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Liberty Latin America  (NASDAQ:LILA)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Brian Zook -- Chief Accounting Officer

Good morning, ladies and gentlemen, and welcome to Liberty Latin America's Full-Year 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 a question-and-answer session. As a reminder, this call is being recorded on this date, February 21, 2019.

Page 2 of the slides 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 fact. 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.

Liberty Latin America disclaims any obligation to update any of these forward-looking statements to reflect any changes in its expectations or in the conditions on which any such statement is based.

In addition, on this call, we will refer to certain non-GAAP financial measures, which are reconciled to the most comparable GAAP financial measures, which can be found in the Appendices to this presentation and on our Investor Relations website. Also note 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, Mr. Balan Nair.

Balan Nair -- President, Chief Executive Officer and Director

Thank you, Brian, and welcome, everybody, to our full year results presentation. I'm once again joined by my senior leadership team from across the region, and I will get them involved as needed during the Q&A.

For our agenda today, I'll start by taking you through our highlights and what has been a great first year for our business. I'll then provide an update on the progress we are making across the group, including our recent announcement of plans to launch a new operations center in Panama, before closing with an M&A review. Chris Noyes, our CFO, will then follow with some prepared remarks reviewing our financial performance and providing greater color regarding some of the key metrics we focus on as a management team before wrapping up with our guidance for 2019. 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 on Slide 4 with our key highlights for the quarter. As a new company, we set out with a number of targets at the start of the year, and we have achieved or exceeded them all. Firstly, we delivered our guidance for both financial and operating metrics. We also recorded very strong fixed RGU additions of close to 200,000, providing us with good momentum as we head into 2019.

Two, we are very happy with our results in Puerto Rico, where shortly after Hurricane Maria, we had only about 3,000 billable customers. Not only did we fully rebuild the network by the end of Q3, but excluding the favorable insurance settlements, we also ended the year with OCF of $15 million in December, which exceeded our guidance. In fact, we outperformed our internal expectations across all financial and operating metrics in Puerto Rico, which is an incredible achievement for the team.

Third, as you know, we are committed to investing and growing our networks. In 2018, we upgraded or expanded our fixed footprint by approximately 330,000 homes, which was, again, ahead of our public target, and this is set to increase in 2019, giving us a strong platform for growth. We are also focused on expanding our LTE coverage and made good progress during 2018.

Moving to Point 4. I talked previously about revitalizing our operations and bringing in new ideas and leadership into the team, refocus on Cable & Wireless, and specifically, in Panama and the Bahamas, C&W's larger consumer markets. We have now replaced the majority of the leadership teams and reduced headcount, while improving field metrics like truck rolls and install times. We have also launched a new campaign called Moments that Move Us along with improved customer value propositions. These are all starting to bear fruit. We are also transforming our operating model across LLA, which I'll cover in greater detail later in the presentation.

Finally, we made some acquisitions in 2018 that we are very happy about and continue to see tremendous opportunities to enter new markets and consolidate the region, although I will tell you we will remain disciplined in our approach and valuations. In the next few slides, I'll provide an update on our consumer and B2B businesses.

Turning to Slide 5. I'll start by reviewing our fixed and mobile subscriber trends and how they reflect some of the good work we are doing to enhance our customer propositions. Starting on the left with RGU additions, we delivered a significant improvement in performance during 2018 led by great performance in broadband. Broadband accounted for over 85% of our 192,000 RGU net adds, as we continued to leverage our speeds and differentiate our in-home connectivity solutions. The majority of our broadband customers now use our next-generation WiFi router, including close to 70% of VTR's customers. Q4 was a good quarter for us with year-over-year improvement, driven by strong performances in Puerto Rico and Cable & Wireless. We added 56,000 RGUs in that quarter alone, which sets us up well for 2019.

In addition to the positive broadband performance, we also achieved a much better video result as we delivered 26,000 additions in Cable & Wireless during the year, this was our best result since we acquired the business. With momentum building, particularly in Panama, where as of late January, we launched top speeds of 600 megabits per second, which complements our leading video proposition.

As we look forward, we believe there are more opportunities, as penetration of broadband in our region is still below 50% on average, which is relatively low compared to many parts of the world.

