Liberty Latin America Ltd. Q2 FY2025 Earnings Call

Good morning, and welcome to Liberty Latin America's second quarter 2025 investor call. Today's formal presentation materials can be found under the Investor Relations section of Liberty Latin America's website at www.lla.com. Following today's formal presentation, instructions will be given for a question-and-answer session. As a reminder, this call is being recorded. Today'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 and quarterly report on Form 10-Q, 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 Investor section of our website.

Thank you, Soomit, and welcome, everybody to Liberty Latin America's second quarter and first half 2025 results presentation. I'll begin with our group highlights and an overview of our operating results by credit silo. Chris Noyes, our CFO, will then follow with a review of the company's financial performance. After that, we will get straight to your questions. As always, I'm joined by my talented executive team from across our operations, and I will invite them to contribute as needed during the Q&A following our prepared remarks. That's 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. Today, we believe our share price does not fully reflect the intrinsic value of our underlying business. To unlock this value for our shareholders, we plan to proceed with the separation of Liberty Puerto Rico from LLA. It is essential that Liberty Puerto Rico is positioned with a strong and sustainable capital structure post separation. To that end, we are actively working towards this goal through a targeted liability management exercise. Chris will provide more details on this in his section. We also continued to grow our high-speed broadband and postpaid mobile base in the first half, adding 70,000 subscribers in total across the group. This was over 100,000 additions, excluding Puerto Rico with the main contributor being Costa Rica, Panama and Jamaica. We reported $2.2 billion of revenue in the first half of 2025. In the same period, residential revenue was up 2% in Liberty Caribbean and Costa Rica and 8% in C&W Panama year-over-year on a rebased basis. We expect these businesses to continue the momentum in the second half following the launch of new customer value propositions, which should resonate well in our markets. In addition, and after less favorable phasing through H1, we anticipate better momentum on B2B revenue in the second half across a number of regions. We posted adjusted OIBDA of $822 million, reflecting a rebased year-over-year growth rate of 8% in the first half. This includes double-digit rebased growth in Liberty Caribbean, Panama and Puerto Rico. We maintain our focus on lowering capital intensity. These efforts led to a 23% expansion in adjusted OIBDA less P&E additions year-over-year, bringing us to a margin of 25% of revenue in the first half of the group and 29% excluding Puerto Rico. These are strong numbers, reflecting the focus of management on profitable growth, which is expected to drive strong cash conversion in the second half. Turning to Slide 6. I'll begin our operating review with our cable and wireless credit silo, which had another very solid quarter. This silo includes Liberty Caribbean, C&W Panama and our Liberty Network segment. Starting with our Caribbean operations, now named Liberty Caribbean. We've rebranded this segment in the second quarter with a refreshed identity and signaling a renewed focus on driving digital transformation, particularly in the B2B space. On the left of the slide, we present our mobile KPIs. Postpaid mobile adds remained strong, led by another solid quarter in Jamaica that represents 20 consecutive quarters of subscriber growth. Mobile ARPU reported growth both sequentially and year-over-year, supported by prepaid price increases implemented earlier this year and in the first half of last year. This resulted in 6% mobile rebased revenue growth in Q2 year-over-year. Moving to the center of the slide to our fixed KPIs. Broadband subscriber growth was flat in Q2, with gains in Jamaica, offset by declines mainly in Trinidad. Trinidad is the only Caribbean market we operate in, where there are 3 national fixed players and where we lack a mobile offering. Fixed ARPU per customer relationship increased both on a sequential and year-over-year basis, reflecting the benefit of pricing changes. Lastly, for Liberty Caribbean, besides our corporate rebranding, we launched a new residential campaign titled, 'Let Your Riddim Flow.' This initiative strengthens our convergence strategy with a particular emphasis on accelerating postpaid mobile adoption. The redesigned platform introduced a striking new visual identity that is both distinctive and deeply rooted in local cultures, traditions and values, enabling us to build a stronger emotional connection with our customers. Moving to Slide 7 and our C&W Panama segment. Starting on the left of the slide. We delivered another quarter of strong postpaid adds, which supported robust mobile rebased revenue growth of 6% year-over-year. This performance continues to reflect the positive subscriber momentum we built following a competitor's exit from the market last year. Mobile ARPU remained stable both sequentially and year-over-year, impacted by lower prepaid recharges during the quarter, largely due to nationwide protests, which have since subsided. Moving to the center of the slide. We delivered a solid quarter