Liberty Latin America Ltd. Q4 FY2024 Earnings Call

Good morning and welcome to Liberty Latin America's Full Year 2024 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. 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. For more information, please refer to the risk factors discussed in Liberty Latin America's most recently filed annual report on Form 10-K, 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, Asad, and welcome everybody to Liberty Latin America's fourth quarter and year end 2024 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 am joined by my executive team from across our operations 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 year. We grew our fixed and mobile bases throughout the year, adding nearly 100,000 subscribers in total. Broadband and postpaid performance was particularly robust with over 260,000 adds in 2024 excluding Puerto Rico. This represents an increase of 9% and shows the potential for volume growth in our region. We reported adjusted OIBDA of $1.6 billion in the year and this was driven by strong year-over-year rebased growth in C&W Caribbean and Costa Rica and double-digit rebase growth in C&W Panama. After a challenging 2024, we are committed to making progress in rebuilding Puerto Rico over the coming quarters. We continued investing in our networks with approximately 400,000 homes passed or upgraded to fiber-to-the-home. 97% of our fixed footprint is now gigabit-ready, exceeding the target we previously set. Finally, we have been making important strides to future-proof our capital structure. In the past six months, we have successfully refinanced $3.3 billion of C&W debt. Over 75% of the siloed debt is now maturing in 2032 and beyond in line with our financing principle of maintaining a long-dated capital structure. Turning to slide 5. I'll begin our operating review with C&W Caribbean where we delivered operating momentum in mobile postpaid and strong financial execution. Starting on the left of the slide with our subscriber adds. Full year 2024 broadband adds were negatively impacted by Hurricane Beryl mainly in Jamaica. In Q3, we saw the immediate impact of the storm with 16,000 broadband losses. And in Q4, we lost a further 11,000 broadband RGUs mainly related to the disconnection of nonpaying customers. Adjusting for this event, we would have added 7,000 broadband subscribers in Q4 and 18,000 for the year. In Mobile, our positive postpaid performance continued in Q4, with 43,000 net adds in 2024. Our postpaid base increased by 14% year-over-year driven by Jamaica. Moving to the center of the slide and our revenue by product. The pie chart depicts the well-diversified nature of C&W Caribbean's revenue with B2B and consumer fixed, the largest elements followed by consumer mobile. In our Caribbean markets, the operating environment is constructive as we primarily compete in duopolies, where we are often the leading player. Rebased revenue grew 2% year-over-year, driven by double-digit growth in postpaid revenue and supported by successful price increases in Fixed and Mobile across our main markets. Overall, 2024 was a strong operational year for C&W Caribbean, with cost efficiencies driving nearly 200 basis points of margin expansion. As Chris will come on to, we expect operational leverage to continue to be a focus and driver of adjusted OIBDA growth in 2025. Moving to Slide 6 and our C&W Panama segment. Starting on the left of the slide. We continued our broadband momentum in 2024 adding 23,000 subscribers, which was 10% higher year-over-year. We have been investing in our network expanding and upgrading with FTTH home passings and I'm pleased to say that only 2% of our footprint is now covered by copper, with most of this to be decommissioned by the end of this year. In Mobile, we had a record year reporting 78,000 postpaid adds, driven by our successful acquisition campaigns following the exit of a competitor and increase in FMC penetration and our focus on prepaid to postpaid migration. Moving to the center of the slide and our revenue streams which in aggregate drove our top line 3% higher in the year. Growth was driven by Mobile and Fixed products which were up by 7% and 4% respectively. Mobile growth benefited from a larger subscriber base and pricing actions we took throughout the year. In Fixed, performance was driven by double-digit growth in broadband revenue following higher volume from our successful commercial strategy, including a focus on triple-play plans which now represent nearly 60% of our customer base. After the exit of a competitor in 2024, the market structure became primarily a duopoly in both Fixed and Mobile with TIGO. We are number one in Mobile and the challenger in Fixed where we see great potential. Finally, we posted double-digit adjusted OIBDA rebased growth year-on-year driven by cost efficiencies and the full year benefit of synergies from the Claro Panama acquisition. Turning to Slide 7 and Liberty Costa Rica. Starting on the left of the slide. We saw consistent quarterly broadband adds throughout the year in what is our most competitive fixed market. We continue to expand our footprint, adding over 170,000 fiber-to-the-home homes passed in 2024 and taking our total network to 830,000 homes passed. We now have 45% of our network on FTTH more than double the 20% of a year ago and exceeding the 40% target communicated last year. In Mobile, we were once again successful growing our base. We added 114,000 postpaid subscribers in the year for a 31% year-over-year increase. We