Moving to the middle of the slide. We've had a challenging period in mobile and Cable & Wireless, but are starting to see some positive trends following actions taken toward the end of 2018. As you can see, we lost greater number of subscribers in 2018 compared to the prior year, mainly driven by the first three quarters and by Panama and the Bahamas where in both cases, we faced increased competition. Needless to say, we are the incumbents in both of these markets and have always had a defensive posture. Note that the subscriber losses are generally prepaid and at the low end from a value perspective. Mobile, overall, is roughly a fifth of our group revenue and prepaid is two-thirds of that.

In Q3, we launched our Moments that Move Us campaign in Panama and since have expanded it to the Bahamas. We are now changing our culture to fight back. This has helped us drive improved performance, and you can see that Q4 was much better year-over-year, specifically in December where we generated net adds and had our best month in over a year. We've seen this momentum carry through into 2019 and saw another month of mobile net adds at Cable & Wireless in January. While it's a smaller business, our mobile operations in Chile continues to perform consistently, adding 11,000 subscribers in Q4 and 41,000 during the year as we focus on selling full speed mobile products, typically on a sim-only basis to our fixed subscriber base.

Lastly, on the right hand of the slide, I wanted to highlight the results of our investments in improving customer experience. NPS is one of the key metrics we track to see how our customers view us. In the past year, we've seen NPS growth across all of our businesses as we've improved our product propositions and service quality across our markets. I'll cover some of these metrics in detail when I talk about our focus on operations later in the presentation.

One example here is the retention center of excellence I mentioned earlier in 2018, which continues to perform well. The Trinidad center is now handing traffic from Trinidad, Barbados, Antigua and Cayman. And Trinidad and Barbados safe rate for addressable churn over the last three months averaged 50%, with Antigua and Cayman in the low 30s. We also launched a new center in Jamaica at the end of 2018, and we've seen positive results there as well. An important point to close on is that we have capabilities across the group. We know what good looks like, and we're working to make sure that best practice is experienced in all of our markets.

Moving to Slide 6. We operate the fastest networks in our markets and back that up with some great products. Starting on the left-hand side, we have well-invested fixed networks. As you can see in the chart, we are able to deliver high-speed broadband to about 90% of our 7.2 million homes passed footprint. And given the low penetration of high-speed connectivity in our markets, this is a great platform from which to grow.

We're also the speed leader in our key markets, including Chile, Puerto Rico, Trinidad, Costa Rica and many others, and we offer speeds in excess of 100 megabits per second in 15 of our markets. In VTR, over 60% of our customers are on speeds greater than 150 megabits per second, and in Puerto Rico, a third of our customers have speeds over 100 megs. The final point here is that in addition to the on-footprint penetration opportunity, we also have a lot of additional homes we can pass where there is pent-up demand for our products. In 2019, we'll look to upgrade and expand more homes than in 2018, adding at least 400,000 across the group.

Moving to the middle, we continue to see good traction in growing our LTE subscriber base. As shown on the slide, our LTE base as a percentage of all mobile subscribers has grown by over 50% compared to the prior year, approaching 40% at the end of 2018. This has been helped by expanded network coverage and attractive propositions.

As you can see, we still have many customers that don't use LTE, and the key objective for my team is to grow our LTE base in the coming years. This is important because LTE enables our customers to experience the best of mobile, and LTE users typically use more data and have higher ARPUs. As with fixed, we lead with speed in our key markets, which gives us a great foundation to build on.

Finally, to the right side of the slide, are products. We've made some great progress in 2018. Our OTT video apps, including Liberty GO in Puerto Rico, VTR Play in Chile and apps across Cable & Wireless markets continued be popular among our customers. In VTR, approximately 40% of our B2B base use on-demand features like Replay TV and video-on-demand each month. We've continued to roll out our next-generation WiFi modems, which are now in the homes of over 50% of our broadband subscribers. And we've launched some hybrid mobile packages, encouraging prepaid customers to stay connected for longer periods.