of internet subscriber adds. This growth reflects the effectiveness of our broadband strategy and continued demand for high-speed connectivity. On the other hand, fixed ARPU declined both sequentially and year-over-year. This was primarily driven by retention discounts and lower acquisition ARPU, as we responded to offers from competitors. Our go-to-market strategy remains focused on delivering consistent results across our high-speed networks. This commitment was recently recognized by several awards, naming us the best-performing fixed network in the country. In the B2B space, I'm pleased to highlight among other recent wins, a major milestone. We were awarded a contract with the Ministry of Education of Panama, Maduka, to provide high-speed Internet to all public schools nationwide. This marks a significant step forward in advancing digital and educational inclusion across the country. Overall, we are building a strong platform in Panama. After a tough comparison in the first half, we are well positioned to carry better momentum into the second half of the year. Next, Slide 8 and our final segment within the C&W credit silo, Liberty Networks. On the left of the slide, we present our first half year-over-year revenue evolution. While revenue declined year-over-year due to the acceleration of noncash IRU revenue in the first half of 2024, our subsea business continues to demonstrate resilience. Excluding IRUs, the underlying wholesale revenue grew 8% on a rebased basis year-over-year, driven by new lease capacity sales. This reflects the strength of our core operations and the growing demand for bandwidth across the region. Enterprise remains a key growth engine with continued momentum in IT as a Service and connectivity solutions, particularly in the Dominican Republic and El Salvador. These services are helping us build a strong base of monthly recurring revenue, which supports long-term stability and positions us well for the future. On the right of the slide, we highlight the core strength of our subsea and terrestrial infrastructure, which underpin the competitive edge of Liberty Networks. Our unique mesh network connecting over 30 countries with 50,000 kilometers of cable forms the backbone of a diversified revenue portfolio, predominantly denominated in U.S. dollars. Despite elevated capital expenditures associated with Project MANTA, our new subsea cable system in partnership with Sparkle and Gold Data, we continue to deliver robust adjusted OIBDA less P&E additions of over 35% of revenue, reflecting the low capital intensity of the business and its ability to generate strong cash returns. Looking ahead, our focus remains on the successful execution of Project MANTA. On track for completion in 2027, the initiative is expected to establish a solid foundation of monthly recurring revenue, enhancing long-term profitability and positioning Liberty Networks as the region's primary data hub. Turning to Slide 10 and Liberty Costa Rica. Starting on the left of the slide. Mobile continues to perform strongly with growth concentrated in the high-value Postpaid segment, reinforcing our leadership in the market and driving 5% rebased revenue growth year-over-year. According to the latest regulator report, we remain the #1 mobile operator overall in Costa Rica throughout 2024. In postpaid specifically, reaching 2 percentage points in market share year-over-year. Mobile ARPU was flat sequentially, but grew year-over-year, supported by postpaid price increases and a higher proportion of postpaid subscribers. Moving to the center of the slide. We delivered modest broadband net adds and fixed ARPU declined both sequentially and year-over-year. As referenced in previous calls, the competitive backdrop in Costa Rica's fixed market remained challenging. To defend our fixed position and differentiate our offering, we have also revamped our video proposition. Since July 15, new and existing customers have access to the most popular over-the-top platform included in their home plan. This bold and meaningful value proposition unique for the Costa Rican market is anchored by a new brand claim. 'You want it, you got it.' It's a promise that brings us closer to our customers, showing that we listen, we care, and we deliver. Moving to Slide 12 and our third credit silo, Liberty Puerto Rico. Starting on the left of the slide, mobile performance showed signs of improvement. Postpaid losses were lower compared to Q1, with a better run rate in May and June, and mobile ARPU increased sequentially, resulting in relatively flat sequential mobile subscription revenue. We continue to be focused on the Mobile segment, and I'm pleased to report that in June, we successfully expanded our network through the integration of low-band 600-megahertz spectrum alongside AWS 3 and AWS 4 bands. This strategic enhancement marks a significant step forward in service quality, capacity and coverage. This combination of spectrum bands is instrumental in meeting the surging demand for mobile data, ensuring we remain well positioned to support future growth. As a reminder, we were honored with both the best-in-class and the most reliable network awards earlier this year, further validating the strength and consistency of our network performance. Moving to the fixed side in the center of the slide. Following the price increase implemented earlier this year, we reported 7,000 Internet subscriber net losses, a fixed ARPU increased both sequentially