also secured a total of 570 megahertz of spectrum across four different bands in an auction completed earlier this year. We are pleased with the results as we were awarded the amount of incremental spectrum that we were asking which will enable us to enhance and grow our 5G networks, increasing capacity and speeds. Moving to the center of the slide. Consumer mobile remains our largest product with 60% share of revenue. This is followed by our consumer fixed business, representing just under 30% and then a small but fast-growing B2B operations. Costa Rica is our most competitive fixed market with five nationwide players, while in Mobile we compete against two other operators. Overall, I am very pleased with our performance and future growth prospects in Costa Rica, as we await approval of our proposed merger with TIGO, which we expect to close towards the end of the year. Moving to slide 8 and our Liberty Networks segment. This continues to be a great business for us with exceptional free cash flow generation. To provide some visibility of the underlying trends in the business, on the left side of the slide, we present revenue broken down by lines of business. Enterprise has been the fastest grower, up 9% year-over-year, driven by growth in IT as a Service and connectivity, especially in Colombia, the Dominican Republic, and Honduras. Wholesale reported figures continue to be challenged by the impact of non-cash IRU declines, totaling $18 million year-over-year. This headwind is progressively reducing as IRUs are replaced by lease capacity sales. Full year rebased revenue declined by 2%, but excluding the impact of IRUs, it would have been up by 2%. Lastly, we are finalizing contract terms to commence the construction of Manta, our subsea cable system project in collaboration with Sparkle owned by Telecom Italia and Gold Data. Next to slide 9 and Liberty Puerto Rico. Starting on the left of the slide. In Q4, we added 5,000 fixed RGUs with broadband mostly flat. Adjusting for the impact of the discontinuation of ACP, we would have delivered an increased 7,000 broadband RGUs this year. Earlier this year, we also put through an annual pricing increase for our fixed base, which should underpin revenue performance. Our business continues to invest in products and infrastructure with 55,000 homes passed or upgraded to FTTH in the year. We also made material progress towards making our network gigabit ready. At the end of 2024, over 90% of our HFC homes were on DOCSIS 3.1, more than a 30 percentage point increase compared to the previous year. Overall, our network is now capable of delivering speeds of 1 gigabit per second or more on 95% of our footprint. As a testament to the strength of our network, Ookla recently confirmed Liberty as having Puerto Rico's fastest network. Turning to mobile. We had a challenging year in postpaid, with ECF disconnections exacerbating losses caused by the migration. In prepaid, our momentum continued in Q4 with the third consecutive quarter of net adds. As we integrate the EchoStar distribution network in the coming months, we aim to build on this trend in a segment where there is significant opportunity. For postpaid, performance has been improving and Q4 losses more than halved sequentially. We also observed improvements in other key operating indicators such as NPS, which I will cover in the next slide. However, there is more work to do here, and we are focused on returning to net adds as quickly as possible. In the center of the slide, we show the revenue mix in Puerto Rico and our overall top line decline versus 2023, mainly driven by the subscriber reduction we experienced over the course of the year. On Slide 10, we wanted to show postpaid net adds and mobile NPS evolution over the past three years. On the left side of the slide, we break down activity into gross adds and disconnects. Gross adds have been relatively stable over the past three years, showing the underlying strength of our product offering. This includes the migration-related disruptions in 2024 when our sales force was redeployed to focus on customer care. Looking forward, we see an opportunity to offer bespoke and converged offerings to drive additions. Conversely, churn increased materially during the migration period, driven primarily by billing issues as we move to new IT platforms as well as the termination of the ECF program. In the past two quarters, we have seen our efforts to improve this metric drive lower disconnects, and a reversal of the negative trend, a key component we strive for net adds. On the right of the slide, we show NPS progression, which is a leading performance metric we monitor closely. The graph depicts the evolution of this metric since the beginning of Q1 2022 when our NPS was at similar levels as of today. Following Hurricane Fiona in Q3 2022, we recorded an improvement in the score as our customers recognize the reliability of our networks and our efforts to support our local communities in a time of crisis. During the migration, we then observed a marked deterioration of NPS related to technical or billing issues. Finally, as we discussed during our Q3 call, we are now getting back to pre-migration levels and 50 points better compared to the migration lows. Undeniably, 2024 was a very challenging year for us in Puerto Rico. And in hindsight, we underestimated how difficult the migration and recovery would be. However, our business still has a unique combination of leading mobile and fixed infrastructure and we are determined to rebuild