As we look to 2019 and beyond, one of the constraints for LTE adoption is the lack of available entry-level headsets. Solving this is a key priority for my new CTO, and our procurement team is working hard to find fit-for-purpose, low-cost handsets for our markets. By staying at the forefront of video delivery, with the launch of new setup box in Chile based on the RDK infrastructure and bespoke video strategies for our challenger markets, we expect to continue growing video revenue. And finally, we remain focused on our core service of high-speed connectivity in the home and remaining speed leader across our markets.

Moving to Slide 7 and more about our B2B operations, which are an exciting growth driver for the group and represents about a third of our total revenue. Starting with our year-over-year performance on the left-hand side, we delivered a solid performance in 2018, with revenue up 4% on a rebase basis. This growth is particularly encouraging, despite headwinds we face in legacy products based on incumbent private lines and fixed voice services. As we move to manage services and other applications-based products, we anticipate that this growth rate will improve.

Moving to the middle of the slide and a graphic which highlights why I'm so excited about this area of our business. B2B is a significant part of our group, generating $1.1 billion in revenue during 2018, and there is a tremendous opportunity to grow as we focus on different segments across the group. These can be separated as follows: Firstly, we have our B2B businesses in our C&W consumer markets, where we are the incumbents. We are focusing here on moving our customers to next-generation products. Next to that, we have our subsea business, where we have a unique customer proposition and strong margins, which I will discuss in a minute. Then, in our C&W B2B-only markets, we have an attacker profile and expect to see high single-digit growth rates. Finally, we have our challenger markets like VTR in Puerto Rico, where we are just beginning and expect to see double-digit growth rate for the foreseeable future.

Now to the right-hand side of the slide and a map that I've shown you before. Though 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. For our existing businesses, this subsea network seamlessly connects with our high-speed terrestrial and mobile networks, helping us lower our cost to deliver these services. And as we look to expand through acquisitions, this network also provides a key differentiator to generate additional synergies. These networks landing sites also provide beachheads for us to expand our B2B networks into geographies where we do not have consumer services today.

Turning to Slide 8 and our focus on operations. One of my priorities has been to create a strong operating culture and model for Liberty Latin America. To achieve this, we identified several transformative programs, which are now well under way. Firstly, we've focused on building a world culture that is based on being respectful, honest, working hard, taking risk and being disciplined. I have completed more than one Town Hall per month, 40 country visits and had face-to-face meetings with more than 25% of my employees. Members of my leadership team are also on the ground in our operations every week. Secondly, we focus on building a scalable operating model based on functional competencies and end-to-end approaches. In our model, functional leaders have direct reporting lines and accountability for all costs within their functions. An example would be our finance team where Chris Noyes leads all the financial procurement teams in our operations through a direct-reporting relationship.

As part of this strategy, we embarked on transforming our technology and innovation organization into a single unit led by our chief technology officer. I'm happy to share that we are well advanced here and are already seeing scale benefits and quality improvements. Projects have included consolidation of all our technology, product development and network operations centers.

Another of our key focus areas have been to improve customer experience, providing our customers with magical moments through a frictionless experience. This is a priority project for us in 2019 and I'll share more details in the coming quarters. Lastly, we are also driving scale and quality improvements across our commercial organization through developing common marketing approaches while leveraging scale in our vendor negotiations, and we continue to focus on leveraging our B2B and subsea asset across our footprint.

Looking at the center of the slide, one of the biggest opportunities to grow our business comes from maximizing scale by creating efficient and effective operations. In that regard, we launched a project to identify potential locations for a new scalable operations center within our region. Creating an operations center will allow us to build a global operating model, leveraging skill and expertise and providing future growth opportunities for our people. Following extensive research and after a thorough evaluation process, we are pleased to announce that Panama City will be the location of our new operations center.

As the location for our new operations center, Panama City offers great strategic relevance, financial benefit, talent scalability and sustainability, competitive environment, business climate and real estate infrastructure. We expect this to be operational from late 2019. Having talked about our plans for the future, on the right-hand side of the slide, I want to highlight some of the improvements we've already seen in 2018. Here you can see that across the three important operational metrics of mean time to install, mean time to repair and our number of truck rolls reaching significantly better results at Cable & Wireless in 2018 as we focus on sharing best practice and getting the business where it needs to compete effectively. This is just the first step. Once our service levels have improved, we can then leverage our digital platforms and leading products to improve sales and customer experience.