and year-over-year. Fixed revenue was slightly negative year-over-year, as ARPU growth was more than offset by a lower subscriber base impacted by the discontinuation of the ACP program in Q2 2024. We are now close to 20% fiber-to-the-home and have invested to upgrade our HFC network to DOCSIS 3.1. This enhancement has significantly boosted performance and enabled us to win the fastest fixed network award from Ookla, achieving the highest speed scores and WiFi performance on the island. Slide 13 provides a deeper look into postpaid net adds, the evolution of mobile NPS. The launch of our new postpaid CVP, Liberty Mix and other initiatives. On the left of the slide, we break down postpaid activity into gross adds and disconnections. Gross adds over the past 2 quarters have remained consistent with pre-migration levels, underscoring the resilience and appeal of our product offering. Postpaid churn continues to improve, marking the fourth consecutive quarter of positive momentum. Moving to the center of the slide. We show NPS progression, a key leading indicator of customer satisfaction and brand perception. Compared to one year ago, we've made significant strides in rebuilding customer trust with NPS showing strong recovery. While our mobile NPS have returned to positive territory, it remains below pre-migration levels, indicating further room for improvement. On the top right of the slide, we wanted to share more detail on Liberty Mix. In July, we launched our new postpaid customer value proposition, Liberty Mix. This innovative mobile plan offers three tiers enabling customers to tailor each line to the specific needs of individual family or group members within the multiline bundle. Liberty Mix marks the first step in our brand relaunch strategy, and we anticipate it will drive gross adds in the second half of the year. On the bottom right of the slide, now that we have strengthened our network, IT systems and internal processes, we are applying the same playbook used across the Liberty Latin America Group, where FMC has proven very successful, with over 30% penetration in several markets to lean into convergence in Puerto Rico. Our combination of best-in-class fixed and wireless infrastructure should allow us to differentiate in the competitive marketplace. Being part of the wider group, Liberty Puerto Rico benefited from shared platforms and expertise. We've been developing solutions that use AI to improve our operations across our entire value chain, with a strong focus on commercial activities and top line growth. Specifically in Puerto Rico, we have been focusing on billing quality assurance and churn prediction. Moreover, we have made a significant number of changes to the management team, leveraging experience and expertise from across the LLA footprint. Lastly, we continue to reshape the company's cost base to reflect the smaller scale of the business, conducting a disciplined review of each cost line. We expect additional measures will deliver greater margin impact in the second half of the year. Finally, on Slide 14, we summarized our strategic vision and outline the key drivers that set us up for growth in H2. Firstly, the residential space, where we are well positioned. We operate in countries with healthy market structures across both fixed and mobile services and we pursue consolidation opportunities to deliver value to customers and markets. For example, last year, we agreed to acquire Tigo's business in Costa Rica, which supports growth in that market. We are working with regulators to approve that transaction and now expect this to close in early 2026. Our focus on fixed mobile convergence continues to pay off with penetration rates exceeding 30% in several markets, supported by our robust fixed and mobile infrastructure. We have also introduced several new customer value propositions in recent weeks, reinforcing our commercial momentum heading into the second half. Our second area of focus is B2B, which accounts for nearly 1/3 of group revenue. While we face year-over-year B2G revenue headwinds through Q2 and the first half, particularly in Panama, we expect improved performance in the second half across several geographies to drive improving revenue momentum. Governments are investing in digitization, security and cloud computing, and we are the right trusted partner for them. Along those lines, ICT continues to be a source of future growth opportunity as we develop more encompassing cloud and cybersecurity solutions focused on mission-critical operations for our customers. We partnered with the hyperscalers to deliver computational and AI models for our customers. The MANTA bill, which progressed steadily through the first half is expected to contribute meaningfully to Liberty Networks revenue and adjusted OIBDA over the medium term. Lastly, costs. We have delivered strong margin progression in recent quarters, especially within our C&W silo. Across the group, we continue to see upside as we focus on higher-margin residential products. Our initiatives around copper migration, digitization and AI adoption have significantly enhanced workforce efficiency, leading to meaningful labor cost reductions. Additionally, we anticipate healthy synergies following the expected completion of the Tigo merger in Costa Rica. With that, I'll pass you over to Chris Noyes, our Chief Financial Officer, who will take you through our financial performance before we move on to your questions.

