Market Overview

Liberty Latin America Reports Q2 and H1 2018 Results

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Q2 RGU Additions of 61,000 Driven by Record Broadband Gains

Restoration of Puerto Rico On-Track; > 90% of Subscribers Billable Today

Expanded Network Reach in Q2 with > 80,000 New / Upgraded Homes

Financial Guidance1 for 2018 Confirmed

Liberty Latin America Ltd. ("Liberty Latin America") (NASDAQ: LILA and
LILAK, OTC Link: LILAB) today announced its financial and operating
results for the three months ("Q2") and six months ("YTD" or "H1") ended
June 30, 2018.

CEO Balan Nair stated, "Building on a solid start to the year, we
added over 60,000 RGUs in the second quarter, including a record number
of quarterly broadband additions. This result shows the potential for
our fixed businesses, operating in markets where we believe there is
additional demand for high-speed services. In mobile, we are seeing a
growing number of subscribers using our LTE networks and we have
introduced combo plans (with voice, data and text messages) across our
markets to address consumers' changing needs while also aiming to
maintain and grow our revenue. We continue to invest in product
offerings our customers demand, leveraging the capabilities of our
mobile and fixed networks. For example, in addition to Flow-to-go, which
we already provide in C&W's markets, we recently launched VTR Play in
Chile, and Go in Puerto Rico, which enable our customers to stream their
favorite TV programs at home or on-the-go."

"Our Puerto Rican business delivered another solid quarter of sequential
revenue and OCF2 growth, as we focused on being fastest to
market, both in reconnecting existing customers and reaching new
customers. Over 90% of our subscribers are now billable, and in Q2 we
saw the first quarter of organic net additions since last year's
hurricanes with quarterly sales ahead of Q2 2017."

"We have been working for a number of years to design and implement a
digital transformation strategy at VTR and I'm excited to announce that
this is now being rolled-out. As a result, our customers will benefit
from faster and more effective service delivery, which we expect will
differentiate us from our competitors and also drive cost efficiencies
in our business as we refine our processes. There is tremendous
potential to leverage this platform and the learnings from our Chilean
business across Liberty Latin America."

"In-line with our expectations, we have continued to expand and improve
our fixed networks in 2018, with over 160,000 homes upgraded or added in
the first half of the year. We are also investing in high-speed LTE
mobile networks, which we anticipate will drive usage and ultimately
revenue."

"In our first six months as a separately listed company, we have made
significant strides towards creating the culture, structure and
platforms required for sustainable future growth and we remain on-track
with our 2018 guidance1 targets."

Q2 Business Highlights

  • C&W operating momentum building:
    • 29,000 fixed organic RGU additions supported by product and
      service enhancements
    • Continued network upgrade and expansion added over 40,000 premises
      in Q2
    • B2B revenue growth driven by sub-sea networks and managed services
  • VTR continued to deliver solid growth:
    • Reported rebased revenue growth of 5% and rebased OCF growth of 7%
    • Broadband RGU additions of 27,000, best quarterly performance in
      two years
    • Launch of "VTR Play", with up to 80 channels available to stream
      on-the-go
  • Liberty Puerto Rico close to fully operational:
    • Service available to over one million homes
    • First quarter of net organic RGU additions since Hurricanes Irma
      and Maria
    • Launched "Go" video streaming application in early August

Financial Highlights

Liberty Latin America

   

Q2 2018

   

YoY
Growth/

(Decline)*

   

YTD 2018

   

YoY
Growth/

(Decline)*

 
(in USD millions)
Revenue $ 922 (2 %) $ 1,832 (3 %)
OCF $ 353 (5 %) $ 694 (5 %)
Property & equipment additions $ 218 27 % $ 412 33 %
As a percentage of revenue 24 % 22 %
 
Operating income $ 124 (20 %) $ 223 (23 %)
 
Adjusted FCF3 $ (14 ) $ (60 )
Cash provided by operating activities $ 235 $ 398
Cash used by investing activities $ (237 ) $ (425 )
Cash provided by financing activities $ 235 $ 223

* Revenue and OCF YoY growth rates are on a rebased basis4.

Subscriber Growth5

    Three months ended     Six months ended
June 30, June 30,
2018     2017 2018     2017
Organic RGU net additions (losses) by product
Video 14,700 6,300 17,100 11,500
Data 44,900 23,200 81,900 61,800
Voice 1,500   (13,800 ) (4,600 ) (15,700 )
Total 61,100   15,700   94,400   57,600  
 
Organic RGU net additions (losses) by segment
C&W 28,600 (15,600 ) 53,700 (5,700 )
VTR 21,600 33,800 45,200 59,200
Liberty Puerto Rico 10,900   (2,500 ) (4,500 ) 4,100  
Total 61,100   15,700   94,400   57,600  
 
Organic Mobile SIM additions (losses) by product
Postpaid 10,000 10,400 13,400 22,500
Prepaid (85,900 ) (44,300 ) (100,300 ) (17,300 )
Total (75,900 ) (33,900 ) (86,900 ) 5,200  
 
Organic Mobile SIM additions (losses) by segment
C&W (88,500 ) (48,200 ) (108,300 ) (21,600 )
VTR 12,600   14,300   21,400   26,800  
Total (75,900 ) (33,900 ) (86,900 ) 5,200  
 
