Liberty Latin America (LILAK) CEO Balan Nair on Q3 2018 Results - Earnings Call Transcript

|
About: Liberty Global, Inc. (LILAK)
by: SA Transcripts

Liberty Latin America (NASDAQ:LILAK) Q3 2018 Results Earnings Conference Call November 8, 2018 10:00 AM ET

Executives

Kunal Patel - VP, Investor Relations

Balan Nair - CEO

Chris Noyes - CFO

Analysts

James Radcliffe - Evercore ISI

Kevin Roe - Roe Equity Research

Soomit Datta - New Street Research

Jason Bazinet - Citi

Matthew Harrigan - Buckingham Research

Operator

Good morning ladies and gentlemen and thank you for standing by. I'll now turn the call over to Kunal Patel, Vice President, Investor Relations.

Kunal Patel

Thank you and good morning ladies and gentlemen. Welcome to Liberty Latin America's Third Quarter 2018 Investor Call. This call and the associated webcast are the property of Liberty Latin America and any redistribution, retransmission, or rebroadcast of this call or webcast in any form without the expressed written consent of Liberty Latin America is strictly prohibited. At this time, all participants are in listen-only mode. 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 question and answer session. As a reminder this call is being recorded on this date November 8, 2018.

Page 2 of the slide details the company's Safe Harbor Statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical facts. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements.

These risks include those detailed from time to time in Liberty Latin America's filings with the Securities and Exchange Commission including its most recently filed Form 10-K and Form 10-Q. Liberty Latin America disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based.

Also notes that nothing stated on today's call constitutes an offer of any securities for sale.

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

Balan Nair

Thank you Kunal and welcome everybody to Liberty Latin America's third quarter results presentation. I'm once again joined by my senior leadership team from across the region. Now I'll get them involved as needed during the Q&A. For our agenda today, I'll start by taking you through a highlight for third quarter before providing an update on progress across our operations and some M&A we were pleased to complete following the quarter end. Chris Noyes our CFO will then make some prepared remarks regarding our Q3 financial performance including the strength of our capital structure which is one of our strategic priorities and after that we will get straight to your questions.

As a point of housekeeping we will both be working from slides which you can find on our website at www.lla.com. Let me start with slide 4 with our key highlights for the quarter.

Firstly, we reported good financial performance with rebased top-line and OCF growth in Q3 as we continued our recovery from the hurricanes that hit our markets a year ago. Two, from an operational perspective in line with a good first half we continued to generate strong broadband gains driving 42,000 total RGU additions in Q3. This is a testament to the quality of our networks and products while also showing the potential opportunity for creative penetration in our markets. Third, we are committed to investing and growing our networks. We have upgraded or expanded our footprint by over 260,000 homes so far in 2018.

Moving to point 4, I talked previously about revitalizing our operations at cable and wireless and although is still early in the process we've made a significant step and Panama C&W’s largest consumer market by launching a new campaign last month called Moments That Matter along with improved customer value propositions.

Finally, we acquired the leading Costa Rican cable operator Cabletica at an announced OCF multiple of six times and purchased Searchlight’s 40% stake in Liberty Puerto Rico.

In the next few slides, I'll provide an update on our fixed mobile and B2B businesses. So let's go to the slide 5. I'll first look at our fixed business.

Operating across 20 consumer markets in total and representing approximately half of the group's third quarter revenue. Starting on the left with RGU additions as shown by the chart we've delivered a significant improvement in net ads this year driven by C&W, especially markets like Jamaica where we are seeing some good momentum building as we repositioned our products and operations and in Puerto Rico we’ve strong sales and the low return have driven our net ads performance as we recover our business there.

Note that this improvement is despite a drag coming from voice subscriber trends when Chile we saw an increase in voice RGU losses for Q3, our team had focused acquisition efforts there on broadband and video sales. The two products written which we continue to do well. However, in the coming months we aim to utilize these marketing and building tools to turn the voice RGU growth around.

Our commitment to bringing video innovation to a 1.3 million video subscribers in Chile and Puerto Rico is demonstrated by the launch of Puerto Rico applications, VTR Play and Go in Puerto Rico respectively, which are gaining traction as they enable our customers to assist to video content, however they choose either at home or on-the-go.

In Chile, approximately 30% of our enhanced video base also used our advanced functionalities like replay TV at the end of September.