Thanks, Balan. Let me now take you through our financial performance in greater detail, starting on Slide 16. Q2 2025 revenue was 3% lower on a rebased basis, totaling $1.1 billion. This decline was primarily driven by the phasing of project-related B2B revenues across several geographies. Importantly, we have good visibility into stronger delivery in the second half of the year. However, residential revenue grew 1% year-over-year on a rebased basis, reflecting the strength of our core consumer business. Turning to adjusted OIBDA. We reported a rebased increase of 7% to $415 million, building on a solid 8% growth in Q1. Among our segments, only Liberty Networks saw a year-over-year decline in adjusted OIBDA, largely due to the timing of noncash IRU accelerations, which have now largely normalized. Supporting this growth is operating leverage, as we continue to execute on a range of cost-out initiatives across our operations. These efforts have contributed to an improvement in our consolidated adjusted OIBDA margin, which expanded by 340 basis points year-over-year. Moving to the last section, we highlight an important metric for us, which is adjusted OIBDA less P&E additions. This increased by 26% to $265 million in Q2, representing 24% of revenue compared to 19% last year. The year-over-year improvement is reflective of the higher adjusted OIBDA margin and lower capital intensity, with P&E additions amounting to 14% of revenue in the quarter. Although we were up year-over-year on adjusted OIBDA less P&E additions, our reported adjusted FCF before partner distributions was negative $41 million in Q2 as compared to negative $7 million in the prior year, a decline of $34 million. This was attributable to working capital swings, including timing on key collections from our government customers. As in previous years, we anticipate a robust second half in cash flow generation, principally in the fourth quarter. Slide 17 recaps our Q2 results for the C&W credit silo, which consists of Liberty Caribbean, CWP and Liberty Networks. Starting with Liberty Caribbean. In Q2, we reported $366 million in revenue, with flat rebased growth year-over-year. This result reflects 6% growth in residential mobile, offset by a rebased decline of 3% and 1% year-over-year in B2B and residential fixed, respectively. The strength in mobile was driven by higher prepaid ARPU helped in part by selected price increases in a larger postpaid subscriber base, supported by our successful FMC and prepaid to postpaid migration strategy. Fixed residential revenue declined driven by lower volumes, mainly due to the impact of Hurricane Beryl in Q3 2024 and lower nonsubscription revenue. B2B was impacted by lower project revenue, particularly in the Bahamas. Adjusted OIBDA came in at $174 million, representing 11% rebased growth year-over-year, fueled by optimization initiatives across our island geographies and our operating cost categories, including our network and commercial expenses. Our efforts have translated into an adjusted OIBDA margin improvement of nearly 500 basis points year-over-year, reaching 47%. Next, moving to Cable & Wireless Panama. CWP generated $177 million of revenue and $69 million of adjusted OIBDA, with a 10% rebased revenue decline and 6% rebased adjusted OIBDA growth year-over-year. The rebased top line decline was driven by 30% lower B2B revenue, partly offset by increases of 6% and 2% in residential mobile and residential fixed, respectively. The year-over-year decline in B2B revenue reflects an exceptionally strong prior year comparison, driven by a high volume of government project wins in Q2 2024. We expect to catch up in the second half of the year, supported by a solid pipeline. The healthy mobile revenue uplift was supported by postpaid subscriber growth and higher handset sales, though prepaid was partially impacted by nationwide protests during the quarter. The residential fixed revenue rebased growth was mainly driven by broadband RGU additions. Year-over-year adjusted OIBDA performance was driven by improved gross margin, helped in part by lower B2B project-related revenue and a reduction in operating expenses year-over-year. As a result, these factors led to an adjusted OIBDA margin expansion of almost 600 basis points to 39%. Turning to Liberty Networks, which delivered $115 million in revenue and $61 million in adjusted OIBDA, resulting in a rebased decline of 3% in both metrics. Specifically, wholesale revenue fell by 3% on a rebased basis due to an $8 million reduction in noncash IRU revenue amortization as compared to the prior year. Enterprise revenue declined by 1% on a rebased basis, mainly due to lower project-related revenue, which more than offset gains in IT as a Service and connectivity. Adjusted OIBDA was mainly impacted by the aforementioned decrease in IRU revenue. Aggregating all 3 operating segments within the C&W credit silo, we generated $636 million in revenue, reflecting a 3% rebased decline and $303 million in adjusted OIBDA, resulting in 7% rebased growth. Moving to Slide 18 and the Q2 results for our other 2 credit silos, Liberty Puerto Rico and Liberty Costa Rica. On the left, Liberty Puerto Rico. Revenue was $301 million, representing a 5% year-over-year rebased decline. Residential fixed revenue declined 1%, primarily due to lower volumes following the discontinuation of the ACP program, partially offset by higher broadband and video ARPU driven by price increases implemented earlier this year. Mobile residential revenue declined by 3% on a rebased basis, driven by a lower postpaid subscriber base post-migration. This was partially mitigated by higher nonsubscription revenue, while prepaid revenue remained broadly flat. B2B revenue declined 18% on a rebased basis, mainly due to lower mobile service revenue, resulting from a reduced subscriber base and ARPU decline. Adjusted OIBDA increased by 21% year-over-year on a rebased basis, reaching $87 million. The improvement was primarily driven by lower bad debt expense, the phaseout of integration and TSA costs and reduced labor costs. P&E additions were $38 million, representing 12% of revenue, a 340 basis point decrease over prior year levels, as the business actively managed its capital intensity. Concluding with Costa Rica on the right, we delivered Q2 revenue of $151 million and adjusted OIBDA of $54 million, reflecting a 1% rebased revenue growth and flat rebased adjusted OIBDA growth year-over-year. Mobile residential revenue grew 5% on a rebased basis, supported by higher postpaid volumes from