additions were similar to the prior period but lower sequentially as we changed our commission structure and also experienced increased churn. Finally, in Chile, our postpaid adds were again driven by our competitively priced offering. Overall, we continue to deliver postpaid subscriber growth across all our reporting segments, with robust performance in the quarter. Next to Slide 7. Our B2B operations. Starting on the left of the slide and our group performance, we show that, on a rebased basis, we grew revenue by 1% in the quarter, which represents a 30-year-over-year improvement. In the middle of the slide, we separated the B2B revenue by reporting segments to provide an overview of where revenue is generated, and provide some color to drivers for each. C&W Communications was the largest B2B segment in Q3, generating approximately 36% of our revenue. This segment contains some of our most mature B2B businesses. However, we are driving growth by leveraging our full-service capabilities and delivering innovative solutions. Next, we have C&W Networks & LatAm, which we separated into its own segments for the first time this quarter. We thought it would be helpful to show some additional detail on the next slide, but as you can see here, it is a significant part of the Group, generating just under 30% of our B2B revenue. C&W Panama is the third largest B2B segment generating 17% of our Q3 revenue. The strategy here is similar to the C&W Caribbean business, where we are looking to leverage our extensive full-service network and product capabilities as the only one-stop shop for technology solutions in Panama. Liberty Puerto Rico is our fourth largest B2B operation contributing 14% of Q3 revenue, predominantly comprised of the AT&T operations that we acquired. Looking forward, we intend to leverage our combined propositions to drive growth as we integrate the businesses. Finally, we are facing challenges in Costa Rica but have strong growth opportunities as a full-service fixed and mobile operator. In Chile, we should benefit from the combined product capabilities of Claro VTR. Turning to Slide 8. As we covered last quarter, we have completed our strategic review of the C&W Networks and LatAm operations. Due to market conditions, we have put on hold any inorganic activity. Instead, we are focused on investing and growing this business organically ourselves. In line with this ambition, we have installed new leadership and created a separate reporting segment for which we provide an overview on the slide. On the left-hand side, you can see our extensive subsea footprint as well as our network's unique attributes. This is a leading and differentiated business which has tremendous resilience and extensive points of presence. We intend to add additional routes and increase resilience. This will expand our footprint and open new opportunities. On the right of the slide, we have highlighted a couple of the financial highlights we see in this segment. Firstly, it is a predominantly U.S. dollar business through our subsea operations. The non-dollar revenue primarily relates to our B2B operations in Colombia. Lastly, but perhaps more importantly, the cash generation of this business is very strong. As we see in the lower right of the slide, this segment generates close to 50% of operating free cash flow margins, driven by high adjusted OIBDA conversion and low CapEx intensity. This is a tremendous business for a number of reasons, and we look forward to making it even better. Turning to Slide 9, I wanted to provide a more detailed update on our largest single market, Puerto Rico. Starting with our commercial momentum, as we saw in the prior slides, this continues to be strong, with network strength underpinning our ability to add subscribers, both in fixed and mobile. We continue to invest in the network, leading to speed increases, better coverage, and high resilience in both fixed and mobile. Just as a reminder, we've been awarded FCC Uniendo funding to support these improvements. In fixed, we have also added 25,000 homes so far this year, which provides an additional growth driver. Our pricing levels remain competitive and subscriber trends show that we are providing value for our customers. In mobile, we continue to grow in postpaid by adding 69,000 subscribers year-to-date, and we also see a significant opportunity in prepaid. Prepaid was less of a focus for AT&T historically, and we have started trialing new propositions to grow this part of the business. Moving to the integration. We remain on track to complete the migration of customers and services to our platforms by the end of next year. This will be fantastic from a synergy perspective, but also commercially, as we will have more freedom to create and deliver our own bespoke products to cater for the needs of people in Puerto Rico. We have begun trials of our new IT stack and our new 5G core network prepaid customers. Next, I wanted to cover the impact of Hurricane Fiona, which hit the