this business in 2025. Our strategy is simple. We are going back to basics. We're going to grow the top line, leveraging our best-in-class networks and FMC capabilities and focusing on customer care and churn reduction. We're going to recover margin, exercising cost controls, through efficiency initiatives. And we're going to preserve liquidity, reducing capital intensity as our fixed network is well invested and future-proof with 95% of our footprint being gigabit-ready and our mobile network continues to be the most reliable on the island. Moving to Slide 11, and an overview of our infrastructure assets. On the left of the slide, you can see that across our consumer markets, 97% of our networks can support very high speed through either HFC or fiber-to-the-home. We continue to build fiber and migrate our customers from copper to fiber technology. Over the past year alone, our fiber-to-the-home proportion has increased by 9 percentage points, as we expanded our footprint and upgraded our copper plan. Upgrading our networks is a key focus for us, as you can see in the center of the slide. We are committed to getting virtually all our network to gigabit readiness, capable of delivering speeds of one gigabit per second and above. Having begun our journey with 7% of our network at this standard in 2018, we advanced in 2024 and anticipated further progress this year. On the right of the slide, we show fixed and mobile network information by market. Notably, we are 100% fiber in Barbados and the majority of our footprint is FTTH in Panama, Jamaica and the Bahamas, with great strides made in Costa Rica where we ended the year with 45% fiber, more than double where we were a year ago. During 2024, we also launched 5G in three more markets for a total of five with all the remaining ones operating on LTE. Overall, I'm proud to say that we have some of the best-in-class networks across the regions as recognized by the loyalty of customers, as well as external parties. BTC in the Bahamas secured award from Ookla for the Best Fixed Network, Fastest Fixed Network, Best Fixed Gaming Experience and Best Mobile Video Experience. Mass Mobile in Panama won the Fastest Fixed and Mobile Networks according to Ookla. Liberty Puerto Rico was named the island's Fastest Fixed Network by Ookla for the eighth consecutive year, and the most reliable mobile network by Global Wireless Solutions for the 17th consecutive year. Finally, to Slide 12 and our strategic focus areas, recognizing progress made in 2024 and focus areas for 2025, driving towards longer-term shareholder value creation. These priorities are split across three pillars and consistent with those we have previously identified: First, Network and IT. We are investing in leading infrastructure to support our customers in the region, as I covered on the previous slide. We will continue to do this, while at the same time having an opportunity to reduce our capital intensity as Chris will cover in his section. Second, our Commercial Strategy. We saw traction across our converge offers, closing the year with over 30% FMC penetration in Panama, Jamaica and Costa Rica, which represents an increase of between six and eight percentage points year-over-year. In 2025, we will focus on driving penetration through refreshed converge offerings. In 2024, we successfully completed price increases in both Fixed and Mobile across our main markets, with churn in line or below expectations. This will provide a lever to drive future top line in the coming years. We believe that delivering a strong digital platform is vital to meeting our customers where they want to interact with us, improving the customer journey and a driver of cost efficiencies. In 2024, we achieved 25% digital sales across the group, exceeding our goal for the year and our target is to approach the 30s in 2025. I also want to note that we continue to see significant opportunity to grow our B2B business in the region including through targeting specific segments such as hospitality where we can leverage our leading infrastructure and balance sheet strength. Third and finally, operational and capital allocation. In 2024, we reinforced our mobile operations in Puerto Rico by completing the acquisition of Spectrum and subscribers from EchoStar. We started the process of future-proofing our capital structure at C&W which we have now completed. We invested over $300 million in our equity through the redemption of the remainder of our convertible note and stock purchases. In 2025 our operational priority will be rebuilding Liberty Puerto Rico. In addition, we believe we have a substantial margin opportunity across our business and are working on several cost reduction initiatives to increase operational leverage, as Chris will cover in more detail in his section. This was a success story in 2024 and will provide further tailwinds in the coming years. Finally, we are excited about our opportunities in Peru. The business finished the year with over 3.1 million homes passed and approximately 0.5 million Internet RGUs. According to the latest data from the regulator, Wow is the fastest-growing broadband provider in Peru. Overall, we appreciate the overhang Liberty Puerto Rico has created and it is on us to demonstrate value. But I tell you we still believe that the true worth of our company is not reflected in the current stock price. With that I'll pass you over to Chris Noyes, our Chief Financial Officer, who will talk you through our financial performance before we take your questions.