Finally, the good news here is that there are more gains to be made as penetration of broadband in our markets is still below 50% on average relatively low to many parts of the world.

Moving to the middle of the slide we continue to see healthy returns from upgrading and extending our footprint. So far this year we've upgraded or built over 260,000 homes including approximately 100,000 in the third quarter and are seeing good RGU and revenue growth. As I have said previously broadband is increasingly the lead product when a customer chooses their service provider and our networks provide access to a leading experience to the speeds we can offer.

Our upgrades and new builds also continue to drive video performance and we see a number of additional attractive opportunities to expand it further in the coming years.

Lastly for fixed business on the right-hand side of the slide I wanted to give you an idea of the transformation we're seeing in customer demand for speed. Here you can see the past 12 months we've seen significant growth in the percentage of our subscribers utilizing above 100 megabits per second.

In Puerto Rico we've gone from 2% to 30%, while in Chile over 80% of our customers now take packages with speeds in excess of 100 megabits per second. In VTR 40% of our base receives speeds of over 200 megabits per second clearly showing our ability to deliver lightning-fast speeds to our customers in that market. Recombined our differentiated speeds across much of our footprints with our market leading Wi-Fi connect boxes which deliver superior in-home connectivity.

This is particularly important in markets such as Chile where concrete structures can limit signal propagation in the home. Here nearly two-thirds of our broadband customers use our connect box modem. As we look to future of greater speed and capacity demands we think our networks are well positioned to continue to deliver superior broadband experiences to our customers and are ready to support new services and applications as they emerge.

Moving to slide 6, I'll provide an update regarding our mobile business which represents approximately 20% of total revenue. Starting on the left hand side we continue to focus on growing our LTE subscriber base. As you can see in the chart our LT subscriber base has grown by nearly a third in the first nine months of the year including approximately 90,000 new LTE subscribers in Q3. This is important because LTE enables our customers to experience the best of mobile. Accessing applications and streaming content in differentiated way. This in turn leads to increased data usage and improve ARPUs.

In Panama, for example LTE are with approximately double dose of customers who do not have LTE. Crucially we also have the network's to support this experience across most of our markets and plan to increase coverage and capacity as required. We are committed to having the leading LTE networks across our region.

As a new team we looked at the C&W business and felt that the consumer brand and proposition needed to be refreshed. We have been hard at work on this and launched a Moment That Matters campaign to support the launch of our new CM pay packages in Panama last month.

The Moment That Matter campaign provides a refreshed look and feel to the brand while also positioning us closer to our customers and the [CM] pay package offers a hybrid postpaid like proposition with an attractive 30-day prepaid plan which allows customers to retain data connectivity for full month. You need to the Panamanian market where prepaid plans are unlimited but for shorter periods. It is early days for the campaign but we are seeing some positive early signs.

Moving to the center of the slide we wanted to highlight progress we've made refreshing our on-the-go applications. The images here show our updated app in Panama which we have been leveraging alongside the new value proposition there. The app allows for easy top-ups account management and offers customer extra perks for staying loyal. Subscribers can also stream video content if they are also a fixed customer of ours and these capabilities are also available across a flow markets.

Our customers demand of freedom to access content and manage all aspects of their relationship with us when and where they choose and we are fully committed to making this happen for them.

Moving to slide 7, where I want to talk about our B2B operations, a business that today generates close to a third of our total revenue and it's growing as you can see in the charts on the left. We delivered strong performance across a number of LLA markets in the quarter including Puerto Rico where we delivered strong levels of installations for small businesses and revenues was both pre-hurricane levels and SOHO demand continue to grow and we're seeing traction with our customers as we continue to move our mix from more basic connectivity solutions to more advanced solutions and products at cable and wireless.

Moving to the middle of the slide and looking to our focus areas, we operate across a number of segments but would highlight government, finance, retail and hospitality as areas where we're seeing particular success. As we look ahead we are focused on developing a unified approach across LLA with a common road map which will aim to offer a comprehensive portfolio of cloud-based services to meet the needs of business customers and digitize our business processes, optimizing our customer relationship management capabilities and analytics to improve customer experience across segments.

In terms of customer segments, we will target growth in small office/home office focusing on expanding into these SOHO markets where we have a strong residential offering. We also aim to leverage the more developed cable and wireless portfolio of products in Puerto Rico and Chile to expand into small and medium enterprise segments where historically the focus has been on SOHO.