island in September. The storm caused some damage to the islands, but nothing like the scale we saw through Hurricane Maria. The impact was felt more through power outages that affected our network. That said, we supported our customers through these difficult times with credits to the extent that they were without power and did not have broadband or TV service. This focus on our customers is key to our high NPS in Puerto Rico. Our decision on the credits and costs we incurred to repair the network and fuel for our generators will have a cash flow impact of about $20 million this year. The great news was that our mobile network demonstrated its resilience, thanks to investments in underground fiber as well as standby generators in more than 85% of cell sites. Network coverage remained close to 100%, with utilization increasing more than 20%. In fact, the network held up so well that we opened it up to other carriers during the storm to help their customers. This has improved our reputation in the market and should support additions in the coming months. Lastly, on the slide, our build in the US Virgin Islands is now underway and also partly funded by the FCC. We will have the only fiber network with full coverage across the islands and are excited about the growth we can drive there. Finally, to Slide 10, we wanted to highlight the progress we are making against key strategic objectives and how this drives additional stakeholder value. Starting with the network and IT pillar, we have been making great progress with our new build and upgrade program. This year alone, excluding Chile, we have built or upgraded approximately 280,000 homes. Since we split off as a separately listed company more than 4 years ago, we have added or upgraded over 1.3 million homes, excluding 1 million homes in Chile. This is a key aspect of our strategy as it underpins our ability to deliver our products and services. As we look ahead, we are committed to transforming our IT platforms and simplifying our numerous systems and processes across the Group. This will drive savings as well as enable us to better serve our customers. We are also committed to upgrading our fixed network to eliminate all our legacy infrastructure. We are also building out to expand our footprint. Next to our commercial pillar, the progress we are making should speak for itself with our consistent reported subscriber additions. On the mobile side of the business, our focus on FMC has been paying dividends, particularly as we grow our postpaid base. Including the impact of acquisitions, postpaid subscribers have gone from 14% of the total base at the start of 2018 to 30% at the end of the third quarter. We are also working hard to delight our customers and thereby reducing churn in our operations. Looking ahead, we continue to innovate through products and packages with additions to date such as Wi-Fi services, Android-based IPTV, B2B products, ESIM, and new low-cost handsets. We have also been investing in our digital platforms to support our sales channels. This is a common platform across all our operations. Lastly, on this slide, the capital allocation. We made another significant stride in early October by closing the JV in Chile. As I mentioned before, we are optimistic about Chile and this joint venture. We have the opportunity to regrow this business and create value over the next few years. Both we and our partner, Claro, are like-minded in that future. We are also a few months into our Panama integration and have been making good progress, starting with back-office integration this year before moving on to combining our brands and stores next year, with completion of all processes expected in 2024. We have good visibility on over $150 million of run-rate cash synergies from 2024, excluding Chile. This is a key driver of growth for our business in the coming years. In addition, we have not made any adjustments to our reported OIBDA or free cash flow to remove integration costs, which are a headwind for us in the near-term, totaling over $70 million just this year alone. This results in dissynergies, as mentioned before. We are confident that we will drive significant free cash flow growth and have continued to allocate capital to buy back our stock. It is hard to contemplate any M&A with better risk-adjusted returns than the current opportunity to repurchase our own securities. We will continue to evaluate the risk-reward trade-offs for any investments in the same manner, taking into account shareholder returns, dilution considerations, and our liquidity profile accordingly. Chris will cover our thoughts on balance sheet management in his section. But in short, we feel comfortable here given our long-dated maturities, the silo debt stack, the hedges we have in place, and the natural deleveraging as we grow our EBITDA. With that, I will pass you over to Chris Noyes, our Chief Financial Officer, who will talk you through our financial performance before we take your questions.