The process of reaching our ultimate vision for the group will take a number of years. But I'm pleased that we have started and taken some vital early steps, which will enable us to create a differentiated and leading proposition in the region.

Next to Slide 9 and our inorganic strategy. Starting with 2018, we completed the two larger acquisitions highlighted on the slide of Cabletica in Costa Rica and the 40% minority stake in LCPR from Searchlight Capital. Both of these transactions met our criteria, which I'll come on to. And we are very excited with the progress that the businesses are making. At Cabletica, our VTR team from Chile is managing the business and making progress integrating Costa Rica's leading cable operator into Liberty Latin America. We are excited about the prospects for the operation, which in its early days is exceeding our expectations as well as for Costa Rica as a market overall.

Puerto Rico, enough cannot be said about the excellent recovery our team has made since the devastating events of 2017. We are very excited about the future for the business and pleased we were able to acquire the remaining stake from our excellent partner, Searchlight, who remains a key shareholder in Liberty Latin America.

Moving to the right side of the slide and our M&A criteria, I thought it would be helpful to articulate how we actually assess opportunities in the region. In order of attraction, we would first look at transactions which enable us to consolidate a market where we currently operate or which provides a route to consolidating a new market. Secondly, we target businesses which help us to build scale in our products and services, which we can then leverage to benefit our customers across LLA. Thirdly, we value diversification. Importantly, certain markets in our region are more attractive than others, and this is a significant factor in our assessment process.

For example, we would look at political stability and currency volatility as well as other aspects. Finally, we have seen many potential transactions since we split off as a separately listed business. And one of the reasons we haven't done more deals is that we were very disciplined and focused on driving growth and free cash flow in any transaction. In particular, we target IRRs that exceed those of our stand-alone business and adjusted free cash flow accretion on a per share basis. We are confident that there will be a number of opportunities in the future at the right value, which will enable us to build scale and create value for stakeholders.

On Slide 10, I wanted to wrap up in the context of our key strategic blocks and focus areas. In 2018, we achieved what we set out to do, including creating the right structures and culture across LLA to position us for growth in future years, building momentum in our fixed mobile and B2B businesses, investing in leading networks and products, enhancing our customers' experience to improve operational execution and taking the first steps to better leverage the scale we have today across the region. As we look forward, there are four areas that we, as a management team, are focused on. Firstly, we are committed to delivering leading speeds and products to our customers. We will continue to invest in the expansion and upgrade of our fixed and mobile networks. I've mentioned some examples of this in my earlier slides, and there are many more projects with attractive returns for future years, the returns part of the equation being vital as we make capital-allocation decisions.

Secondly, we see topline growth as a key driver of long-term value creation. Here, in addition to low penetration across our markets, there is also a price opportunity as we deliver a leading service quality and products. The Panama Operations Center and other initiatives will also drive improved cost efficiencies, which should increase our profitability, and Chris will talk about how we measure this in his section.

Thirdly, and bringing the first two points together, we are focused on driving improvements in the percentage of revenue represented by operating cash flow less P&E additions. This metric provides a good proxy for overall performance and a trade-off between driving a topline performance and capital spend.

Finally, as you are hopefully used to me saying, the bottom line, which we are all focused on, is growing adjusted free cash flow. Chris will talk through our guidance for 2019, and we certainly see inflection improvement in our free cash flow generation from here.

I'll now pass you to Chris Noyes, our Chief Financial Officer, who will go through our Q4 and full year performance in greater detail. And I look forward to your questions after that. Chris?

Chris Noyes -- Senior Vice President, Chief Financial Officer

Thank you, Balan.

I will begin on Slide 12 and summarize our Q4 and full year financial results. Starting with Q4, we reported $949 million in revenue and $428 million in OCF. Our quarterly rebased revenue growth of 10% and rebased OCF growth of 45% were fueled in large part by our recovery efforts in Puerto Rico. And with respect to OCF, we also benefited from settling outstanding hurricane-related insurance claims, as we posted a $64 million credit to OCF in the fourth quarter. Our P&E additions totaled $190 million in Q4 or 20% of revenue as compared to $273 million or 32% of revenue last year. The prior-year quarter included approximately $60 million of hurricane restoration spend.