Thanks Balan. I will start by running through our key metrics focusing on Q4 performance. Sequentially, Q4 revenue improved $61 million to $1.15 billion as compared to Q3 with each of our operating segments delivering increases. While CWP and Liberty Costa Rica accounted for the largest moves on the back of B2B, in addition both C&W Caribbean and Liberty Puerto Rico were up sequentially. Year-over-year Q4 revenue was 2% lower on a rebased basis as organic growth in Liberty Costa Rica, C&W Caribbean, and C&W Panama was more than offset by declines in Liberty Puerto Rico and Liberty Networks. At the bottom of the slide, Q4 adjusted OIBDA of $427 million increased 6% sequentially on a reported basis and was lower by 2% on a year-over-year rebased basis. Slide 15 recaps our segment results for Q4. Starting with C&W Caribbean. We reported $371 million of revenue in Q4, reflecting 2% year-over-year rebased growth. The primary driver of our top line performance was residential mobile which grew 7% year-over-year helped in large part by the continued growth in our postpaid base with 43,000 postpaid additions since the beginning of 2024 and higher ARPU following price increases primarily in Jamaica. Adjusted OIBDA expanded in Q4 to $168 million for 6% rebased growth. Sequentially adjusted OIBDA grew by 7% on a reported basis. For revenue adjusted OIBDA and P&E additions in Q4, we estimate that the business was impacted by the aftermath of Hurricane Beryl to the tune of $5 million, $6 million, and $9 million respectively. Next moving to Cable & Wireless Panama. CWP generated $209 million of revenue representing 1% year-over-year rebased growth. Mobile residential revenue was up by 20%, primarily driven by subscription and handset equipment growth following the addition of 78,000 postpaid subscribers over the last 12 months and improved prepaid ARPU as our products and promotions led to increased recharge activity. Mobile residential revenue growth was partly offset by a 13% decrease in B2B revenue driven by lower revenue from government-related projects, some of which we anticipate will come through in 2025. We posted $79 million of adjusted OIBDA in Q4 for 19% year-on-year rebased growth, driven by product mix and synergies from the Claro Panama acquisition. Adjusted OIBDA was 16% higher sequentially, on a reported basis. Turning to Liberty Networks, we generated $110 million in revenue and $61 million in adjusted OIBDA in Q4 resulting in a rebased decline of 2% for revenue and flat adjusted OIBDA performance. Top line was driven by lower wholesale network revenue, as compared to the prior year period when we won a significant new contract. This was partly offset by higher enterprise revenue due primarily to continued growth in Managed Services and B2B Connectivity. Sequentially, adjusted OIBDA growth was 3% on a reported basis. Second from the right, Liberty Puerto Rico, Q4 revenue was $317 million reflecting a 13% rebased decline year-over-year. Residential fixed revenue declined by 2% year-over-year, primarily due to lower ARPU caused by retention-related discounts. Residential mobile revenue was 20% lower, compared to the prior year period. This was driven by a reduction in mobile subscribers and ARPU year-over-year, impacted by disruption related to the migration of customers to our mobile network and lower equipment sales due to promotional activity. B2B revenue declined by 21% year-over-year, primarily reflecting the cancellation of the FCC's Emergency Connectivity Fund, which led to a reduction of 61,000 mobile postpaid subs over the past year as well as a reduction in subscribers related to migration challenges and associated credits issued for billing adjustments. We reported $80 million in adjusted OIBDA during the quarter, representing a rebased decline of 24% as compared to Q4 2023. The performance was driven by the impact of our revenue decline and increased bad debt charges, partly offset by lower other operating costs and expenses due to the termination of our TSA with AT&T following migration, and lower staff costs due to efficiency programs. Sequentially, adjusted OIBDA declined 9% or $8 million on a reported basis. We had expected a sequential increase in adjusted OIBDA in Q4. However, we had a $10 million increase in bad debt in Q4 to further reserve for receivables from migrated customers that had previously churned including a higher-than-normal default rate on equipment installment receivables. Additionally, we provided incremental credits to customers in the quarter primarily related to billing corrections post-migration. Concluding with Costa Rica on the far right, we delivered Q4 revenue of $168 million and adjusted OIBDA of $67 million, reflecting 9% rebased revenue growth and 11% rebased growth in adjusted OIBDA. The year-over-year rebased performance was mainly driven by higher mobile revenue, primarily due to postpaid subscriber growth. Adjusted OIBDA grew by 32% sequentially, on a reported basis. Turning to Slide 16, we incurred P&E additions of $725 million or 16% of revenue, in line with our annual target. During 2024, we passed or upgraded approximately 400,000 homes including more than 90,000 in Q4. In addition, we launched 5G across several markets during the year. In terms of spend by category, CPE represented 22% and new build upgrade and capacity accounted for 22% and 14% of fiscal year 2024 total spend, respectively. As it pertains to P&E additions across the group, we are focused on bringing