Thanks, Balan. Let's turn to Slide 12 to kick off the finance section. Three housekeeping items. First, we have separated our Cable & Wireless Caribbean and Network segment into two distinct segments going forward: C&W Caribbean and C&W Networks in LatAm. Second, our acquisition of Claro Panama is included for the full quarter. Third, given the close of the Chilean JV in early October, we will deconsolidate VTR for Q4 and reflect the JV as an equity investment going forward. Today, I will reference some key financial numbers without VTR included. The third quarter was modestly more challenging than we had expected when we reported Q2 in early August, largely because of Hurricane Fiona's impact in Puerto Rico, particularly through damage to the island's power grid rather than to our infrastructure. Unfortunately, this event did impact our financial and operating results in Q3 and will carry over into Q4, and I will highlight those impacts where relevant. Financially, we posted Q3 consolidated revenue of $1.22 billion compared to $1.20 billion for Q3 2021. Our 2% reported growth was positively impacted by acquisitions and organic growth in Costa Rica and C&W Caribbean, offset in part by a significant organic decline in Chile resulting from continued competitive intensity coupled with our aggressive pricing strategy that we initially launched in late Q1. Additionally, our U.S. dollar reported results were hampered by a negative $32 million net foreign exchange impact, as currencies like the Chilean peso, Colombian peso, and Costa Rica Cologne all depreciated against the U.S. dollar year-over-year. In terms of growth, we delivered flat rebased revenue performance in Q3. Excluding VTR for both periods, we delivered 3% rebased revenue growth compared to Q3 2021. Importantly, without VTR, our mix shifts to around 75% of revenue denominated in U.S. dollars or pegged to U.S. dollars, which is a key differentiator for us versus other peers in the region. Turning to the bottom of the slide, we delivered adjusted OIBDA of $415 million, reflecting a 6% reported and rebased decline compared to our results for Q3 2021. Excluding VTR for both Q3 periods, our rebased performance improves to a 1% decline on adjusted OIBDA of $384 million. To put our results in perspective, if we were to simply adjust our results for the estimated hurricane Fiona adjusted OIBDA adverse impact of $12 million and incremental marketing expenses year-over-year of $5 million, our rebased adjusted OIBDA growth would have been about 3% for LLA. Looking towards Q4, which tends to be seasonally strong for us, we expect to see an expansion in adjusted OIBDA from Q3 levels. Slide 13 highlights our financial results by segment for Q3, starting from left to right with C&W Caribbean. We posted revenue of $359 million for rebased growth of 3% and $133 million of adjusted OIBDA for rebased growth of 11%. Each of our three products—residential mobile, B2B, and residential fixed—experienced single-digit rebased top-line growth over Q3 2021. Our largest operation, Jamaica, continues to fuel the segment's overall result. C&W Caribbean was LLA's best segment performer in Q3 with respect to overall adjusted OIBDA growth, achieving double-digit rebased expansion compared to last year. The operating team's direct to indirect cost control combined with revenue growth drove margins up approximately 250 basis points in the quarter compared to Q3 2021. Next, to Cable & Wireless Panama. Total revenue was $173 million, producing rebased growth of 2%, with adjusted OIBDA at $47 million, generating a rebased decline of 5%. CWP's rebased revenue growth was driven by 9% residential fixed and 4% B2B growth, while residential mobile declined by 2% as postpaid service revenue growth was more than offset by a prepaid decline. The rebased adjusted OIBDA decline in the quarter resulted from a combination of higher B2B equipment, bad debt, and integration costs. That said, we anticipate a strong fourth quarter in adjusted OIBDA as we typically drive B2B projects in the last quarter of the year. Finishing on the far right, C&W Networks in Latin America reported revenue of $103 million and adjusted OIBDA of $59 million, reflecting modest year-over-year declines of 1% and 4%, respectively. The driver of the year-over-year adjusted OIBDA margin compression is due principally to higher direct costs associated with equipment sales across our B2B services. However, the adjusted OIBDA margin remains over 50%. For this segment, quarterly results can be lumpy, so it's best to look at the business on a full-year basis. For example, year-to-date rebased revenue and adjusted OIBDA grew 4% and 3%, respectively, and we would expect to see a step up in reported figures in Q4. Moving to the bottom left of the slide, Liberty Puerto Rico delivered revenue of $367 million in Q3, which reflects 2% rebased growth and produced adjusted OIBDA of $132 million, resulting in a rebased decline of 6%. Overall, the largest development in the quarter was Hurricane Fiona in the latter half of September, which impacted our financial and operating results in Q3 and which will have a residual impact into Q4. Our revenue was impacted by $8 million through the granting of customer credits and adjusted OIBDA was reduced by $12 million due to the credits and incremental operating costs incurred to address the situation. Other elements contributing to our revenue expansion include higher roaming equipment sales in residential mobile and growth from our newly acquired asset in the U.S. Virgin Islands, driven in large part by the recognition of the FCC funds. On the cost side, besides the increased costs from