our prepaid to postpaid migration strategy and strong equipment sales. Fixed revenue was down 3% year-over-year on a rebased basis, driven by lower ARPU, primarily due to our buy-to-own CPE model, which is in turn increasing non-subscription revenue. B2B revenue was down 5% year-over-year on a rebased basis, mainly due to lower service revenue. Adjusted OIBDA remained flat as revenue gains were offset by higher equipment costs and increased bad debt. Next is Slide 19 and our balance sheet metrics by credit silo and in aggregate for LLA as of June 30. The C&W silo accounts for approximately $5 billion of LLA's total debt of $8.2 billion and has covenant leverage of 3.9x. Given the refinancings we have completed over the last 9 or so months, we have lengthened the silo's average life to about 6 years. Turning to Costa Rica. We have about $500 million of debt and the business has covenant leverage of 2.1x with the debt stack due in 2031. Importantly, we would expect to be in position post-closing the Tigo acquisition in 2026 to refinance our debt to more attractive levels given the low leverage and underlying strong performance of the business. And finally, Liberty Puerto Rico has $2.8 billion of debt, covenant leverage at 7.9x and debt maturities largely between 2027 to 2029. We will discuss our approach with the near-dated stack on the next slide. At the consolidated level, we have no debt at the holding company and thus, in aggregating our 3 credit silos, our $8.2 billion of debt reflects consolidated net leverage of 4.7x. Moving to Slide 20. Today, we wanted to highlight 2 key strategic initiatives that we have recently embarked upon at LLA and its operating businesses. Liability management at LPR and a concerted effort at LLA to unlock the underlying value of our operating assets. First, turning to the left side of the slide and building upon the balance sheet discussion from the prior slide and the commentary that we have shared over the last year. Our local operating team and LLA more broadly have been highly focused on stabilizing LPR and improving all aspects of the underlying business. As Balan noted today, we are seeing signs of a recovery. With that being said, it is our view that the capital structure at LPR is unsustainable, both in terms of quantum of leverage and expected carry cost. Hence, with still more than 2 years until our earliest bond maturity, we believe it is the appropriate time to look to improve and right size the capital structure. This should set LPR up for long-term success. Importantly, LPR has covenant flexibility in its credit documents, which will enable LPR to utilize its assets to raise incremental capital to the extent needed to fulfill near-term liquidity gaps. For our team on the ground, it remains business as usual with the utmost focus on our employees, customers and vendors, and ultimately growing the business. There is no specific time line for resolving the capital structure. We'll look to communicate updates as necessary. Finally, LPR has appointed Moelis and Ropes & Gray to lead the execution of the liability management exercise. Moving to the right side of the slide, having previously reiterated the silo principle of the Liberty Latin America Group and in order to better highlight and unlock the respective value in our assets, we are announcing our intention to separate Puerto Rico from the rest of the LLA Group. This will enhance our ability to better position each of the respective businesses and their positive attributes, including market position, growth opportunity and potential cash flow generation. The separation can be affected in several ways, including a potential spin-off of LPR, and we are targeting to complete it in the first half of 2026. Importantly, the separation is not dependent on completing the liability management exercise. In terms of the relative size of the 2 groups of assets and using 2024 full year results as a proxy, revenue and adjusted OIBDA for LLA, excluding Puerto Rico, would have been approximately $3.2 billion and $1.3 billion, respectively. After deducting the reported segment results of Puerto Rico, which reported $1.3 billion of revenue and $308 million of adjusted OIBDA. On the same basis and excluding Liberty Puerto Rico, LLA's adjusted FCF before distributions would have been nearly $200 million or almost 70% higher than what was reported as a consolidated group in 2024. This is not necessarily reflective of the separate results, but a good indication. We obviously expect FCF to expand from here given the underlying operational strength of the business, as we have demonstrated through H1. Additionally, the remaining LLA business would be levered roughly 1 turn lower from where it is today. Post separation, LLA expects to have the ability to enhance its capital return strategy, including the potential for not only share repurchases, but recurring dividends, capitalizing on the FCF generation of the LLA assets excluding Liberty Puerto Rico. Citi and LionTree are working with LLA on asset separation as well as other corporate options to help to unlock equity value at LLA and remove the embedded valuation discount that we believe has been apparent in our equity trading price. Moving to Slide 21 and our conclusions. In the first half, we delivered solid results. Adjusted OIBDA grew at a high single-digit rate with particularly strong growth in the C&W silo. We also saw a year-over-year decline in P&E additions. This is a reflection of our disciplined capital intensity management and improved operational efficiency. Looking ahead to the second half, we are optimistic. We have launched new customer value propositions aimed at sustaining residential momentum. On the B2B side, we have a good pipeline that should support stronger revenue performance. In addition to these top-line drivers, we have substantial cost-out initiatives in flight across each of our businesses and corporate, and expect more favorable working capital trends in H2, all of which should set the stage for improved free cash flow performance as we close the year. Our operating prospects, combined with the actions that we just discussed on both the liability management and separation of Puerto Rico, we believe set the stage for value creation for LLA shareholders. We look forward to updating investors over the next quarters as our projects advance, and both the operating and corporate teams of LLA are hard at work to deliver continued growth, margin improvement, and cash flow generation. With that, operator, happy to take questions.