annual overall spend down to 14% over the next few years, as we benefit in part from lower infrastructure deployment. Looking at adjusted FCF before partner distributions, we delivered a robust Q4 of $196 million, bringing our full year to $116 million. Our annual result was constrained by Puerto Rico performance, and taxes related to the tower transaction. However, we are well positioned at LLA for significant adjusted FCF acceleration over the next two years. Moving to Slide 17, we have been focused on improving our margins across our operations through revenue growth together with cost-saving initiatives and CapEx discipline. We wanted to highlight two of our best-performing operations in 2024, C&W Caribbean and CWP both of which are poised for further improvement in 2025. First, in C&W Caribbean, we increased our adjusted OIBDA and adjusted OIBDA less P&E addition margins by 180 basis points to 43.3% and 260 basis points to 27.8%, respectively. On adjusted OIBDA, we reduced our direct and indirect operating costs by $7 million year-over-year in part due to renegotiation of vendor contracts, automation initiatives, and sales channel transformation. We also improved our P&E additions to revenue by 90 basis points to 15.5% and we see it going lower in 2025. Second in Cable & Wireless Panama, adjusted OIBDA margin increased by 470 basis points during 2024, driven by revenue expansion together with $21 million of lower direct and indirect costs, primarily from synergies it obtained after the Claro Panama acquisition combined with labor cost reduction. Additionally, our adjusted OIBDA less P&E additions margin was up 670 basis points in 2024 as compared to 2023, helped in part by P&E additions as a percent of revenue lower by 200 basis points year-over-year. Across our operating segments, we believe achieving greater than 30% adjusted OIBDA less P&E additions as a percent of revenue is a worthy operating objective over time with the exceptions of our Networks business, which is already over 40%. Turning to Slide 18. Adjusted for the recent C&W transactions, we finished 2024 with $8.2 billion of debt and roughly $700 million of cash. With adjusted OIBDA and adjusted FCF expanding in Q4, our LLA net leverage sequentially decreased from 4.8 times at Q3 to 4.5 times at Q4. A primary focus of ours over the past six months has been to significantly term out our largest credit silo which is C&W. As a reminder, the standalone silo consists of three of our operating segments: the Caribbean, Panama, and Networks. We completed three transactions: $1 billion in senior secure notes during Q4; and $1.5 billion in term loans; and $755 million in senior notes post year-end. The C&W credit silo's maturity profiles pre- and post-refinancings are highlighted in the two charts and clearly show the significant improvement in weighted average life. For the silo, we now have an approximate weighted average life of 6.5 years with more than 75% of our silo debt maturing in 2032 and beyond. Not shown, but adjusting for the refinancings, LLA on a consolidated basis has close to 70% of its debt due 2029 and beyond. Moving to the final slide and our closing remarks. As Balan highlighted, subscriber losses in Puerto Rico have begun to moderate. We are strengthening our CVPs and further improving our retention efforts on postpaid mobile. Our fixed and prepaid business lines have been moving in the right direction. Obviously, we still have work to do on improving operations in Puerto Rico and it is a significant focus of both local and LLA management. We are actively engaged in driving OpEx lower through efficiency gains and expect our efforts to build throughout the year. This is a key component combined with subscriber performance to enable us to return to adjusted OIBDA growth in the near-term. Beyond Puerto Rico, our other operations are executing well. We continue to build subscriber volumes through our FMC plans and other strategies that target both broadband and postpaid volumes. As I highlighted, we believe our Caribbean and Central American businesses have significant opportunity to further drive margin expansion as our efforts in 2024 will carry over in 2025 and we continue to find ways to improve our service delivery and customer journeys. Additionally, we believe the completion of the TIGO Costa Rica transaction will be quite value accretive, given the synergy opportunity. As we flagged earlier, our Peruvian investment has gained considerable scale quickly and certainly presents us with a range of attractive strategic and operating options. To recap, 2024 is a tough year for us given the PR migration but our other businesses performed well, demonstrating resilience and growth. Key for us in 2025 is to drive both adjusted OIBDA and FCF growth across the company as well as continue to reduce our leverage levels through adjusted OIBDA expansion. We remain focused on achieving our previously announced three-year guidance targets on adjusted OIBDA and adjusted FCF before partner distributions; and as noted earlier, we'll look to drive capital intensity lower. With eight quarters to go we are obviously behind where we hope to be after year one, given Puerto Rico. So driving outperformance in other businesses and returning Puerto Rico to sustained growth are critical. Notwithstanding that LLA, we feel very good about our 2025 prospects overall, and have good momentum carrying into the year. With that, operator please open it up for questions.