Moving to adjusted free cash flow, we delivered $45 million in the quarter, helped by higher cash flows from operations as compared to the prior year of Q4. Turning to the full year, we posted over $3.7 billion in revenue and nearly $1.5 billion in OCF, resulting in rebased revenue growth of 2% and rebased OCF growth of 8%. P&E additions totaled $771 million or 21% of revenue in 2018 as compared to $777 million or 22% of revenue last year. Of our 2018 spend, roughly $130 million was related to recovery efforts in Puerto Rico and C&W. Finally, adjusted free cash flow turned positive in 2018 at $19 million, much improved versus 2017.

On Slide 13, we provide detail on each of our operating segments. Starting on the left, C&W delivered $2.3 billion of revenue, broadly flat on a rebased basis as growth in B2B and fixed residential services was offset by lower mobile revenue. OCF increased to $916 million in 2018, reflecting reported growth of more than $50 million year-over-year and representing rebased growth of 5%. Our rebased growth was supported by a reduction in our operational costs as well as the positive impact from the insurance settlements of $13 million. C&W's P&E additions totaled 16% of revenue or $379 million in 2018 at the low end of our target range of 16% to 18% and included 165,000 homes upgraded or built. Our 2018 result was more than 200 basis points lower as a percentage of revenue as compared to 2017 levels.

Moving to VTR in Chile and Cabletica in Costa Rica, note that Q4 was the first quarter for this new reporting segment, which includes Cabletica from October 1st. We posted strong rebased annual growth of 5% of revenue and 6% in OCF, bringing revenue to $1 billion and OCF to $421 million. Top line growth was supported by volume increases across fixed mobile and B2B as well as an increase in our ARPU per fixed subscriber.

Our P&E additions of $215 million or 21% of revenue reflects a year-over-year decrease of 170 basis points and includes roughly 150,000 homes upgraded or built during 2018.

And lastly, Liberty Puerto Rico generated $336 million of revenue and OCF of $196 million in 2018. Rebased revenue growth was 5%, including the favorable impact of FCC funding that we received during Q3 2018. Note the inset chart on revenue by quarter, which highlights the momentum and recovery of our business, as Balan highlighted earlier. Our rebased OCF growth of 48% was positively impacted by a $49 million benefit from insurance as well as the FCC funding. P&E additions totaled $162 million, of which about 55% was related to restoration activities.

Turning to Slide 14, we thought it was important to highlight two key metrics that the management team is focused upon and which we believe underpin OCF and free cash flow performance. The chart on the left highlights our performance in OpEx as a percent of revenue, with OpEx consisting of two of our reportable cost categories, other operating costs in the SG&A, both excluding share-based compensation. On a consolidated basis, we finished 2018 at 37.5%, with C&W at just under 40% and VTR Cabletica and LCPR both in the low 30s. Our focus is to drive our consolidated ratio into the low 30s as we build upon the areas discussed earlier by Balan, including our digital transformational activities, our new operations center and economies of scale as well as our continued focus on cost control.

Moving to the second metric on the right. We experienced a substantial improvement in 2018 in our OCF less P&E additions, measured as a percentage of revenue. With that being said, our management challenge is to drive this ratio from 19% to the mid-20s over the medium term as we target improved OCF margins and reduced capital intensity.

Successfully executing our business strategy over time should result in demonstrable improvement in the two metrics we highlighted here today and begin to cash what we believe is a substantial value creation opportunity.

On the left hand of Slide 15, we display our consolidated net leverage, which has declined year-over-year to a reported 3.8 times on a L2QA basis. If we exclude the impact of the insurance settlements in Q4, our ratio would have risen to approximately 4.2 times, still an improvement from 2017 levels. Our balance sheet remains well hedged, with nearly all of our debt fixed and most of our debt matched on currency. And we have limited maturities with over 90% of our debt due in 2022 or later. In terms of liquidity, we ended 2018 with over $600 million in cash and $1 billion of availability in our revolvers.