The first question comes from Vitor Tomita of Goldman Sachs.

We have 2 from our side. They're actually on Panama. The first one is if you could give a bit more color on the B2B headwinds that you saw there, if those are related to private or government projects, and if there have been any further collections issues on this B2B front? And the second question would also be on Panama, but on the margin side, margins improved a lot there and to a point that EBITDA rose year-on-year, despite the revenue headwinds. Could you give more color on the OpEx reductions or efficiencies that allowed for that aside from revenue mix effects naturally?

Thanks for the question, and I'll ask Rocio to join me here in a second as well. The B2B headwinds are primarily one comparison to a very, very strong second quarter in 2024, but in addition to that, we did deliver a number of projects to the government in the second quarter this year that due to a lot of the bureaucracy and signatures required, we did not recognize that revenue. And so you'll start seeing that drop in the third quarter. But for the most part, it's all B2G, it's business to government, and who is one of our largest customers as well. So that's kind of a little bit of the headwind there. On the margin expansion, it's a strong story. You'll see significant margin growth at the operating free cash flow level. We've achieved this through efficiencies in both operating expenses and capital expenditures. We see almost 6 to 7 points of improvement since the last time, and there's still plenty of room for growth, especially in some of our other operating units. We are optimistic about margin expansion in Panama. The revenue trajectory will shift in the third quarter due to the phasing issues in B2B. However, our mobile business has been growing, and revenue is increasing, alongside growth in our fixed business. The fixed business presents even more opportunity because we have a smaller market share in that sector but a superior fiber-to-the-home network. Rocio, would you like to add anything?