Thank you. Our first question will be from Michael Rollins with Citigroup. Your line is open.

Thanks and good morning. I have a couple of questions regarding Puerto Rico. First, you mentioned the increase in bad debt during the fourth quarter. Does this suggest that churn could worsen in the first quarter before improving since that bad debt might indicate some risk of disconnection? Additionally, if you have any insights, could you share what analytics you have on your customers that might suggest better performance trends? Secondly, on Puerto Rico, you previously mentioned a monthly EBITDA target of $45 million. Could you provide an update on whether this target is still in place and what the progress has been towards achieving it, whether in the first quarter or throughout 2025? Thank you.

Good morning, everyone. Thank you for your questions. Regarding the bad debt, it was primarily a catch-up situation. We recorded churn in the first and second quarters, and there was an aspect of bad debt we needed to address related more to the acceleration of our installment plans rather than subscriber movements. The catch-up occurred because when a customer disconnects the device they owe us on, it becomes quite challenging for us to collect. Therefore, we had a significant amount of handset-related catch-up. We believe we have mostly addressed this issue, but it has been a source of leakage for us. We are working on improving this in two main ways: by collaborating with collection agencies and enhancing our processes for when a customer ports out. Much of the bad debt challenge wasn't about capturing churn accurately but rather about not recognizing the right amount of leakage. As for positive trends, you may have noticed improvements in NPS, which serves as a leading indicator. Typically, there’s a delay of a couple of months before it reflects operationally, but the trends are looking good. One key issue for our customer dissatisfaction stemmed not just from our IT systems but also from how we managed billing processes. Many credits were exchanged during the migration from AT&T, leading to data transfer failures. Consequently, we didn’t capture some discounts that customers had in their previous billing systems. This migration has caused issues, but we are in the process of addressing them. Fixing these billing problems has already resulted in improved NPS scores. I also want to mention our coverage in Puerto Rico; we have the top network there. Furthermore, regarding the NPS figures, we noted a significant increase in 2022, largely attributable to our hurricane recovery efforts, which highlights our dedication to the island and reflects that our network performed exceptionally well during those crises due to our widespread use of batteries. We just need to leverage these advantages, improve on foundational aspects, and communicate a strong value proposition to our customers. Regarding your last question about the $45 million EBITDA target, as I mentioned in the last call, there are several areas we need to improve in Puerto Rico, especially within our back-office systems and customer experience. There are a lot of variables at play, which is why I refrained from providing further guidance. However, I will say our goal is to regain control of our EBITDA; while we didn’t achieve that in the fourth quarter, the team is highly focused on reaching that target.

Thank you.

Our next question will be from the line of Vitor Tomita with Goldman Sachs. Please go ahead. Your line is now open.

Hello. Good morning and thank you for taking our questions. I have two quick questions. The first is regarding the CapEx guidance. Can you provide more insight into the reasons for lowering CapEx to sales to a level that is below most telecom companies both globally and in the region? My understanding is that the aim is to reach 13% in 2025 and 2026, averaging 14% over the three-year guidance period, but please correct me if I'm mistaken. Have you managed to achieve your planned network improvements with less cash than expected, or is this mainly due to reprioritizing planned projects? Should we interpret this as a temporary reduction in the coming years to increase cash flow, or do you consider this level sustainable in the long term? My second question is about Puerto Rico. You mentioned the impact of bad debt related to equipment installment sales, mainly from past sales during the migration. Additionally, the earnings release mentions billing adjustments affecting B2B clients that contributed to the reduction in B2B revenues this quarter. Can you elaborate on how significant these factors were for Q4, especially since they might not recur in Q1? Thank you very much.