And finally, we will continue to grow wholesale and large enterprise businesses leveraging a subsea and terrestrial networks which leads me to the map we have presented on the right hand side of the slide. They're not always the most visible asset in our group. Ownership of the region's premier subsea network is one of the most valuable components of our infrastructure.

Firstly, for existing business this subsea network seamlessly connects with a high-speed terrestrial and mobile networks helping us lower our cost to deliver these services and as we look to expand inorganically the network also provides a key differentiator to generate additional synergies. We further differentiate our products and services through extensive coverage and capacity. The quality of our network includes available redundancy and ability to deliver customized solutions and our experienced customer managers who provide tremendous value to our customers while completely focused on our customer needs and providing them white-glove service.

Turning to slide 8, at the progress we're making without inorganic strategy. Starting with Puerto Rico. In the middle of last month we acquired the remaining 40% stake held by Searchlight. So we now own 100% of the business. We purchased the stake using 9.5 million Class C shares and importantly we expect this to be accretive on a free cash flow per share basis.

Note that Searchlight remains a value long-term partner of ours effectively moving the ownership stake from Puerto Rico up to the LLA level. We are very pleased and proud of the business there and the recovery that our management team has delivered over the past year as we started to lap the impact of the hurricanes. We've now rebuilt a network which is an impressive achievement for our team and positions as well for growth. Our consumer and B2B momentum is building with RGUs approaching 700,000 at September 30, supported by leading NPS results among our peers. Revenue and operating cash flow has continued the sequential progress.

In addition, we were cashflow positive in Q3 having also benefited from a further insurance advance of $15 million. Finally, we continue to move forward and innovate with our products. I mentioned the Go application on an earlier slide and I'm pleased to share that we launched 150 megabits per second course speeds in Puerto Rico last week. This will deliver even greater speeds for many of our customers while improving our ARPUs.

Overall, momentum continues to build with our very strong RGU net additions in October and we're looking forward to that continuing in the rest of Q4 and into next year. In addition to Puerto Rico we also completed the acquisition of 80% in Cabletica; a leading cable provider in Costa Rica. This is a smaller business with an enterprise value for about $215 million but a great operator in a good market in terms of economic and macro backdrop.

Cabletica exemplifies what we do well. It is a leading cable operator with high-speed infrastructure and a customer focus that is driven strong growth and we've seen a good performance from the business since we announced the acquisition earlier this year with results tracking ahead of where we had anticipated. We welcome the team to our group and we see good prospects for the future.

On slide 9, I wanted to wrap up in the context of our key strategic focus areas. As I have previously mentioned in 2018 we are focused on establishing the right structures and culture across LLA to positions us sustainable cash flow growth in future years. As we approach the end of the year I think there are a number of areas where we have started to show progress. We are enhancing our customer experience through the digitization program in Chile enabling self-service and a more frictionless experience over 200,000 customers has now been migrated to our new platform.

We are also driving operational improvements at cable and wireless resulting is significantly reduced times to install and repair connections. However, there is much more to do and we expect we will continue to drive operational benefits in many of the coming years. We also expanded our center of excellence program launching a new center in Jamaica at this week which should improve chain.

Innovations at the core of our thinking and we've introduced on-the-go applications in Chile in Puerto Rico as well as improved self-service applications for cable and wireless and faster connectivity speeds for our customers. We have continued to expand our footprint and see further attractive opportunities in future years.

Our B2B operations are growing well but we are just at the beginning of the opportunity here but still very limited share of B2B in Chile and Puerto Rico where we expect a benefit from the product development was done in our cable and wireless markets. And we've completed a couple of M&A transactions today which represents good additions to the group. Our pipeline continues and remains very rich. To conclude we have continued to build up operational momentum and remain excited about the future prospects for LLA.

I'll now pass you to Chris Noyes, our Chief Financial Officer who will go through Q3 performance in greater detail and I look forward to your questions after that. Chris?

Chris Noyes

Thank you Balan. I will begin on slide 11 and summarize our Q3 results both our subscriber performance and reported financials. As Balan highlighted our fixed RGU momentum continued with the addition of 42,000 subscribers in Q3. LCPR led the way posting a second consecutive quarter of organic subscriber additions after returning to our RGU growth in Q2 and in fact LCPR doubled their Q2 net additions. CMW added 17,000 RGUs as our product and service enhancements and continued network upgrade and expansion activity drove growth particularly in Jamaica.