  • Product Additions (Losses): Organic fixed
    RGU gains of 61,000 and organic mobile subscriber losses of 76,000 in
    Q2 2018.
  • C&W added 29,000 RGUs during Q2,
    driven by product and service enhancements and continued network
    upgrade and expansion.
    • Broadband RGU additions of 11,000 were significantly higher than
      the attrition of 3,000 RGUs in the prior-year period. This was
      driven by an improved performance in Jamaica, where we added 4,000
      RGUs through increased penetration of our upgraded network, and
      Panama, where we continued to promote our Mast3r packages,
      supporting 4,000 additions. We continued the roll-out of enhanced
      in-home connectivity for subscribers through our WiFi "Connect
      Box", now installed across over 20% of our broadband subscriber
      base.
    • Video RGU additions totaled 8,000, our best quarterly performance
      since Q2 2016, supported by our network expansion / upgrades and
      product enhancements, such as "Flow Evo". Jamaica had a
      particularly strong quarter, adding 5,000 video RGUs.
    • Fixed-line telephony RGU additions of 10,000 were driven by our
      successful bundling strategy.
    • Mobile subscribers declined by 89,000
      in Q2, primarily driven by prepaid losses in Panama (51,000) and
      Jamaica (16,000). This was mainly the result of competitive
      factors and a more targeted approach to promotional activity.
  • VTR added 22,000 RGUs in Q2, driven by
    27,000 broadband and 8,000 video RGU additions, partially offset by
    losses in fixed-line telephony RGUs. We continue to leverage our
    superior broadband speeds of up to 400 Mbps in combination with the
    WiFi "Connect Box", which is deployed to over 55% of VTR's broadband
    subscribers. To further enhance the video experience, VTR launched
    "VTR Play" in July, offering up to 80 channels on-the-go.
    • Mobile: We added 13,000 postpaid
      subscribers in Q2, as we continued to successfully sell services
      to our fixed subscribers, increasing the total mobile subscriber
      base to 236,000.
  • Liberty Puerto Rico added 11,000 RGUs in
    Q2, which represents our first quarter of net additions since the
    hurricanes in 2017 driven by our product quality, as well as the speed
    of network restoration. Of note, we removed 23,000 subscribers from
    our reported figures in June, the majority of which were located in
    areas where we currently are not planning to rebuild our network.

Revenue Highlights

The following table presents (i) revenue of each of our reportable
segments for the comparative periods and (ii) the percentage change from
period to period on both a reported and rebased basis:

    Three months ended     Increase/(decrease)     Six months ended     Increase/(decrease)
June 30, June 30,
2018     2017 %     Rebased % 2018     2017 %     Rebased %
in millions, except % amounts
 
C&W $ 583.7 $ 582.7 0.2 (0.7 ) $ 1,169.2 $ 1,158.3 0.9 (0.6 )
VTR 260.2 231.1 12.6 5.4 524.0 460.4 13.8 5.6
Liberty Puerto Rico 80.3 108.3 (25.9 ) (25.8 ) 142.1 215.0 (33.9 ) (33.9 )
Intersegment eliminations (2.1 ) (1.2 ) N.M. N.M. (3.3 ) (1.9 ) N.M. N.M.
Total $ 922.1   $ 920.9   0.1   (2.1 ) $ 1,832.0   $ 1,831.8     (2.8 )

N.M. – Not Meaningful.

  • Our reported revenue for the three and six months ended June 30, 2018
    remained relatively flat.
    • The Q2 and YTD results include decreases of $28 million and $73
      million, respectively, at Liberty Puerto Rico, primarily
      attributable to the hurricanes, partly offset by increases due to
      FX of $18 million and $41 million, respectively, and an increase
      of $10 million during the YTD period attributable to the impact of
      the C&W Carve-out Acquisition.
  • From a rebased perspective, revenue declined by 2% and 3% for the three
    and six months ended June 30, 2018, respectively, as the
    impact of Hurricanes Irma and Maria was partially offset by strong
    rebased growth at VTR, as described below.

Q2 2018 Rebased Revenue Growth - Segment Highlights

  • C&W: Rebased revenue growth was
    slightly negative.
    • Lower mobile subscription revenue was partially offset by growth
      in our (i) sub-sea and managed services B2B businesses and (ii)
      residential fixed subscription revenue, driven by an increase in
      the average number of subscribers.
    • The decrease in mobile subscription revenue is primarily
      attributable to the net effect of (i) lower revenue in the Bahamas
      and Panama associated with a decrease in the average number of
      subscribers, mainly driven by continued competition, and (ii)
      higher revenue in hurricane impacted markets.
    • B2B growth was impacted by the recognition on a cash basis of $5
      million of revenue in Q2 2017 related to payments for services
      provided in prior quarters to a significant customer.
  • VTR: Rebased revenue growth of 5% was
    driven by improvement in (i) residential fixed subscription revenue,
    from increases in ARPU per RGU and the average number of subscribers,
    (ii) mobile subscription revenue, mainly driven by subscriber growth,
    and (iii) B2B subscription revenue due to growth in SOHO RGUs.
  • Liberty Puerto Rico: Rebased revenue
    decline of 26% year-over-year was primarily driven by the adverse
    impact of the hurricanes in 2017. However, we continued to show
    sequential improvement in Q2, as revenue expanded from $62 million in
    Q1 2018 to $80 million in Q2 2018.

Operating Income

  • Operating income was $124 million and $155 million in Q2 2018 and Q2
    2017, respectively, and $223 million and $290 million for the six
    months ended June 30, 2018 and 2017, respectively. These declines were
    primarily driven by (i) increases in depreciation and amortization,
    (ii) higher restructuring charges, primarily resulting from employee
    severance and termination costs associated with certain reorganization
    programs at C&W, and (iii) lower OCF, as further described below.

Operating Cash Flow Highlights

The following table presents (i) OCF of each of our reportable segments
for the comparative periods and (ii) the percentage change from period
to period on both a reported and rebased basis:

    Three months ended     Increase/(decrease)     Six months ended     Increase/(decrease)
June 30, June 30,
2018     2017 %     Rebased % 2018     2017 %     Rebased %
in millions, except % amounts
 
C&W $ 223.6 $ 220.8 1.3 (0.5 ) $ 452.7 $ 430.7 5.1 3.1
VTR 105.1 92.3 13.9 6.7 210.1 183.9 14.2 6.0
Liberty Puerto Rico 35.7 53.8 (33.6 ) (33.6 ) 53.7 105.1 (48.9 ) (48.8 )
Corporate (11.0 ) (5.2 ) 111.5   111.5   (22.3 ) (10.3 ) 116.5   116.5  
Total $ 353.4   $ 361.7   (2.3 ) (5.0 ) $ 694.2   $ 709.4   (2.1 ) (5.1 )
 
OCF Margin 38.3 % 39.3 % 37.9 % 38.7 %
 
  • Our reported OCF for each of the three and six months ended June 30,
    2018 declined 2% year-over-year.
    • The declines are mainly due to decreases as a result of the
      hurricanes of $18 million and $51 million, respectively, at
      Liberty Puerto Rico, partially offset by OCF growth at VTR, which
      included beneficial exchange rate movements, and C&W.