Hurricane Fiona, we incurred increased equipment costs due to higher mobile handset volumes, additional TSA-related charges, and higher labor costs in part due to staffing in advance of the TSA transition and increased integration costs. We expect to deliver improved financial performance in Q4. However, depending upon our success in mobile, we could experience pressure on our margins for mobile handset costs. Next to Costa Rica. We posted Q3 revenue of $109 million, and $33 million adjusted OIBDA, reflecting strong rebased revenue growth of 7% and a modest adjusted OIBDA rebased decrease of 1%. Subscriber growth continues to be the primary driver of revenue in Costa Rica. Adjusted OIBDA rebased growth was compressed year-over-year largely due to $2 million of incremental integration expenses and $2 million of non-functional currency impact as the cologne depreciated by 6% on average year-over-year. Finally, VTR. We generated $130 million of revenue and $31 million of adjusted OIBDA, reflecting rebased declines of 19% and 42%, respectively, as both heightened competitive intensity in 2022 and strategic decisions to better align our propositions with those of the broader market resulted in compression across our financial metrics. Our reported amounts in U.S. dollars reflected depreciation of the Chilean peso and U.S. dollar of 10% compared to Q2 2022 and 20% compared to Q3 2021. Importantly, repricing a large proportion of our base by year-end 2022 and better aligning with Claro's fixed pricing is a necessary step to establishing a stronger foundation from which to grow the overall business in the coming years. Turning to our balance sheet on Slide 14. The figures on this slide exclude VTR, which was classified as an asset held-for-sale on our September 30 balance sheet. At the end of Q3, we had $8 billion of total debt, approximately $800 million of cash, and $1 billion of availability under our revolving credit lines. Gross and net leverage is at 4.9x and 4.5x, respectively. Our consolidated cash balance reduced from Q2, largely due to the funding of the Claro Panama acquisition on July 1. Our largely termed out and size of capital structure remains an important asset for us. We have limited maturities in the next 5 years. As expected, we will continue to actively address the shorter-dated maturities in a manner consistent with our financing principles. We maintain ample available capacity in our Puerto Rico and Cable & Wireless credit lines to address any LLA maturities should the capital markets remain constrained for an extended period. Through September 30, we have repurchased over $150 million of our equity this year. We have bought back roughly 17 million shares in 2022. Our belief in our long-range plan, including the realization of synergies, coupled with the underlying value of our assets, including our networks and Puerto Rican businesses, reinforces our conviction that repurchasing our shares at what we see as dislocated value makes solid financial sense. With respect to our consolidated 2022 financial guidance targets, we remain on track to deliver 18% P&E as a percent of revenue and are revising our expected adjusted FCF for 2022 to $200 million to account for an estimated $20 million cash flow impact from Hurricane Fiona, as previously voiced over. As highlighted in prior calls, our adjusted free cash flow generation will be substantially weighted to Q4, reflecting our seasonally strong financial performance and customary working capital trends. The primary risk to our free cash flow that we called out on the Q2 call, and that still remains pertains to the timing of large customer payments from the Panamanian government and certain B2B accounts in C&W that we expect to collect before year-end. As Balan highlighted, we have strengthened each of our operations through M&A activity, completing the Chilean JV with American Mobile in October. It has been a long, multiyear journey to consolidate markets and fill gaps in our product suite, primarily a lack of owned mobile in our core fixed businesses, such that we now can offer our residential and B2B customers, both broadband and mobile services throughout our largest markets. We are very focused on integration as we migrate to our own systems and overall reduce reliance on the sellers of the assets in Puerto Rico, Costa Rica, and Panama. Successful execution over the next 12 to 24 months should yield substantial OIBDA and free cash flow expansion. Additionally, our JV in Chile is moving forward, and as Balan touched upon, we are excited about the growth prospects in this business as we bring together two complementary businesses. Patience is required as it will take some time to realize synergies and change the momentum in the business. But together with our partner and our newly appointed joint management team, as well as the further rationalization we are seeing in the market, the value opportunity is sizable. Our third quarter was impacted by a combination of factors including the impact of Hurricane Fiona and integration costs. Q4 tends to be seasonally strong, and we expect improved financial performance and substantial free cash flow generation in the quarter. Our capital allocation strategy remains in place. Importantly, we are quite content with our existing footprint and can focus our investments within our businesses while looking to arbitrage value opportunities within our debt and equity complex. We look forward to updating the market in February 2023 when we report our year-end results and more specifically, our plans for the new year, which are taking shape as we speak. With that, operator, please open the line for questions.