Finally VTR posted 3,000 additions were a good broadband performance adding 18,000 RGUs was mostly offset by fixed voice losses which was alluded to earlier. Moving to mobile; we lost 37,000 subscribers in the quarter albeit improvement on Q2. As the chart summarizes VTR added 10,000 subscribers in Q3 bringing their total year-to-date gains to 31,000 however, these additions were more than offset by CNW is loss of 47,000 mobile subscribers 41,000 of this loss wasn't prepaid which can exhibit higher volatility from quarter to quarter and occurred primarily in the competitive markets of Panama and the Bahamas.

Moving to our consolidated Q3, 2018 financial results, overall we reported $925 million in revenue and $364 million in OCF returned to year-over-year rebased growth for both metrics as we started to lap the September 2017 hurricanes. As the slide highlights we delivered 3% rebased revenue growth and 4% rebased OCF growth.

Turning to P&E additions we totaled $170 million in q3 or 18% of revenue as compared to $193 million dollars or 21% of revenue last year adjusted free cash flow as illustrated in the bottom right corner of the slide was a positive $34 million in the quarter significantly higher versus the prior year period driven in part by improved OCF, lower CapEx and advances from insurance. Last year's q3 was adversely impacted by CNW pension contribution.

Moving to slide 12 here we provide some more detail on the third quarter financial trends for each of our three reporting segments. On the left-hand side of the slide starting with cable & wireless we posted revenue of 581 million dollars in q3 this is slightly up year-over-year on a rebase basis as growth and B2B combined with another quarter of solid fixed residential performance driven by RGU gains more than offset a decline in our mobile residential revenue.

Q3 OCF for CNW was 227 million 3% higher than the prior year period on a rebase basis. We call that last year's Q3 was adversely impacted by the hurricanes. We also continue improving our operational efficiency and are leveraging our scale particularly in content as our OCF margin improved to 39% reflecting a 100 basis point increase year-over-year and a 70 basis point margin improvement sequentially. P&E additions were $93 million in total or 16% of revenue which is lower than the prior year but still included approximately 50,000 new build and upgrading the homes in Q3.

Additionally nearly 10% of our Q3 spend was related to hurricane restoration. In the middle of the page VTR had another strong quarter reporting revenue of $246 million up 5% year-over-year on a rebase basis and OCF of $100 million representing 6% rebase growth. Our growth was supported by all product areas with volume increases across fixed, mobile, and B2B as well as an increase in our ARPU perfect subscriber.

With respect to P&E additions VTR reported $49 million or 20% of revenue during Q3. Spend was lower as compared to last year's third quarter due in part to reduce spent on new building upgrade as well as lower spend on product enablers. These factors were partially offset by increased spend on CBE. During the quarter we added and/or upgraded approximately 50,000 homes and lastly [indiscernible] Puerto Rico generated $100 million of revenue and OCF of $50 million rebased growth for both revenue OCF was largely driven by the FCC funding of $11 million that we received this quarter. Importantly and even after adjusting for the $11 million benefit our Q3 results continue to grow sequentially in terms of both revenue and OCF.

We remain on track to deliver our $14 million monthly run rate OCF target by the end of this year. Additionally, it should be noted that in Q4, LCPR will have an extremely favorable comparison to last year's hurricane impacted fourth quarter in which we reported minimum revenue and negative OCF.

Turning to P&E additions. We reported $25 million in the quarter. This was significantly lower than the $45 million spent in Q2, 2018 as we have now completed our restoration work in Puerto Rico. A quick update on insurance. We have received $50 million of net third party advances to date including $20 million in Q3. We ultimately expect to receive a larger total payout and are actively working through the settlement process with our ensures.

Turning to slide 13, I wanted to briefly provide more details regarding a key focus area for us; our balance sheet which we believe is a key differentiator. In looking at the hexagons on the far left we summarized a number of important facts. Our fully swap cost of debt sits comfortably at 6.3% and nearly all of our debt is fixed which gives us a high level of cash flow certainty. We finished Q3 with committed undrawn facilities and cash of approximately $1.5 billion which provides us with liquidity to pursue our organic and inorganic strategies. Our leverage was 4.1 times on a net reported basis at the end of Q3. When looking at it on a net proportionate basis you'll be about a half a turn higher. Of our aggregate $6.7 billion of total debt approximately 85% is denominated or swapped to our OCF functional currencies which in essence matches our borrow to our OCF generation.