Q2 2018 Rebased OCF Growth - Segment Highlights

  • C&W: OCF was slightly lower on a
    rebased basis.
    • The slight revenue decline was partly offset by the net effect of:
      (i) lower content costs associated with renegotiated contracts and
      content cost synergies, (ii) headwinds resulting from lower Q2
      2017 expenses following the reassessment of certain accruals and
      (iii) higher network-related expenses, primarily associated with
      sub-sea fiber cut repairs and ongoing repair costs in hurricane
      impacted markets.
  • VTR: The 7% rebased OCF growth in Q2 was
    driven by the aforementioned revenue performance. We maintained good
    cost control in the quarter, but this was partly offset by cost
    increases including (i) higher marketing and advertising expenses, in
    part from new promotions focused on Replay TV functionality and (ii)
    an increase in programming expenses.
  • Liberty Puerto Rico: Rebased OCF decline
    of 34% was driven by the negative impacts of Hurricanes Irma and Maria.
    Q2 benefited from a $2 million hurricane disaster relief credit
    from the Puerto Rico treasury department, representing relief for
    wages paid to employees during the period of time our business was
    inoperable as a result of the hurricanes. Performance in Q2 continued
    to recover sequentially as OCF doubled from $18 million in Q1 2018 to
    $36 million in Q2 2018.
  • Corporate: The increase in corporate
    costs was primarily attributable to added costs associated with being
    a separate public company, including increases in personnel costs and
    professional services.

Net Loss Attributable to Shareholders

  • Net loss attributable to shareholders was $42 million and $28 million
    for the three months ended June 30, 2018 and 2017, respectively, and
    $87 million and $34 million for the six months ended June 30, 2018 and
    2017, respectively.

Leverage and Liquidity (at June 30, 2018)

  • Total principal amount of debt and capital leases:
    $6,674 million.
  • Leverage ratios: Consolidated gross and
    net leverage ratios of 4.8x and 4.2x, respectively. These ratios were
    calculated on a latest quarter annualized ("LQA") basis and therefore
    negatively impacted by Hurricanes Irma and Maria.
  • Average debt tenor6: 5.8 years,
    with approximately 90% not due until 2022 or beyond.
  • Borrowing costs: Blended, fully-swapped
    borrowing cost of our debt was approximately 6.3%.
  • Cash and borrowing availability: $738
    million of cash and $964 million of aggregate unused borrowing capacity7
    under our credit facilities.

Forward-Looking Statements and Disclaimer

This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including statements with respect to our strategies, future growth
prospects and opportunities; our expectations with respect to
subscribers, customer data usage, revenue, ARPU per RGU, OCF and
Adjusted FCF; statements regarding the impact of Hurricanes Irma and
Maria on our operations in the Caribbean; our performance expectations
in Puerto Rico; statements regarding the development, enhancement and
expansion of our superior networks and innovative and advanced products
and services; our plans and expectations relating to new build and
network extension opportunities, including our plans to deliver new or
upgraded homes in 2018, and other investments in our networks (including
expanding LTE) and the anticipated impacts of such activity; our
estimates of future P&E additions as a percentage of revenue; the
strength of our balance sheet and tenor of our debt; and other
information and statements that are not historical fact. These
forward-looking statements involve certain risks and uncertainties that
could cause actual results to differ materially from those expressed or
implied by these statements. These risks and uncertainties include
events that are outside of our control, such as hurricanes and other
natural disasters, the ability and cost to restore the networks in
hurricane impacted markets, the continued use by subscribers and
potential subscribers of our services and their willingness to upgrade
to our more advanced offerings; our ability to meet challenges from
competition, to manage rapid technological change or to maintain or
increase rates to our subscribers or to pass through increased costs to
our subscribers; the effects of changes in laws or regulation; general
economic factors; our ability to obtain regulatory approval and satisfy
conditions associated with acquisitions and dispositions; our ability to
successfully acquire and integrate new businesses and realize
anticipated efficiencies from acquired businesses; the availability of
attractive programming for our video services and the costs associated
with such programming; our ability to achieve forecasted financial and
operating targets; the outcome of any pending or threatened litigation;
the ability of our operating companies to access cash of their
respective subsidiaries; the impact of our operating companies' future
financial performance, or market conditions generally, on the
availability, terms and deployment of capital; fluctuations in currency
exchange and interest rates; the ability of suppliers and vendors
(including our third-party wireless network provider under our MVNO
arrangement) to timely deliver quality products, equipment, software,
services and access; our ability to adequately forecast and plan future
network requirements including the costs and benefits associated with
network expansions; and other factors detailed from time to time in our
filings with the Securities and Exchange Commission, including our most
recently filed Form 10-K and Form 10-Q. These forward-looking statements
speak only as of the date of this release. We expressly disclaim any
obligation or undertaking to disseminate any updates or revisions to any
forward-looking statement contained herein to reflect any change in our
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.

About Liberty Latin America

Liberty Latin America is a leading telecommunications company operating
in over 20 countries across Latin America and the Caribbean under the
consumer brands VTR, Flow, Liberty, Más Móvil and BTC. The
communications and entertainment services that we offer to our
residential and business customers in the region include combinations of
services comprised of digital video, broadband internet, telephony and
mobile services. Our business products and services include
enterprise-grade connectivity, data center, hosting and managed
solutions, as well as information technology solutions with customers
ranging from small and medium enterprises to international companies and
governmental agencies. In addition, Liberty Latin America operates a
sub-sea and terrestrial fiber optic cable network that connects over 40
markets in the region.

Liberty Latin America has three separate classes of common shares, which
are traded on the NASDAQ Global Select Market under the symbols "LILA"
(Class A) and "LILAK" (Class C), and on the OTC link under the symbol
"LILAB" (Class B).

For more information, please visit www.lla.com.