Our first question today comes from Michael Rollins of Citi. Michael, you may proceed with your question.

Thank you and good morning. I'd like to understand the overall impact of the money you're spending on integration, particularly regarding the synergy targets you've mentioned and any potential reinvestments in marketing or sales. Can you explain the net effect of this merger integration on EBITDA for 2022 and what the expected benefits might be over the next few years? Thank you.

Sure. Good morning, Michael. When we do these acquisitions, the dissynergies in the first call usually range between 2 and 2.5 years significant as you integrate systems. But remember, these are one-time costs, and you annualize the savings over a long period, so the returns are quite significant. The way we look at it is the synergies and dissynergies arise from, of course, the systems—the IT systems. You want to consolidate that to provide a great customer experience, branding, and stores that you invest in. You typically invest during the first couple of weeks you launch massive programs either through rebranding or through new propositions. For this year, we anticipate some headwinds from the numbers related to approximately $70 million in estimated dissynergies. By 2024, the bulk of it will disappear, and then you will see the synergies come in. The synergies we project are net figures. So there will be some trailing costs, but the synergies we provided will be net figures for 2024.

Thanks.

Thank you for your question. Our next telephone question today comes from Kevin Roe of Roe Equity Research. Kevin, please put on your question.

Thank you. Good morning. Balan, the CWC properties, they're demonstrating to be very resilient in both fixed and postpaid mobile. You mentioned earlier fixed-mobile convergence as being a driver. Could you drill down a little bit more on the primary drivers of CWC's top line strength? How important is that to the growth that we are seeing, versus the core? Are there market share gains going on here? And how are things trending into the fourth quarter? Do you expect this top line growth for CWC to continue in Q4? Thanks.

Sure. Hi, Kevin. CWC is unique. We've been investing over the last couple of years in CWC on several fronts, and it is bearing fruit. A big driver of the revenue growth is attributable to the analysis of our net additions from last year. Our opening balance sheet is good, which drives much of the value creation this year. There are a couple of other inflection points in CWC. One, we indicated but did not provide a clear date, we will do this at the end of this year or early next year when we announce our full year, and we will detail the construction work we are conducting in CWC. Essentially, we are set to remove almost all of the twisted pair copper in that business. CWC consists of many incumbent businesses with significant twisted pair operations. When we finish this, we would be one of the first telcos to have removed all twisted pair. Other companies like AT&T, Verizon, PTS, Deutsche Telekom, and NTT have not accomplished this. We have been disciplined and have been working over multiple years, nearing completion in the next 18 to 24 months. This will serve as an inflection point. Secondly, due to these builds, our broadband speeds have increased significantly. Our FMC ties both our broadband and mobile products together. The numbers demonstrate this is working, and we anticipate our broadband growth next year to be as good, if not slightly better than this year. Our postpaid segments are on a good trajectory. Additionally, we are cautious with handset subsidies in CWC, budgeting for a certain amount and monitoring it carefully. Handset subsidies in CWC are significantly lower than those in the United States or even Puerto Rico. There is a lot of value creation potential in CWC. Lastly, I must add that B2B is another inflection point for us. Inge and her team have appointed someone in the back office managing CWC both strategically and operationally. This is a significant contributor to our revenue in that market.