Moving to the centers Balan mentioned earlier, we achieved all of our 2018 guidance metrics. With respect to OCF, we reported $1.49 billion. If we adjust to the February 2018 FX rates that we had provided last year in connection with our guidance, excluding the impact of the insurance settlements and the Q4 OCF contribution from Cabletica, we still delivered in excess of $1.4 billion.

Moving to the far right of the slide, we present our 2019 financial guidance. For OCF, we expect to deliver greater than $1.525 billion of OCF in 2019 based on FX rates of CLP670 and JMD130. This would imply rebased OCF growth of low-to-mid-single digits in 2019 as compared to 2018 reported figures.

Our 2019 rebased growth rate will be tempered by the 2018 OCF impact from the $64 million insurance settlements. For P&E additions, we are targeting additions of approximately 19% of revenue, a significant decrease from our 21% in 2018. And lastly, we are publically guiding to approximately $125 million of adjusted free cash flow in 2019.

To summarize, we delivered solid operating results in 2018 and achieved our public targets. Our improved residential value propositions and network investments are resonating with our customers. B2B continues to drive C&W, in particular, and represents a large growth opportunity across our other businesses. We are excited about our new Latin American operations center, which we believe will enable us to drive greater efficiencies and more easily scale our business. And lastly and importantly, we have remained proactive and disciplined in our capital allocation and are focused on creating value for our shareholders.

With that, operator, we are ready to take questions.

Questions and Answers:

Operator

(Operator Instructions)

First up in the roster, we have a question from James Ratcliffe at Evercore.

James Ratcliffe -- Evercore ISI -- Analyst

Good morning, thanks for taking the question. Two, if I could. One on the M&A front. Balan, can you just talk about your view of the currencies you have available to you for acquisitions? And sort of the relative appeal of using cash or potential of joint investor equity financing versus your stock as currency? And second, if we could get a little color on the expanded upgrade and new build efforts. What sort of take rates you've been getting on the new builds and upgrades you've been doing and what sort of ROI you've been generating? Thanks.

Balan Nair -- President, Chief Executive Officer and Director

Sure. Thanks, James. On the M&A front, when we look at transactions, of course, we look at it from a number of different points. But we are very disciplined, and we look at it from strictly an IRR. And if it's accretive on a per share basis, free cash flow per share, and that's how we kind of look at it, and the way we would fund it, we would use, of course, liquidity that we have, the balance sheet of the partner or we may even bring in some partners into the transaction at the local level. And if the transaction is extremely attractive, we may even consider using equity as well. So there's a number of ways we would look at funding a transaction. Now on new builds, we are very happy with our builds. The penetration rates, north of 20% and the IRRs are also very good, also north of 20% type IRRs. And we see a tremendous opportunity in our region for further investments in new builds.

James Ratcliffe -- Evercore ISI -- Analyst

Great. Thank you.

Operator

Moving on now to a question from Jeff Wlodarczak at Pivotal Research Group.

Jeff Wlodarczak -- Pivotal Research Group -- Analyst

(technical difficulty) carry on acceleration...

Balan Nair -- President, Chief Executive Officer and Director

Jeff?

Jeff Wlodarczak -- Pivotal Research Group -- Analyst

Hi, can you guys hear me now?

Balan Nair -- President, Chief Executive Officer and Director

Jeff, yes, we can hear you now.

Jeff Wlodarczak -- Pivotal Research Group -- Analyst

Okay, good. Good morning, guys. I had a couple on Chile. Your Chilean new households built in fourth quarter slowed quite a bit. But based on your commentary for accelerating new builds, I assume we should forecast sort of a similar run rate in terms of new builds in 2019? That's the first question. And then if you could provide more color on what's driving the change in competitiveness in Chile? And what's the sort of broad outlook on the competitive side for 2019? Thanks.

Balan Nair -- President, Chief Executive Officer and Director

Sure. So on Chile, if you look at last year, we achieved new builds by the third quarter already. And then it started to taper down into the fourth quarter, and that's essentially what happened last year. For 2019, you're going to see us build an equal amount, if not larger. We feel really good about the run rate, and the runway of opportunities for new builds in Chile.