Sure. Regarding the CapEx guidance, our plan is to reduce it to 14%, and we might reach 13% in 2026. My aim is to maintain 14%. The drop of two points is largely due to the completion of many of our builds and upgrades, particularly from our copper plant, with only a few remaining tasks. This has been a six-year project. Additionally, we have expanded our mobile networks significantly. When we assumed control of the business, our LTE coverage was below 50%. We have since upgraded to LTE and 5G in key markets. However, I don't anticipate many more 5G upgrades in the next two years since a significant portion of handsets in those areas are still not 5G compatible, with many still operating on 3G. Therefore, upgrading to 5G doesn't make sense. For both my mobile and fixed networks, we've completed the necessary upgrades. Our strategy for the fiber-to-the-home upgrades was clear, focusing on transitioning from our copper infrastructure rather than from HFC, though there have been some exceptions in Puerto Rico and Costa Rica. Overall, we already have a strong network. In terms of CapEx benefits, our cost of customer premises equipment (CPE) continues to decline, and our current focus is on mobile. As reflected in our numbers, we are experiencing growth in postpaid services, which require less capital investment. So, aiming for 14% investment is reasonable for this year and will also positively impact our free cash flow guidance. Regarding the B2B bad debt and EIP in Puerto Rico, the B2B side mainly involves credit issues. We provided some credits to large customers during the period due to errors in our billing systems, but those credits are tapering off, so I don't expect significant adjustments in Q1. We feel we are on a solid path for the next four quarters, although there may be some minor issues, but not to the degree encountered in 2024. We will also be reducing the credits we’ve issued to address past billing system setbacks. On the EIP front, we have been proactive, recently submitting updates to credit agencies about customers who have taken our handsets without payment. Significant work is underway there. I believe we will enter 2025 with stronger operating practices compared to 2024.

Very clear. Thank you very much.

Our next question will be from the line of Andres Coello with Scotiabank. Please go ahead. Your line is open.

Thank you. So there's been a number of press articles mentioning LLA as interesting in a number of M&A transactions in the region. I think that there was an article saying that you could sell your Puerto Rico business to Verizon. And there were other articles saying that you could buy the Telefonica businesses in Argentina and Peru. So I'm wondering what are your thoughts on M&A for this year? Thank you.

Thank you, Andres. On the Puerto Rico rumors, we came out and said, we don't confirm or deny. Listen, if we were going to do something, I would have said something on this call. There's nothing going on there. We are focused on fixing the business and staging a really nice comeback in Puerto Rico. That is our plan. And clearly, if you look at our EBITDA right now, it's suboptimal for me to trade that asset at this point. We are going to fix it. We're going to grow that EBITDA, and I think it's going to be a great asset for anybody. Now on the Telefonica front, clearly you know all the issues. Just to reassure everybody in this call, the Telefonica Peru asset has a lot of tax liabilities. It's in insolvency right now. It's not one that is of any interest to us. And the second one, Argentina, listen, you can't put any debt in Argentina, and it's all going to be in U.S. dollars and you can't hedge it. So clearly in a levered equity model that doesn't work for us. So hopefully that kind of answers the questions.

Understood. Thank you.

Our next question will be from the line of Matthew Harrigan with The Benchmark Company. Please go ahead. Your line is open.

Thank you. Notwithstanding the more moderate approach on the CapEx side, you've got a fair amount of FTTH in place. And I know it's early, but can you talk empirically about what you think are the benefits on a long-term pricing and the functionality of the network and the cost improvements that you see? I mean assuming more durable reliable networks clearly over a period of time. And then how much does it cost to actually connect customers relative to what you have on the traditional HFC topology? Thank you.

Sure. Pricing is largely influenced by the number of competitors in the market rather than the network itself. For instance, in Chile, our pricing issues arose not from our network but from the entry of additional operators into the market. Previously, we could compete effectively with three fiber-to-the-home networks. However, challenges emerged when the fifth and sixth operators entered and initiated aggressive pricing strategies. Currently, in Panama, we are in a duopoly, as well as in Puerto Rico and most of the Caribbean. In Costa Rica, while we have many fixed operators, we are beginning a consolidation process with Tigo, which I hope will lead to a more stable pricing environment. Ultimately, pricing power derives more from the number of competitors than from the network quality. That said, we have a robust network, placing us in a strong position. I am pleased with our strategy over the past four years, which has focused on increasing volume rather than price. We have managed to establish a favorable price differential relative to our competitors, allowing us to exert pricing power in most markets, and we plan to capitalize on this by implementing price increases. Our strategy is now evolving to encompass both volume and price, which is proving effective as we enter 2024 and 2025. This is the positive momentum we aimed for, and it is coming to fruition, making me optimistic about pricing moving forward in each market we operate in. Regarding the cost of connecting customers, the expenses for connecting through HFC are lower since we already own the infrastructure and have drops available to most homes. In contrast, for fiber-to-the-home, the connection costs are currently higher due to it being a newer network. When customers reach out for service, we often need to install a drop to their home. Interestingly, the cost of customer premises equipment (CPE) for fiber-to-the-home has become significantly lower than for HFC. This is a positive development. Therefore, our overall cost structure for fiber-to-the-home is looking much better now, and the competitive landscape has improved with our vendors as well.