Thank you. And into Q4, are you seeing those positive trends for CWC continuing? Did you observe this in October and now into November?

Yes. Yes, we are. Thanks, Kevin.

Thank you, Kevin. Our next question today comes from Cesar Medina of Morgan Stanley. Please go ahead, Cesar.

Hi. Thanks for taking my question. It's very specific related to VTR. Now that the JV has been approved, are there any plans to inject capital into that asset in the near-term? If so, any details on that front?

Hello, Cesar. The way we approach this is that there is no requirement to inject capital as contemplated in any of our agreements with the JV. However, we assess all capital allocations based on returns. We will review the management team's growth plan for VTR and decide on funding in comparison to other plans in LLA. Our capital allocation decisions follow the same paradigm. Chris, do you want to add anything?

Yes, thank you so much.

Thanks, Cesar.

Thank you for your question. Our last question today comes from Soomit Datta of New Street Research. Soomit, please go ahead. Your line is open.

Hi there. Thanks very much, guys. I have a couple of questions, if I could, please. First of all, on Puerto Rico, just on the wireless business. I think on an underlying basis, the service revenue has been deteriorating there? And I guess that would be a bit of competition coming from competitors and AMX. Do you mind giving us a sense as to what's happening on the ground? Does that look like a temporary phenomenon? Or is that something we should consider a risk going forward? That's one on Puerto Rico. The other quick thing, please, on Puerto Rico and U.S. Virgin Islands. Just wondering about the funding from the FCC. I mean maybe regarding the Virgin Islands and Puerto Rico, can you give us a sense of where that is trending? Is that going to be kind of up, down, or stable? It's a reasonably big number, so that would be helpful. Thank you. And then just a final one, sorry. If I could, just on the Networks business, there's been a slight redefinition of that business. Can you give a sense of what you're aiming to achieve in terms of scale? Obviously, it sounds like you're excited about the possibility to expand the operation. How much bigger can this get, and what level of capital do you need to deploy to make that happen? Thanks very much.

Okay. Soomit, hello. Let me address your questions in reverse order, and I'll allow my colleagues to jump in. To start, we are focusing on the Networks segment. We have conducted our strategic review and over the last few years, we've invested in that network. Going forward, we want to make even more investments based on returns and capital allocation decisions, as previously described with VTR. We've identified new routes we would like to build that will increase resiliency and open up new markets. I'm pleased with the recent management team's efforts; they are essential in this segment. The free cash flow generation from this segment is quite strong, and we will continue to grow our routes and improve resiliency. Now regarding your other two questions about the U.S. Virgin Islands and Puerto Rico, the numbers are approximately $85 million and $71 million or so in FCC funding for the fixed business and about $30 million in the mobile business in Puerto Rico. These figures amortize over a 10-year period. The mobile numbers are on a shorter timeline, with renewals expected through other FCC opportunities. However, on the fixed side, it's about a 10-year, and you'll see some allocation this quarter as Chris mentioned in his opening remarks. Therefore, we feel stable about those revenues, and they fund the upgrades we've discussed. Now on the wireless revenue for your first question, it’s a bit complicated because the headline numbers can distort conclusions since it's not made up of just one revenue stream. You can break the decline down into two primary components: one, the prepaid business has dropped year-over-year—a decline attributable to our reseller business when we took over from AT&T, which necessitated renegotiating contracts. This drop in prepaid has accounted for about 40% of the decline. However, we have begun growing that business again this quarter. The second part is non-cash related revenue drop from amortization of handset subsidies. This amortization sums to approximately 30% of the decline. The overall mix of our postpaid business also contributes there as we continue to grow the postpaid side. Fundamentally, we feel confident about the mobile business. There may be competition, but we embrace it and perform well against it. The conditions facing us are not on par with irrational competition seen elsewhere, such as in Chile. I will ask Naji to share his insights on the mobile business.