And especially in Chile, we've had a pretty high penetration and certainly a high bundling ratio on the incoming subscribers. Now on the competitive nature in Chile, Chile is one of our most competitive markets. You've got quite a number of fixed operators in there. You've got, of course, a number of mobile operators. It's probably the most competitive mobile market. But it hasn't changed that much. It's always been very competitive over the last four, five years. And we've consistently been able to grow through that. We have a really strong management team locally. My Chief Operating Officer, Betzalel, overlooks it. And all of us in management team, we are in Chile every 30 days.

And now I think the competitive nature there will change slightly. The fixed network from Telefonica has expanded a bit more. They've done a bit more upgrades. Are we concerned? Not really. I think our teams are ready to compete, and we feel really good about that market.

Jeff Wlodarczak -- Pivotal Research Group -- Analyst

Thanks, Balan.

Operator

And we'll move on to our next question. This comes from Jason Bazinet at Citi.

Jason Bazinet -- Citigroup -- Analyst

I just had a question on Puerto Rican EBITDA. I guess, prior to these hurricanes hitting, I used to think of this as sort of a $200 million, $210 million EBITDA business. And I know there's a lot of noise in there because of the FCC payments in the third quarter and the insurance proceeds in the fourth. But how qualitatively would you describe sort of the cadence of EBITDA over the next couple of years in Puerto Rico? In other words, is most of the noise sort of out of these numbers, and it's just sort of blocking and tackling now to try and get back up to that $210 million? Or would you still say there is some extraordinary expenses in there that are sort of depressing EBITDA from that old run rate that we used to see back in 2016 and the first part of '17?

Balan Nair -- President, Chief Executive Officer and Director

Well, Jason, if you recall -- by the way, your number is not right. That was the trajectory pre-hurricane. But if you recall, we had guided to about a $14 million run rate EBITDA by the end of last year, and we exceeded that, which is extremely positive. And we see the opportunities for margin expansion, increased EBITDA in the business to continue. The run rate for Puerto Rico is quite long. We've rebuilt the network, we've upgraded it, we've come out with even better, stronger products, and I think we've created a lot of goodwill as well throughout the hurricane season. If you remember, I think I may have mentioned this, during the hurricanes, when we rebuilt it, we treated our employees, our customers extremely well.

We did not let go a single employee. Even though our whole network was destroyed, we had our customer care agents show up to help the community. We had accountants, finance, marketing people coming to the office, even though we had nothing to sell in the depths of the hurricanes. And I'll tell you, coming out of it, the team is pumped up. We are continuing to see amazing growth there, and I'll tell you, January still shows some really strong numbers in Puerto Rico.

Chris Noyes -- Senior Vice President, Chief Financial Officer

And I would also add, Jason, just we also raised prices earlier in the year as well. So that will continue to help underpin some of the revenue trajectory, plus the really strong growth that Balan mentioned in Q4 on net adds and in January as well. So we're tracking quite well on this business.

Jason Bazinet -- Citigroup -- Analyst

Is a simple way of think of it, if there is a gap sort of over the few years between the old EBITDA and whatever you guys end up doing, is the right way to think about it that it was just video revenues that sort of went to satellite post this transition? Or is it more complicated than that?

Balan Nair -- President, Chief Executive Officer and Director

As a matter of fact it's the opposite. So we -- yes. And I don't think we give specific guidance by country operations. But suffice to say, we look at Puerto Rico as a very nice growth driver for us for the next see-able future.

Jason Bazinet -- Citigroup -- Analyst

Okay. Thank you.

Operator

And now from Buckingham Research Group, we have a question from Matthew Harrigan.

Matthew Harrigan -- Buckingham Research Group -- Analyst

Thank you. Balan, when you were on SCTE panels, you frequently talked about the cost pressures, your CapEx pressures on broadband usage, Nielsen's Law, which isn't a precisely -- the law is a little bit akin to Moore's Law in terms of your very high broadband usage growth, 50% a year, I think. Can you talk about how fast your broadband usage growth is relative to your US or European peers? And whether that puts any pressure on the CapEx side medium term, as you frequently spoke about in those panels? And then I have one follow-up.