A key risk management philosophy which I believe sets us apart from our peers and finally we have minimal near term debt maturities with about 6 years average life as the maturity schedule highlights on the bottom right-hand part of the slide. On that note we have taken recent steps to further strengthen our capital structure since closing the books for Q3 to that end we issued $500 million of new notes to 2026 at CMW and earlier this week we used some of the proceeds to redeem $275 million of our $750 million 2022 notes and we intend to utilize most of the remaining proceeds to redeem approximately $200 million of our March 2019 non-call notes of which we have successfully tendered for just over 40% of these notes to date. We also have redeemed $140 million of our 2024 [indiscernible] notes at VTR and we completed the local funding for the Cabletica acquisition which will form a new credit silo for us starting in Q4.

Moving to the final page of today's presentation we continue to drive momentum in our operating businesses particularly our fixed and B2B operations. A key element of our strategy is to invest in leading high-speed infrastructure which we are doing in both fixed and mobile. We're also excited about the new customer value propositions and campaigns that we've launched across the group. In M&A we completed the acquisition of Cabletica and the integration is going according to plan. This is a small acquisition but a great asset and an example of how we can efficiently plug strong businesses into our structure. And lastly we remain on track to deliver our 2018 guidance targets.

With that operator we are ready to take questions.

Question-and-Answer Session

Operator

The question and answer session will be conducted electronically. [Operator Instructions] We'll go first to Soomit Datta with New Street Research.

Soomit Datta

Hi, thank you. Just to go back to one of the last slides you went through on the balance sheet I am talking about the strengths there. And looking to 2019 we expect you to start moving into a positive phase for cash generation and should we be thinking about a possible return of cash to shareholders on that basis? Thank you.

Chris Noyes

Thank you question. Yes I think assumption is right on 19 but we haven't given 19 guidance yet as to how we would allocate the capital and how we wouldn't use the cash we would be very opportunistic on that. So at this point we've not declared any usage of the cash vis-à-vis shareholders. Chris you want to take that.

Chris Noyes

I mean I would iterate that, I mean obviously we're focused as a business on free cash flow generation and we're in the process of turning the corner as we speak and as we look to deploy our excess capital we're obviously focused on return to share - returns that drive shareholder value so that may be whether it's returning the buybacks acquisition or investing in our business. So we obviously have a rich pipeline of opportunities both inside our business and out and we'll continue to evaluate and find the best ways to deploy that capital for a shareholder benefit.

Soomit Datta

Okay. Thanks. And if I could just quickly follow up with an operational one on Panama and the wireless market that has been under pressure it looks to be did you sell being aggressive on pricing and you've introduced some new brand or a new brand into the market and is it as simple as there's a sort of price war and there's not too much you can do about it or is a little bit more nuance to the way to responder? Thank you.

Balan Nair

Well, Panama is a complicated market. From a mobile perspective you have four operators there in country with about 4 million people. It's probably one operator to many in that market and yes you probably know a bill that's been passed to consolidate from 43 and we expect something to happen probably in 2019. It's a market that's highly competitive most of our losses there has been on the prepaid side and we've been very aggressive in looking at how we not only stand up but turn it around and bring some growth to that and so we've looked at it from one a pricing perspective, two from a product perspective and three from a network perspective as well.

So our goal there is to move for a lot more for customers to LTE, try to get them off that what you call a traditional prepaid into something we call a hybrid prepaid. I'll talk about in a second and then say it from a pricing standpoint you'll see is actually very competitive but we are looking more and more to move our customer base from the very low end of the mobile market more to the mid and the high tiers.

On the prepaid side the product that we've just launched it's now a 30 day product usually most of the products that are prepaid has a time limit. It's three days, five days we've now given a 30 day product and where it's really useful is for customer within that 30 days if they lose thought if they completely consumed the data allowance they will still have access to the network and the one app that they use mostly is WhatsApp and WhatsApp will continue to work even if their data limits have been read and therefore they have connectivity. This we think is a very compelling product that nobody else has on the marketplace and should help us turn the prepaid story around.

Soomit Datta

Okay. Interesting. Thank you.