Footnotes

1.   OCF guidance is based on foreign currency translation ("FX")
rates as of February 9, 2018. The most significant FX rates for
Liberty Latin America were USDCLP 604 and USDJMD 125 as of February
9, 2018. Spot and average FX rates are presented in the following
table:
     

June 30,
2018

Spot rates:
Chilean peso 654.36
Jamaican dollar 130.15
 
   

Three months ended
March 31,

   

Three months ended
June 30,

   

Six months ended
June 30,

2018 2018 2018
Average rates:
Chilean peso 602.37 621.77 612.15
Jamaican dollar 125.80 127.25 126.51
2.   For the definition of Operating Cash Flow ("OCF") and required
reconciliations, see OCF Definition and Reconciliation below.
3. For the definition of Adjusted Free Cash Flow ("Adjusted FCF")
and required reconciliations, see Adjusted Free Cash Flow Definition
and Reconciliation below. For more detailed information concerning
our operating, investing and financing cash flows, see the condensed
consolidated statements of cash flows included in our Form 10-Q.
4. The indicated growth rates are rebased for the estimated
impacts of adopting Accounting Standards Update No. 2014-09, Revenue
from Contracts with Customers, an acquisition and FX. See Revenue
and Operating Cash Flow for information on rebased growth.
5. See Footnotes for Operating Data and Subscriber Variance Tables
for the definition of RGUs. Organic figures exclude RGUs of acquired
entities at the date of acquisition and other nonorganic
adjustments, but include the impact of changes in RGUs from the date
of acquisition. All subscriber/RGU additions or losses refer to net
organic changes, unless otherwise noted.
6. For purposes of calculating our average tenor, total debt
excludes vendor financing.
7. At June 30, 2018, we had undrawn commitments of $964 million.
At June 30, 2018, the full amount of unused borrowing capacity under
our subsidiary's credit facilities was available to be borrowed,
both before and after consideration of the completion of the June
30, 2018 compliance reporting requirements, which include
leverage-based payment tests and leverage covenants. For information
regarding limitations on our ability to access this cash, see the
discussion under "Material Changes in Financial Condition" in our
Form 10-Q.
>
 

Balance Sheets, Statements of Operations and Statements of Cash Flows

The condensed consolidated balance sheets, statements of operations and
statements of cash flows of Liberty Latin America are included in our
Form 10-Q.

Rebase Information

For purposes of calculating rebased growth rates on a comparable basis
for all businesses that we owned during 2018, we have adjusted our
historical revenue and OCF for the three and six months ended June 30,
2017 to (i) include the pre-acquisition revenue and OCF of certain
entities acquired on April 1, 2017 at C&W (the Carve-out Entities) in
our rebased amounts for the six months ended June 30, 2017 to the same
extent that the revenue and OCF of the Carve-out Entities are included
in our results for the six months ended June 30, 2018, (ii) reflect the
estimated impacts of adopting Accounting Standards Update No. 2014-09, Revenue
from Contracts with Customers
for the three and six months ended
June 30, 2017 and (iii) reflect the translation of our rebased amounts
for the three and six months ended June 30, 2017 at the applicable
average foreign currency exchange rates that were used to translate our
results for the three and six months ended June 30, 2018. We have
reflected the revenue and OCF of the Carve-out Entities in our 2017
rebased amounts based on what we believe to be the most reliable
information that is currently available to us (generally pre-acquisition
financial statements), as adjusted for the estimated effects of (a) any
significant differences between U.S. GAAP and local generally accepted
accounting principles, (b) any significant effects of acquisition
accounting adjustments, (c) any significant differences between our
accounting policies and those of the Carve-out Entities and (d) other
items we deem appropriate. We do not adjust pre-acquisition periods to
eliminate nonrecurring items or to give retroactive effect to any
changes in estimates that might be implemented during post-acquisition
periods. As we did not own or operate the Carve-out Entities during the
pre-acquisition periods, no assurance can be given that we have
identified all adjustments necessary to present their revenue and OCF on
a basis that is comparable to the corresponding post-acquisition amounts
that are included in our historical results or that the pre-acquisition
financial statements we have relied upon do not contain undetected
errors. The adjustments reflected in our rebased amounts have not been
prepared with a view towards complying with Article 11 of Regulation
S-X. In addition, the rebased growth percentages are not necessarily
indicative of the revenue and OCF that would have occurred if the
acquisition of the Carve-out Entities had occurred on January 1, 2017
for purposes of calculating our rebased amounts or the revenue and OCF
that will occur in the future. The rebased growth percentages have been
presented as a basis for assessing growth rates on a comparable basis,
and are not presented as a measure of our pro forma financial
performance. The following table provides adjustments made to the 2017
amounts to derive our rebased growth rates. Due to rounding, certain
rebased growth rate percentages may not recalculate.

       
Revenue OCF

Three months
ended June 30,
2017

   

Six months
ended June 30,
2017

Three months
ended June 30,
2017

   

Six months
ended June 30,
2017

in millions
 
Acquisition of the Carve-out Entities $ $ 8.2 $ $ 1.6
Adoption of new accounting standard 3.3 5.6 3.3 5.8
Foreign currency 17.6   38.9   6.7   14.9
Total $ 20.9   $ 52.7   $ 10.0   $ 22.3
 