Thanks, Balan. I'm glad you realized it's not a good time to sell the Puerto Rican operation and have a great year.

Thanks.

And our next question will be from Mathieu Robilliard with Barclays. Please go ahead. Your line is open.

Good morning and thank you for the presentation. I had two questions. One is around Puerto Rico but not about all the questions that have been asked before but really about the Echostar integration. How is it going? I think at the Q3 call you had flagged that you may have to face some interoperability issues between the handsets of the customers that you acquired and your technology. If you can clarify that and how it's going? And then just a very quick one on guidance. I realize you reiterated guidance. But can you confirm that the ranges and the numbers that you've put in your Q4 2023 presentation are still valid because maybe I missed it, but I haven't seen it anywhere in the 2024 docs. Thank you.

Sure. Let me address your second question first. As Chris indicated, we are reaffirming our guidance on free cash flow. Initially, we had projected more than $1 billion in free cash flow, and now we are stating it will be about $1 billion. The difference is due to the challenges we faced in Puerto Rico in 2024. When we set our guidance, we included buffers against that $1 billion, but the issues in Puerto Rico consumed most of those buffers. However, the path to achieving $1 billion in free cash flow remains clear. Regarding EBITDA, we expected it to be in the mid to high single digits, and we anticipate reaching those figures. You will see performance in 2025 and 2026 aligning with that guidance. As for CapEx, we plan to reduce it; we initially aimed for 16%, but we did exceed that in 2024. In 2025, we expect to spend 14%, and likely the same in 2026. Concerning Puerto Rico and the EchoStar integration, Eduardo, our General Manager in Puerto Rico, has everything under control. He previously managed a large prepaid migration with TracFone to Verizon and has put together a capable team for the migration in Puerto Rico. The EchoStar migration involves prepaid services, which are generally easier to manage than postpaid. Our NPS for our prepaid business in Puerto Rico has remained high, and we are actually growing that segment. The challenges arose with postpaid, but I feel more confident about the EchoStar integration because it is prepaid, and Eduardo and his team are very capable. We have accounted for handset interoperability in our budget and migration plans. Customers will receive new handsets when they visit our stores or upgrade their plans. Most of our prepaid customers are already being transitioned to our platform rather than the existing one. We've started this process, and we expect to complete most of it by the fourth quarter of this year. I hope that answers your question, Mathieu.

Thank you very much. Absolutely. Thanks.

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

Yeah. Well, a few things I want to say. Thank you so much operator. Firstly, you saw that we had a lot of challenges in Puerto Rico. And it is a cloud on not only how the business performed and our equity, but also, I guess on the management team a lot of us take this very seriously. This is something we know we've let you down on in 2024. I am focused 100% in 2025 to fix a lot of the challenges we had in '24. We've built a strong team. We've made a number of changes in the fourth quarter and earlier this year as well in the team to put us on a different trajectory in 2025. But I must also point out to you we have a great business. The cloud on Puerto Rico has somehow distorted the fact that the rest of our business are killing it, Costa Rica, Panama, the Caribbean Islands, our Subsea Networks business, a lot of those businesses. If you remember when we started this journey, we're not where they are today. Panama missed their budgets every year for like five years in a row. We've turned that business around. It is a strong business. We fixed the market structure, put in great management. It is running really well. It's a good flywheel. Costa Rica, who would have thought? We integrated the whole business there from Telefonica smoothly without much disruption to our customers. It is now a good growth in a highly competitive market we're growing our fixed business. And we were number three in mobile in Costa Rica and we are now number one. We know how to operate businesses. The Caribbean Islands, this was one that from way back when we bought this have never achieved its full potential. But today it has more than exceeded the potential that we even thought there. Our management team there is doing a great job. The flywheel is great. And if you look at the string of competitors that compete with us, many of them have challenges, some of them have gone bankrupt, some of them are no longer in business. We are strong. We know what we're doing. We had a hiccup in Puerto Rico. We're going to fix it. And '25 is when we are going to show you that we will fix it. And I am eternally optimistic about this business. The rest of our business is going great. I just need to fix Puerto Rico and I tell you, this business will do very well. So I thank you for your support and your patience with this. This management team is going to work really hard for you. Thank you.

Ladies and gentlemen, this concludes Liberty Latin America's Full Year 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.