Operator

Thank you. We'll move now to Kevin Roe with Roe Equity Research.

Kevin Roe

Thank you. Balan could you update us on your inorganic growth goals for 2019? If you could maybe highlight strategic goals for inorganic geographically and maybe even size? Thank you.

Balan Nair

Sure. We did talk about some of the activities we did this year. I think for 2019 our pipeline is very rich, full and our small team of [indiscernible] folks are very active and very busy but we're going to be very disciplined. If we have been not disciplined that would have been a bunch of announcement already but we are going to be very disciplined about this and we're going to be focused on free cash flow in, an accretive free cash flow in the transaction on a per share basis if we use equity and certainly the IRS the Liberty standards it's pretty high. For 2019 we'll look at opportunities the ones that are most exciting would be in country opportunities where the synergies we would very clear and very quick to execute on. Second we would look at areas where it opens up new markets for us, a new beachhead that would be also very interesting to us and given some of the changes we've made in our operating model we think we can still get synergies even outside of countries that we operate in and third if it opens up new product choices for us and gives us really good skill that helps us with our returns also what we'd be looking for in 2019.

Kevin Roe

Thank you and a quick follow-up what's your outlook for FCC funding in Puerto Rico and Q4 and potentially in 2019? Thank you.

Balan Nair

We probably don't expect anything more in 2019 sorry in Q4 this year. As Chris mentioned on his section we did receive SVC funding this year. It was a very positive surprise to us how things worked really hard. Legal regulatory teams have worked very closely with the FCC and that was not an easy get but we did get it. It was a surprise to a lot of folks including the incumbent. In 2019 there are more opportunities but it's not in our plan. It's not something that we are banking on but suffice to say we would be very aggressive in trying to get our share of any assistance from the government and we would use that assistance to bring more resiliency to our network and upgrading our network as opposed to using that for other purposes.

Kevin Roe

Understood. Thank you.

Operator

Thank you. James Radcliffe with Evercore ISI has our next question.

James Radcliffe

Great. Thank you. Two if I could. First of all can you talk about what you're seeing in terms of customers using their wireless devices as their sole internet connections and how much of your base you think that constitutes and particularly as you contain to roll out LTE does that become a more viable choice for customers and secondly if you could talk a little about your thoughts on structures in terms of minority partners I mean you've gone to 100% in Puerto Rico but you also kept a minority partnership in Costa Rica how do you think about what portion of a market you should or need to own and what sort of partner makes sense? Thanks.

Balan Nair

Okay I'll answer the first question first on the wireless as the primary data we've seen some of that. As a matter of fact in a couple of islands small islands where post-hurricane from last year where we've really upgraded the mobile networks. We've seen customers just attaching to it and really liking it and not missing their broadband. However, after we get broadband in they get back on their fixed broadband and why is that because fixed broadband will always be faster. It'll always be more reliable and if you have multiple devices in the home which most people do it is the best way to get connected because once you have Wi-Fi in the home you can connect the three iPads, your laptop, your four mobile phones from all of your family it is the best way to get broadband.

Now when we increase our speeds and we move to LTE more and more LTE, we will see more utilization of broadband outside the home but I think inside the home you will see people still going back to Wi-Fi. It is the most cost-efficient highest reliability and highest speed for multiple devices now. Now on the partners question the second question I'll tell you we love partners and it gives us a number of things. One you get local expertise, people that understand the trend, the market. Second you get also a lot of relationships with having a good local partner, a local partner you can trust, a local partner that has the same and aligned interest as we do and believe in our level equity model. When you have partners like that you want to have them.

Now you've got to be careful to have make sure that you have full control operationally of the business even with [indiscernible] vis-à-vis Puerto Rico we had a really good partner there with Searchlight and the timing was just right for Searchlight removed their investment from Puerto Rico to the [indiscernible] and the timing was right for us to also take advantage of that and also take control of the whole island and with that by the way we took on the risk of the island as well which in our minds our management team we've just done an amazing job and I'm really proud of the guys in Puerto Rico and that gave Chris and myself and the executive team here the confidence to want to do that but as we look at more M&A in the region wherever we can partner with someone locally who wants to take a minority stake who's aligned with our interests, who wants to grow and create wealth for themselves we welcome them.

James Radcliffe

Great. Thank you.

Operator

[indiscernible] has our next question.