OCF Definition and Reconciliation

As used herein, OCF has the same meaning as the term "Adjusted OIBDA"
that is referenced in our Form 10-Q. OCF is the primary measure used by
our chief operating decision maker to evaluate segment operating
performance. OCF is also a key factor that is used by our internal
decision makers to (i) determine how to allocate resources to segments
and (ii) evaluate the effectiveness of our management for purposes of
annual and other incentive compensation plans. As we use the term, OCF
is defined as operating income before depreciation and amortization,
share-based compensation, provisions and provision releases related to
significant litigation and impairment, restructuring and other operating
items. Other operating items include (i) gains and losses on the
disposition of long-lived assets, (ii) third-party costs directly
associated with successful and unsuccessful acquisitions and
dispositions, including legal, advisory and due diligence fees, as
applicable, and (iii) other acquisition-related items, such as gains and
losses on the settlement of contingent consideration. Our internal
decision makers believe OCF is a meaningful measure because it
represents a transparent view of our recurring operating performance
that is unaffected by our capital structure and allows management to (i)
readily view operating trends, (ii) perform analytical comparisons and
benchmarking between segments and (iii) identify strategies to improve
operating performance in the different countries in which we
operate. Effective January 1, 2018, we adopted Accounting Standards
Update No. 2017-07, Improving the Presentation of the Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost
, which
resulted in certain pension-related credits being reclassified from SG&A
expense to non-operating income (expense) and, as such, are no longer
included in OCF. Such credits totaled $4 million and $3 million during
the three months ended June 30, 2018 and 2017, respectively, and $7
million and $6 million during the six months ended June 30, 2018 and
2017, respectively. This change has been given effect for all periods
presented. Effective December 31, 2017, we include certain charges
previously allocated to us by Liberty Global in the calculation of OCF.
These charges represent fees for certain services provided to us and
totaled $3 million and $6 million during the three and six months ended
June 30, 2017, respectively. We believe changing the definition
of OCF to include these charges is meaningful given they represent
operating costs we continue to incur subsequent to the split-off as a
standalone public company. This change has been given effect for all
periods presented. We believe our OCF measure is useful to investors
because it is one of the bases for comparing our performance with the
performance of other companies in the same or similar industries,
although our measure may not be directly comparable to similar measures
used by other public companies. OCF should be viewed as a measure of
operating performance that is a supplement to, and not a substitute for,
operating income, net earnings or loss, cash flow from operating
activities and other U.S. GAAP measures of income or cash flows. A
reconciliation of our operating income to total OCF is presented in the
following table:

       
Three months ended Six months ended
June 30, June 30,
2018     2017 2018     2017
in millions
 
Operating income $ 124.2 $ 155.4 $ 222.5 $ 290.2
Share-based compensation expense 8.7 3.0 15.2 8.6
Depreciation and amortization 207.6 192.9 409.9 386.8
Impairment, restructuring and other operating items, net 12.9   10.4   46.6   23.8
Total OCF $ 353.4   $ 361.7   $ 694.2   $ 709.4
 

Summary of Debt, Capital Lease Obligations & Cash and Cash Equivalents

The following table details the U.S. dollar equivalent balances of the
outstanding principal amount of our debt, capital lease obligations and
cash and cash equivalents at June 30, 2018:

               
Capital Debt & Capital Cash
Lease Lease and Cash
Debt Obligations Obligations Equivalents
in millions
 
Liberty Latin America1 $ $ $ $ 76.2
C&W 3,907.8 14.2 3,922.0 289.8
VTR 1,769.0 0.6 1,769.6 356.1
Liberty Puerto Rico 982.5     982.5   15.9
Total $ 6,659.3   $ 14.8   $ 6,674.1   $ 738.0
1.   Represents the amount held by Liberty Latin America on a
standalone basis plus the aggregate amount held by subsidiaries of
Liberty Latin America that are outside of our borrowing groups.
Subsidiaries of Liberty Latin America that are outside our borrowing
groups rely on funds provided by our borrowing groups to satisfy
their liquidity needs.
 

Property and Equipment Additions and Capital Expenditures

The table below highlights the categories of the property and equipment
additions for the indicated periods and reconciles those additions to
the capital expenditures that are presented in the condensed
consolidated statements of cash flows included in our Form 10-Q.

       
Three months ended Six months ended
June 30, June 30,
2018     2017 2018     2017
in millions, except % amounts
 
Customer Premises Equipment $ 81.1 $ 73.1 $ 146.6 $ 145.6
New Build & Upgrade1 59.3 35.5 139.6 58.1
Capacity 39.2 20.8 46.4 37.0
Baseline 17.8 22.5 45.5 41.3
Product & Enablers 20.2   19.0   33.5   28.1  
Property and equipment additions 217.6 170.9 411.6 310.1
Assets acquired under capital-related vendor financing arrangements (14.3 ) (20.1 ) (35.0 ) (34.2 )
Assets acquired under capital leases (0.3 ) (1.6 ) (0.9 ) (2.5 )
Changes in current liabilities related to capital expenditures 33.9   (25.3 ) 49.4   (25.1 )
Capital expenditures2 $ 236.9   $ 123.9   $ 425.1   $ 248.3  
 
Property and equipment additions as % of revenue 23.6 % 18.6 % 22.5 % 16.9 %
1.   Increases from prior-year periods are primarily attributable to
the restoration activities at Liberty Puerto Rico following the
hurricanes.
2. The capital expenditures that we report in our condensed
consolidated statements of cash flows do not include amounts that
are financed under capital-related vendor financing or capital lease
arrangements. Instead, these amounts are reflected as non-cash
additions to our property and equipment when the underlying assets
are delivered and as repayments of debt when the principal is repaid.
 

Adjusted Free Cash Flow Definition and Reconciliation

We define Adjusted FCF as net cash provided by our operating activities,
plus (i) cash payments for third-party costs directly associated with
successful and unsuccessful acquisitions and dispositions and (ii)
expenses financed by an intermediary, less (a) capital expenditures, (b)
distributions to noncontrolling interest owners, (c) principal payments
on amounts financed by vendors and intermediaries and (d) principal
payments on capital leases. We changed the way we define Adjusted FCF,
effective December 31, 2017, to deduct distributions to noncontrolling
interest owners. This change was given effect for all periods presented.
Additionally, on January 1, 2018, we retroactively adopted Accounting
Standards Update 2016-18, Statement of Cash Flows-Restricted Cash,
which resulted in an immaterial decrease in cash from operating
activities for the six months ended June 30, 2017. We believe
that our presentation of Adjusted FCF provides useful information to our
investors because this measure can be used to gauge our ability to
service debt and fund new investment opportunities. Adjusted FCF should
not be understood to represent our ability to fund discretionary
amounts, as we have various mandatory and contractual obligations,
including debt repayments, which are not deducted to arrive at this
amount. Investors should view Adjusted FCF as a supplement to, and not a
substitute for, U.S. GAAP measures of liquidity included in our
condensed consolidated statements of cash flows. The following table
provides the reconciliation of our net cash provided by operating
activities to Adjusted FCF for the indicated periods:

    Three months ended     Six months ended
June 30, June 30,
2018     2017 2018     2017
in millions
 
Net cash provided by operating activities $ 234.8 $ 223.6 $ 398.0 $ 298.6
Cash payments for direct acquisition and disposition costs 1.2 0.6 1.3 1.5
Expenses financed by an intermediary1 62.6 37.1 94.9 47.4
Capital expenditures (236.9 ) (123.9 ) (425.1 ) (248.3 )
Distributions to noncontrolling interest owners (19.8 ) (18.7 ) (19.8 ) (33.3 )
Principal payments on amounts financed by vendors and intermediaries (53.9 ) (21.2 ) (105.0 ) (40.0 )
Principal payments on capital leases (1.8 ) (2.1 ) (3.8 ) (4.0 )
Adjusted FCF $ (13.8 ) $ 95.4   $ (59.5 ) $ 21.9  
1.   For purposes of our condensed consolidated statements of cash
flows, expenses, including value-added taxes, financed by an
intermediary are treated as hypothetical operating cash outflows and
hypothetical financing cash inflows. When we pay the financing
intermediary, we record financing cash outflows in our condensed
consolidated statements of cash flows. For purposes of our Adjusted
FCF definition, we add back the hypothetical operating cash outflow
when these financed expenses are incurred and deduct the financing
cash outflows when we pay the financing intermediary.
 

ARPU per Customer Relationship

The following table provides ARPU per customer relationship for the
indicated periods:

    Three months ended June 30,         FX-Neutral1
2018     2017 % Change % Change
 
Liberty Latin America2,3 $ 50.91 $ 47.69 6.8 % 2.3 %
C&W2 $ 45.72 $ 42.90 6.6 % 6.7 %
VTR $ 54.21 $ 50.97 6.4 % (0.4 %)
 

Mobile ARPU

The following tables provide ARPU per mobile subscriber for the
indicated periods:

    Three months ended June 30,         FX-Neutral1
2018     2017 % Change % Change
 
Including interconnect revenue2 $ 16.82 $ 16.65 1.0 % 0.5 %
Excluding interconnect revenue2 $ 15.55 $ 15.39 1.0 % 0.5 %
1.   The FX-neutral change represents the percentage change on a
year-over-year basis adjusted for FX impacts and is calculated by
adjusting the prior-year figures to reflect translation at the
foreign currency rates used to translate the current year amounts.
2. In order to provide a more meaningful comparison of ARPU per
customer relationship and ARPU per mobile subscriber, we have
reflected any nonorganic adjustments in the customer and mobile
subscriber figures used to calculate ARPU per customer relationship
and ARPU per mobile subscriber for the three months ended June 30,
2018 and 2017.
3. In order to provide a more meaningful comparison given the
impact of Hurricanes Irma and Maria, we have omitted Liberty Puerto
Rico's ARPU per customer relationship for the three months ended
June 30, 2018 and 2017. For the three months ended June 30, 2017,
Liberty Puerto Rico's ARPU per customer relationship was $79.84.
Including Liberty Puerto Rico, Liberty Latin America's ARPU per
customer relationship2 was $52.52 for the three months ended June
30, 2017.
 
 

Subscriber Tables

    Consolidated Operating Data — June 30, 2018
      Video          
Homes

Passed

Two-way
Homes
Passed

Fixed-line
Customer
Relationships

Basic Video

Subscribers

 

Enhanced
Video
Subscribers

  DTH

Subscribers

  Total

Video

Internet

Subscribers

Telephony

Subscribers

Total

RGUs

Total Mobile
Subscribers1
C&W:
Panama 545,900 545,900 176,200 54,000 25,300 79,300 109,700 125,300 314,300 1,627,000
Jamaica 485,200 475,200 241,000 110,600 110,600 180,200 188,300 479,100 925,700
The Bahamas 128,900 128,900 48,800 6,700 6,700 26,400 47,300 80,400 240,700
Trinidad and Tobago 321,300 321,300 155,200 107,700 107,700 126,700 58,300 292,700
Barbados 124,500 124,500 84,800 19,300 19,300 63,500 74,700 157,500 120,100
Other2 362,800   343,000   210,800   11,300   68,300     79,600   133,300   102,300   315,200   397,700
C&W Total 1,968,600 1,938,800 916,800 11,300 366,600 25,300 403,200 639,800 596,200 1,639,200 3,311,200
VTR 3,469,900 2,999,600 1,449,800 62,600 1,021,700 1,084,300 1,234,300 604,000 2,922,600 236,300
Liberty Puerto Rico2 1,076,900   1,076,900   362,100     214,500     214,500   307,700   189,000   711,200  
Total 6,515,400   6,015,300   2,728,700   73,900   1,602,800   25,300   1,702,000   2,181,800   1,389,200   5,273,000   3,547,500
 
   
Organic Subscriber Variance Table — June 30, 2018 vs March 31,
2018

Organic Change Summary:

      Video          

Homes
Passed

Two-way
Homes
Passed

Fixed-line
Customer
Relationships

Basic Video
Subscribers
 

Enhanced
Video
Subscribers

  DTH
Subscribers
  Total
Video
Internet
Subscribers
Telephony
Subscribers
Total
RGUs
Total Mobile
Subscribers1
C&W:
Panama 4,000 (2,500 ) 1,500 3,600 600 5,700 (53,900 )
Jamaica 3,600 3,600 2,100 5,100 5,100 4,200 5,400 14,700 (15,800 )
The Bahamas 1,500 (300 ) (300 ) (700 ) (1,000 ) (10,400 )
Trinidad and Tobago 3,100 3,100 (600 ) 400 400 1,000 4,400 5,800
Barbados (100 ) 800 800 1,200 2,000 (2,600 )
Other2 400   400   500   (400 ) 700     300   1,600   (500 ) 1,400   (5,800 )