Sure. So regarding our B2B revenue, we are facing some challenges this quarter. Our B2B business can be seen as two sides: recurring business and nonrecurring business, which primarily consists of government revenue. On the recurring side, we had a strong quarter, with our customer base in both mobile and fixed services growing in the middle to high single digits. The recurring business is progressing well and maintaining its momentum. Conversely, the nonrecurring business, which mainly involves large government projects, is more dependent on timing. For instance, we won the Maduka project this quarter, valued at $40 million, but there's a delay before it reflects in our P&L. This fluctuation in the nonrecurring business is what you are seeing at the moment. As Balan and Chris mentioned, we anticipate a much better momentum in the second half of the year. That covers the revenue aspect. On the increased profitability, I think it's basically 2 main levers. At the gross margin level, it's basically the tailwinds from our well-performing recurring business, the residential business and the recurring part of the B2B business. And then at the OpEx level, we have done significant work over the last quarters in terms of streamlining our labor and our nonlabor OpEx, and you're starting to see the fruits of that work. So glad you noticed. Thank you.

Thanks, Rocio.

The next question comes from Chris Hoare of New Street Research.

I just had a couple of questions on the plans around spinning out Puerto Rico. Obviously, you've mentioned that you want to use selected assets. I just wondered if you could clarify which assets in particular. I mean the key ones from my perspective would seem to be spectrum and the broadband network. But is there anything else that you think is material enough to be able to utilize?

You've pointed out the assets we have, but we're not going to share much on how we'll handle our liability management. Our team is currently focused on managing the business and improving operational metrics. However, we do have strong assets within the group that provide us with financial flexibility.

Okay. Great. And then just a sort of follow-up then. As you also mentioned, once Puerto Rico is separated, the rest of the group leverage is significantly lower. Would you feel at that point that you would want to delever the rest of the group further? So just trying to think about sort of potential shareholder remuneration, as you mentioned, the possibility of dividends or share buyback. I mean, would there be a further need for delevering of the rest of the group? Or you think at that point, you have flexibility essentially around all of the cash flow to use it either for shareholder remuneration or M&A, if there was something interesting from that perspective?

If you examine the separated assets compared to what remains, you'll see the EBITDA growth is significant, and we will naturally reduce our debt. That’s one aspect. As Chris noted, the free cash flow from RemainCo, particularly in our wholesale and subsea businesses, is quite strong. We’re committed to our traditional capital allocation strategy, which includes dividends and stock buybacks. We’re genuinely excited about the cash flow generation of the business. We believe that as we expand our EBITDA and implement operational efficiencies, the debt will reduce naturally. Overall, this situation positions us well with a lower-leverage balance sheet, robust cash flow, and considerable options for management and the Board to evaluate.

I would add that the capital structure of Cable & Wireless in Costa Rica is long-term. Over 80% of the debt is due in 2031 or later, which provides significant flexibility for the company.

The next question comes from Gabriel Baselina from Morgan Stanley.

Could you give a bit more color on the impairment you had on Puerto Rico? That would be my question.

Sure. The impairment is really around the spectrum that we have here in Puerto Rico, and we had a third-party assessment on that. This is a spectrum that came to us from the AT&T acquisition. And as you know, we recently acquired new spectrum from DISH, which required a valuation pegged on the spectrum that we already own.

No, that's right. The spectrum was impaired from the AT&T acquisition, which had a relatively higher carrying value than the DISH spectrum, so that ultimately resulted in the loss.

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

Thank you, operator, and thank you, everybody, on the call. We are actually quite excited about the future here, the future in Puerto Rico and the future in the rest of our businesses. Puerto Rico, things are turning. Green shoots are appearing. And as Chris indicated, the capital structure is just not optimal for the business right now. So we're going to work on that, and this is going to be a really good business for LLA and future LLA shareholders. And then on the remaining business, you can see the numbers. We are very, very excited about it. The cash flow generation as well as the organic growth that we are going to see. It's going to be really clear to all of you, to our investors as well, where you can now have a clear line of sight to both these businesses. And Chris, John, Ray, my whole management team, we are very excited about the future here and some of the changes we are making. So thank you for your support and look forward to talking to you again.

Ladies and gentlemen, this concludes Liberty Latin America's second quarter 2025 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.