Unidentified Analyst

Yes. Good morning. Thank you for taking my question. The number of homes upgraded or new building 2018 so far has been lower than that than 2016 and 17. How should we think about the deployment of fixed networks in the following years? You expect like a further push across the work? And my second question is regarding Panama you mentioned okay there are four mobile players, however in Panama there are only two fixed [infrastructure] if I'm not wrong, how do you think about six mobile conversions at the end that's something that you guys can use as an advantage against the other players? Thank you.

Balan Nair

Sure, on the new bills recently see a path to continue doing new bills, certainly in Chile and a number of other operations as well. One of the reasons we went down in 2018 was because of course we had a lot of new bills in Puerto Rico which we did not do. We were focused on reconstruction and, secondly we did a lot of new bills in Bahamas, Jamaica, Panama, which we thought in 2018 it would be a good time to harvest the results from those constructions but you'll see us very active in new bills we are strong believer believers in creating value through expanding our network.

It's one of the reasons we are in Latin America one of our goals is to provide more broadband to more people in Latin America. So you'll see us continuing to do that and we see a roadmap and a path that is very-very favorable for new bills. On the second question in Panama you're right that the two fixed operators there and we are very focused on our fixed network there. If you look at our network in Panama we have a significant amount of HFC bills some fiber-to-the-home we have a really good network there that we intend on leveraging even more so than we've ever been and secondly the bundling ratio between mobile and fixed the attach rate of mobile to our fixed subscribers it's very low. It's something that our management team in Panama, our management team in Miami, my chief operating officer is focused on and it's one of the things in 2019 you'll see that different than 2018 in a business in Panama.

Unidentified Analyst

Okay. Thanks. If I may follow up on Panama how do you see – how do you perceive, how the market might change after Millicom [indiscernible] and how does your network overlap with Cable Onda network?

Balan Nair

I think with Millicom’s acquisition of Cable Onda, I think it's good for the market. It's good for the player. I think we heard them saying that they would be very rational and that's a good thing for Panama. We do overlap with them quite a bit and but not fully, so where we overlap with them there's always been a good competition back and forth between our subscribers.

Unidentified Analyst

Okay. Thank you very much.

Operator

Our next question comes from Jason Bazinet with Citi.

Jason Bazinet

Yes. I just had a quick question for Mr. Noyes regarding currencies. I know you guys have exposed a lot of dollar based U.S. dollar based markets but in those countries, those handful of countries that do float can you just remind us what you guys do in terms of hedging if anything?

Chris Noyes

Yes. I mean the largest, our largest operation is VTR and that's the Chilean peso. So obviously that's the currency that floats and from a hedging perspective we fully hedge the debt that we have on the VTR asset. So we do have dollar based bonds on top at the [indiscernible] and we have swapped those to Chilean pesos, long-term swaps. In addition, we do have exposure, the U.S. dollar whether its programming, CapEx things like that so we have a program that we do rolling forwards on that exposure.

So we're focused on managing the cash flow in the business and as we look at obviously Puerto Rico's all dollar based and then you get into cable and wireless most of cable and wireless is dollar based, dollar pegged, dollar linked, etc. We do have a little bit of exposure particularly in the Jamaican dollar. We have a small business in Seychelles, Colombia, etc. And we do have some small hedges on the debt side on Jamaica and Colombia and overall we don't have a lot of flux, just given most of the businesses dollar based, dollar oriented.

Jason Bazinet

Understood. Okay. Perfect. Thank you.

Operator

Next we'll go to Buckingham Research, Matthew Harrigan.

Matthew Harrigan

Well, thank you. Two questions actually I knew your motivations would be different and the product bouquet would be different but looking at what Comcast is doing on a streaming only box unit for broadband customers, can you talk about your consult in the past there I mean it seems like you would be desirable in your markets to have a product with a very low CBE cost about other motivations and then secondly I guess the U.S. election result was pretty good from a [indiscernible] I guess what the Republicans had taken both houses [indiscernible] interest rate spike and such but can you give us your perspective on the Chilean in the macro and some of the budget issues down there either they're continuing with but after the transition administration's earlier this year. Thanks.

Balan Nair

Okay. On the first question on streaming only and what Comcast has done I'll tell you now markets the way we look at it this way, it's a tale of two story. It's the where we operate as a defender where we are the primary pay TV operator and then in markets where we would be an attacker and we would have slightly different strategies for both those different markets.