C&W Total

7,100 7,100 3,400 (400 ) 10,700 (2,500 ) 7,800 10,900 9,900 28,600 (88,500 )
VTR 37,400 41,800 22,100 (2,300 ) 10,300 8,000 26,900 (13,300 ) 21,600 12,600
Liberty Puerto Rico2     3,400     (1,100 )   (1,100 ) 7,100   4,900   10,900    
Total Organic Change 44,500 48,900 28,900 (2,700 ) 19,900 (2,500 ) 14,700 44,900 1,500 61,100 (75,900 )
 

Q2 2018 Adjustments:

Q2 2018 Puerto Rico Adjustments2 (11,600 ) (6,600 ) (6,600 ) (9,900 ) (6,300 ) (22,800 )
Q2 2018 Jamaica Adjustments 13,000 13,000
Q2 2018 Seychelles Adjustments     3,200     2,200     2,200     1,500   3,700   3,000  
Net Adjustments 13,000   13,000   (8,400 )   (4,400 )   (4,400 ) (9,900 ) (4,800 ) (19,100 ) 3,000  
Net Adds (Reductions) 57,500   61,900   20,500   (2,700 ) 15,500   (2,500 ) 10,300   35,000   (3,300 ) 42,000   (72,900 )
 

1. Mobile subscribers are comprised of the following:

    Mobile Subscribers
Consolidated Operating Data     Q2 Organic Subscriber Variance
Prepaid     Postpaid     Total Prepaid     Postpaid     Total
C&W:
Panama 1,474,600 152,400 1,627,000 (51,200 ) (2,700 ) (53,900 )
Jamaica 907,600 18,100 925,700 (15,900 ) 100 (15,800 )
The Bahamas 214,700 26,000 240,700 (10,000 ) (400 ) (10,400 )
Barbados 93,000 27,100 120,100 (2,900 ) 300 (2,600 )
Other2 340,100   57,600   397,700   (5,900 ) 100   (5,800 )
C&W Total 3,030,000 281,200 3,311,200 (85,900 ) (2,600 ) (88,500 )
VTR 6,800   229,500   236,300     12,600   12,600  
Total 3,036,800   510,700   3,547,500   (85,900 ) 10,000   (75,900 )
2.   During September 2017, Hurricanes Irma and Maria caused
significant damage to our operations in Puerto Rico, as well as
certain geographies within C&W, including the British Virgin Islands
and Dominica, resulting in disruptions to our telecommunications
services within these islands. These C&W markets are included in the
"Other" category in the accompanying tables. As we are still in the
process of assessing the operational impacts of the hurricanes, we
are unable to accurately estimate our subscriber numbers as of June
30, 2018. Accordingly, the June 30, 2018 subscriber numbers for
these markets reflect subscriber amounts as of August 31, 2017 as
adjusted through June 30, 2018 for (i) net voluntary disconnects
(treated as an organic change), (ii) disconnects related to
customers whose accounts are delinquent (treated as an organic
change) and (iii) disconnects related to customers to whom, for
various reasons, we will not be restoring services (treated as a
nonorganic change). Additionally, for the C&W markets that were
impacted by the hurricanes, we are also unable to accurately
estimate our homes passed numbers as of June 30, 2018. The Liberty
Puerto Rico homes passed reflect the August 31, 2017 levels adjusted
for approximately 30,000 homes in geographic areas we do not
currently plan to rebuild. As of June 30, 2018, we have been able to
restore service to approximately 646,700 RGUs of our total 711,200
RGUs at Liberty Puerto Rico. Additionally, services to most of our
fixed-line customers have not yet been restored in the British
Virgin Islands and Dominica.
 

Glossary

ARPU – Average revenue per unit refers to the average monthly
subscription revenue (subscription revenue excludes interconnect, mobile
handset sales, late fees and installation fees) per average customer
relationship or mobile subscriber, as applicable. ARPU per average
customer relationship is calculated by dividing the average monthly
subscription revenue from residential cable and SOHO services by the
average of the opening and closing balances for customer relationships
for the period. ARPU per average mobile subscriber is calculated by
dividing residential mobile and SOHO revenue for the indicated period by
the average of the opening and closing balances for mobile subscribers
for the period. Unless otherwise indicated, ARPU per customer
relationship or mobile subscriber is not adjusted for currency impacts.
ARPU per RGU refers to average monthly revenue per average RGU, which is
calculated by dividing the average monthly subscription revenue from
residential and SOHO services for the indicated period, by the average
of the opening and closing balances of the applicable RGUs for the
period. Unless otherwise noted, ARPU in this release is considered to be
ARPU per average customer relationship or mobile subscriber, as
applicable. Customer relationships, mobile subscribers and RGUs of
entities acquired during the period are normalized.

B2B – Business-to-business subscription revenue represents
revenue from services to certain SOHO subscribers (fixed and mobile).
B2B non-subscription revenue includes business broadband internet,
video, telephony, mobile and data services offered to medium to large
enterprises and, on a wholesale basis, to other operators.

Basic Video Subscriber – A home, residential multiple dwelling
unit or commercial unit that receives our video service over our
broadband network either via an analog video signal or via a digital
video signal without subscribing to any recurring monthly service that
requires the use of encryption-enabling technology. Encryption-enabling
technology includes smart cards, or other integrated or virtual
technologies that we use to provide our enhanced service offerings. With
the exception of RGUs that we count on an equivalent billing unit
("EBU") basis, we generally count RGUs on a unique premises basis. In
other words, a subscriber with multiple outlets in one premises is
counted as one RGU and a subscriber with two homes and a subscription to
our video service at each home is counted as two RGUs. We exclude DTH
subscribers (as defined below) from basic video subscribers.

Direct-to-Home ("DTH") Subscriber – A home, residential
multiple dwelling unit or commercial unit that receives our video
programming broadcast directly via satellite.

Enhanced Video Subscriber – A home, residential multiple dwelling
unit or commercial unit that receives our video service over our
broadband network via a digital video signal while subscribing to any
recurring monthly service that requires the use of encryption-enabling
technology. Enhanced video subscribers that are not counted on an EBU
basis are generally counted on a unique premises basis. For example, a
subscriber with one or more set-top boxes that receives our video
service in one premises is generally counted as just one subscriber. An
enhanced video subscriber is not counted as a basic video subscriber. As
we migrate customers from basic to enhanced video services, we report a
decrease in our basic video subscribers equal to the increase in our
enhanced video subscribers.