Yes. Thanks, Balan. Hello and good morning, Soomit. There is definitely growth in our postpaid segment; it continues to grow in net additions and revenue. ARPU remains stable. Additionally, the difference referenced by Balan is primarily driven by higher volumes of data devices such as tablets, wearables, and hotspots. Our churn metrics are equal to or better than some numbers you observe on the mainland regarding postpaid. Yes, there is competition, but we are managing it effectively. We experienced a unique situation with Hurricane Fiona, which highlighted our network's resiliency, both in mobile and fiber backhaul, allowing us to maintain performance throughout. Churn subsequently declined, and we are confident going into Q4 and looking ahead. We're delivering on all our commitments to customers, and we're optimistic about the future.

We are happy to provide further details regarding the amortization of handset subsidies. We can regroup post-call to ensure clarity. We anticipate this factor to even out within the next year.

That's great. Thank you. I can follow up after the call. I didn't quite get the point on the amortization of subsidies of handsets, right? We can kind of regroup on that.

Sure. We can get you the details to clarify. It's a nuanced explanation related to how we restructured the amortization when we acquired the AT&T business. We'll get into the specifics with you.

Yes. Hi, good morning, everyone. Thanks for taking my question. The first one is on VTR. Can you just comment a little more about the competitive dynamics in Chile considering recent market developments, and maybe provide some color on your gross additions as well as the churn dynamic in the Chilean market. I'd love to get a sense of when you expect net adds to eventually stabilize in that market.

Hey, Diego. On VTR, competitive dynamics will remain strong. We've seen some consolidation. For instance, the Intel fiber-to-the-home sale has yielded a wholesale network with KKR. I expect to see more monetization and consolidation in the market. Broadband adds appear to have stabilized with minor losses, but we’re hopeful. As for our ARPU, there has been a significant reset. Things like our ARPU have returned closer to our front book pricing. We have captured about 70% of our ARPU, bringing it back into alignment. However, there will be continual RGU declines as we move away from voice and experience slight dips in video. Our primary focus will be on growth in our broadband product; however, I note that we've experienced some pricing competitive pressures. Our strategic pricing efforts in March were effective, allowing us to sell more than 100,000 RGUs that month. We will progress strategically in a measured way so that we don't make drastic changes too quickly. Currently, 70% of policies are in alignment, and we will advance the front book and back book for improvement. Our team is assessing these changes and will present plans soon. We will invest in fiber, DOCSIS 3.1, and 5G; we feel positively about our network prospects. Regarding your second question on CapEx, we guided to 18% earlier this year. Chris reiterated that guidance; we may indeed perform better. However, the fourth quarter is typically lumpy, so we'll see how it unfolds. We have a focus on maintaining free cash flow. Our CapEx approach is straightforward: invest in customers and expand our network services. We'll continue our investments in enhancing coverage, upgrading the network, and improving IT capabilities. Aamir, do you want to provide more specifics?

Thanks, Balan. Good morning. The essence of our capital spending lies in enhancing broadband service. We wish to extend fiber to as many homes as possible. Our initiatives include targeting close to 300,000 homes this year. We operate under a three-pronged strategy: with new home builds being fiber, continuing our investment in HFC using DOCSIS 3.1, and ultimately removing all copper from our networks. Furthermore, we are enhancing our mobile coverage, improving digital services, and focusing on overall capacity growth across mobile and IT sectors.

Thanks, Aamir. Thank you, operator, and thanks, everybody, for joining us. This quarter was a little choppy, which is characteristic of our business. We remain committed to the guidance that we have for the full year. We anticipate that by the end of Q4, you will notice a significant delta between our Q3 results and our full-year results, and we expect a robust fourth quarter that aligns with our guidance. Thank you for your support, and we will talk to you again in about 90 days.

Ladies and gentlemen, this concludes Liberty Latin America's third quarter 2022 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. Have a great rest of your day. You may now disconnect from the call.