In the attacker market you'll see us doing something not too different than what Comcast announced. I think we are primed to do that. I think the cost structure is very favorable at attackers there and then you don't get the spin down effect from your existing base. So that's how we view it. On the Chilean macros we're very positive on it. The current government is very business friendly. The election was helpful as well in a very roundabout way. The Chilean economy is backed by commodities and very-very strong.

Now it's not reflected so much in the currency this year it's just been a rip saw but we're seeing some improvements already, but the future it's really hard for any of us to predict now. I do have my general manager in Chile on the call [indiscernible] would you like to maybe make a comment on this?

Unidentified Company Representative

Sure. Shortly just to say that the growth projection for the country has been adjusted upwards which is a good thing of course at Chile. It's not isolated and affected by the situation between China and the U.S. because of the commodity structure that Balan was mentioning but the outlook in general for this year is positive and it will continue to be like that for to ‘19 according not only to the central bank but also to the agents in the market.

Matthew Harrigan

Thanks Balan. Thanks [indiscernible].

Balan Nair

Thanks [indiscernible]. Thanks Matthew.

Operator

[Operator Instructions] And it looks like we have a question from Brian [indiscernible].

Unidentified Analyst

Hi. Good morning. Thanks for taking the question. The first question on debt levels, sitting at 4.1 times net leverage expecting to, although you have a given guidance but we see the free cash flow coming through next year. What is the ideal targeted leverage you see in the short term and the medium term that you would focus for this business?

Balan Nair

Well, we've always stated that this is a level equity model that we would be in the four to five times we prefer to be closer to the four and there will be a natural deleveraging as well after Puerto Rico to get us closer to the four number and that's where we feel good but we -- but our stated range is four to five and maybe I'll ask Chris to make a comment.

Chris Noyes

Yes, I mean I think we're comfortable at these levels as Balan mentioned we'll naturally delever and we'll continue to look to utilize the balance sheet as we drive shareholder returns.

Unidentified Analyst

Okay. And just to follow upon Panama you made a comment earlier that you would expect some consolidation in 2019 expect something to happen and I'm aware of that build that's past. Is there anything legislatively that needs to happen for a transaction to take place in this market? Is this – is there a step that needs happen or is it just a matter of market participants taking action?

Balan Nair

Well, the bill has been passed and signed by the president, it's not with the regulators and the regulators now working on how they would interpret the law and as well to implement it. Now I think in discussions with many of the local regulators and lobbyists, etc. the view is that a transaction will probably trigger how they would approach it and so we'll see how 2019 plays out but if there was a transaction to happen at this point it can go forward and probably would just have to work with the regulators but legally one would be able to already do something there.

Unidentified Analyst

Okay. Thanks for clarifying that and then lastly, one last question you mentioned the prepaid losses in Panama and Bermuda, and this on Panama can you just talk a little bit about the competitive environment in Bermuda and –

Balan Nair

Sure. It's Panama and the Bahamas, yes I figured that's what you meant, in the Bahamas remember we were an incumbent with a 100% of the mobile network there and when a competitor showed up the year and a half ago, a couple years ago, it's only natural that they would take share and it's only natural that if you want 100% you're going to lose something and we think you'll bottom out sometime in 2019 and where we've given up share that now will either get stable or will now grow and both of us will want to grow certainly value through ARPUs and bundles, etc. but to be honest with you the bottom is not there yet in the Bahamas and but it's getting closer and closer to it.

Unidentified Analyst

But you don't see a price war going on there or –?

Balan Nair

No, it's not a price issue right. When you own a 100% of the market and a new entrant comes in, there will be a percentage of your customers that would want to have a different operator and that's natural.

Unidentified Analyst

Okay. Thank you.

Operator

Thank you. This concludes our question and answer session. I'll turn the call back over to Balan Nair for any closing remarks.

Balan Nair

Thank you operator. Well, let me close by saying one thank you so much for supporting us and for being part of this story. It's a really good story and I'll tell you this quarter probably shows it even more so than ever. I couldn't be more excited about the number on the third quarter and as we close out you know the month of October I'm seeing very nice trends as well. So this is a really good story and we're really excited to be a part of it. So thank you everybody and have a great day.

Operator

Ladies and gentlemen this concludes Liberty Latin America's third quarter 2018 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.