Fixed-line Customer Relationships – The number of customers who
receive at least one of our video, internet or telephony services that
we count as RGUs, without regard to which or to how many services they
subscribe. To the extent that RGU counts include EBU adjustments, we
reflect corresponding adjustments to our customer relationship counts.
For further information regarding our EBU calculation, see Additional
General Notes below. Fixed-line customer relationships generally are
counted on a unique premises basis. Accordingly, if an individual
receives our services in two premises (e.g., a primary home and a
vacation home), that individual generally will count as two customer
relationships. We exclude mobile-only customers from customer
relationships.

Fully-swapped Borrowing Cost – Represents the weighted average
interest rate on our aggregate variable- and fixed-rate indebtedness
(excluding capital leases and including vendor financing obligations),
including the effects of derivative instruments, original issue premiums
or discounts and commitment fees, but excluding the impact of financing
costs.

Homes Passed – Homes, residential multiple dwelling units or
commercial units that can be connected to our networks without
materially extending the distribution plant, except for DTH homes.
Certain of our homes passed counts are based on census data that can
change based on either revisions to the data or from new census results.
We do not count homes passed for DTH.

Internet (Broadband) Subscriber – A home, residential multiple
dwelling unit or commercial unit that receives internet services over
our networks.

Mobile Subscribers – Our mobile subscriber count represents the
number of active subscriber identification module ("SIM") cards in
service rather than services provided. For example, if a mobile
subscriber has both a data and voice plan on a smartphone this would
equate to one mobile subscriber. Alternatively, a subscriber who has a
voice and data plan for a mobile handset and a data plan for a laptop
(via a dongle) would be counted as two mobile subscribers. Customers who
do not pay a recurring monthly fee are excluded from our mobile
telephony subscriber counts after periods of inactivity ranging from 30
to 60 days, based on industry standards within the respective country.
In a number of countries, our mobile subscribers receive mobile services
pursuant to prepaid contracts.

Net Leverage – Our gross and net debt ratios are defined as total
debt and net debt to annualized OCF of the latest quarter. Net debt is
defined as total debt less cash and cash equivalents. For purposes of
these calculations, debt is measured using swapped foreign currency
rates, consistent with the covenant calculation requirements of our
subsidiary debt agreements.

NPS – Net promoter score.

OCF Margin – Calculated by dividing OCF by total revenue for the
applicable period.

Revenue Generating Unit ("RGU") – RGU is separately a
basic video subscriber, enhanced video subscriber, DTH subscriber,
internet subscriber or telephony subscriber. A home, residential
multiple dwelling unit, or commercial unit may contain one or more RGUs.
For example, if a residential customer in Chile subscribed to our
enhanced video service, fixed-line telephony service and broadband
internet service, the customer would constitute three RGUs. Total RGUs
is the sum of basic video, enhanced video, DTH, internet and telephony
subscribers. RGUs are generally counted on a unique premises basis such
that a given premises does not count as more than one RGU for any given
service. On the other hand, if an individual receives one of our
services in two premises (e.g., a primary home and a vacation home),
that individual will count as two RGUs for that service. Each bundled
cable, internet or telephony service is counted as a separate RGU
regardless of the nature of any bundling discount or promotion.
Non-paying subscribers are counted as subscribers during their free
promotional service period. Some of these subscribers may choose to
disconnect after their free service period. Services offered without
charge on a long-term basis (e.g., VIP subscribers or free service to
employees) generally are not counted as RGUs. We do not include
subscriptions to mobile services in our externally reported RGU counts.
In this regard, our RGU counts exclude our separately reported postpaid
and prepaid mobile subscribers.

SOHO – Small office/home office customers.

Telephony Subscriber – A home, residential multiple dwelling unit
or commercial unit that receives voice services over our networks.
Telephony subscribers exclude mobile telephony subscribers.

Two-way Homes Passed – Homes passed by those sections of our
networks that are technologically capable of providing two-way services,
including video, internet and telephony services.

U.S. GAAP – Generally accepted accounting principles in the
United States.

Additional General Notes

Most of our operations provide telephony, broadband internet, data,
video or other B2B services. Certain of our B2B service revenue is
derived from SOHO customers that pay a premium price to receive enhanced
service levels along with video, internet or telephony services that are
the same or similar to the mass marketed products offered to our
residential subscribers. All mass marketed products provided to SOHO
customers, whether or not accompanied by enhanced service levels and/or
premium prices, are included in the respective RGU and customer counts
of our operations, with only those services provided at premium prices
considered to be "SOHO RGUs" or "SOHO customers." To the extent our
existing customers upgrade from a residential product offering to a SOHO
product offering, the number of SOHO RGUs or SOHO customers will
increase, but there is no impact to our total RGU or customer counts.
With the exception of our B2B SOHO customers, we generally do not count
customers of B2B services as customers or RGUs for external reporting
purposes.

Certain of our residential and commercial RGUs are counted on an EBU
basis, including residential multiple dwelling units and commercial
establishments, such as bars, hotels, and hospitals, in Chile and Puerto
Rico. Our EBUs are generally calculated by dividing the bulk price
charged to accounts in an area by the most prevalent price charged to
non-bulk residential customers in that market for the comparable tier of
service. As such, we may experience variances in our EBU counts solely
as a result of changes in rates.

While we take appropriate steps to ensure that subscriber and homes
passed statistics are presented on a consistent and accurate basis at
any given balance sheet date, the variability from country to country in
(i) the nature and pricing of products and services, (ii) the
distribution platform, (iii) billing systems, (iv) bad debt collection
experience and (v) other factors add complexity to the subscriber
counting process. We periodically review our subscriber and homes passed
counting policies and underlying systems to improve the accuracy and
consistency of the data reported on a prospective basis. Accordingly, we
may from time to time make appropriate adjustments to our subscriber and
homes passed statistics based on those reviews.

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