Balan Nair -- President, Chief Executive Officer and Director

Yes, I -- Matt, I think we see the same kind of consumption growth you'd see in North America and Europe, 40% type consumption year-over-year on a per individual basis. And one thing that's good in our industry as well is we continue to innovate and drive the cost per sub. And if you look at some of our devices like the CMTS, the cost per downstream port has dropped significantly. I mean, it used to be a four-digit number before. Now it dropped to about three digits in the last couple of years. And I think this year, we've already broken it down to two-digit number. So cost is dropping. We're getting more efficient as well. And it's a good news for us that consumption is growing. Our products are in high demand, and people are using it. And that's what we see as an opportunity in Latin America.

Matthew Harrigan -- Buckingham Research Group -- Analyst

Just a follow-up. On the mobile broadband side as a substitute for fixed broadband, your -- just by virtue of the income differences in your market, you're a little bit more vulnerable on the cheap and cheerful side as we've seen in some of the Caribbean markets. Do you think that, that's a long-term issue for the relative value of your fixed plant? You talked about 600-meg speeds, clearly, you've got a big advantage in terms of the very high end of the market. But are you concerned about getting disrupted on those lower and middle-income markets, even prior to the advent of mobile 5G?

Balan Nair -- President, Chief Executive Officer and Director

No. Mobile broadband will continue to grow. Applications on mobile devices will get better and more engaging. But I don't see mobile broadband as a replacement for fixed broadband. Even in -- on those devices, to get high quality, especially with constant bit rate-type traffic, you are always going to be on WiFi and tethered to a fixed network. Now if you look at a household, a household has today multiple devices that's connected to the Internet. And the best way to support all that with huge volumes through every member of your family, is a very nice high-quality, high-reliability fixed network into your home.

Matthew Harrigan -- Buckingham Research Group -- Analyst

Thanks, Balan. Congratulations with the numbers.

Balan Nair -- President, Chief Executive Officer and Director

Thank you.

Operator

And we will move on to our next question. This comes from Soomit Datta at New Street Research.

Soomit Datta -- New Street Research -- Analyst

Hey, thanks for taking the question. Just on cash flow into 2019, you're guiding to sort of nice expansion in cash flow. Can you help us sort of understand what you're thinking about in terms of use of cash? Obviously, there's potential acquisition opportunities you've talked about. Some would argue your shares are relatively inexpensive. Is that something you're looking at as well? It'd be helpful to get a sense around that. And then I had a quick follow-up, please.

Balan Nair -- President, Chief Executive Officer and Director

Soomit, we're not going to talk about the actual usage of cash. But here's how we think about it. From a capital allocation standpoint, of course we'll look at investments in our business. We'll look at potential M&A, we'll look at stock buyback. And the ones that return -- give us the best returns, we'll put the money toward that way. Maybe I'll ask Chris if he wants to elaborate on that.

Chris Noyes -- Senior Vice President, Chief Financial Officer

No, I mean, I think that's the framework that we've constructed. It's been the way we think about. We think about shareholder value creation first and foremost. As we deploy capital, we want to put it to the highest value uses. And it could come depending on the opportunities that we have, whether it's internal or external or in repurchasing our equity.

Soomit Datta -- New Street Research -- Analyst

Okay. And then just a quick follow-up, please. I think you called out a couple of markets, which we've talked about in the past, quite difficult, Panama and Bahamas wireless. Is there anything which suggests we'll be getting to see some stability, any more rational behavior, particularly thinking about Panama wireless here? But anything to think that maybe those revenue declines are going to ease in the near future?

Balan Nair -- President, Chief Executive Officer and Director

I think I'll address both markets. Panama, we are starting to see some positive shoots there. And our net adds have started to go positive. We had a good December. We actually had a good fourth quarter, but December particularly good. And I can say, January was really good. We think our fixed network there is extremely strong. Remember this is a market where we have a pretty significant HFC network. And while we are an incumbent, we are also an incumbent HFC network.

And I'll tell you, for the longest time, and I mentioned that in my remarks earlier, in a lot of the incumbent telephony businesses, people start thinking more like an incumbent and having a defensive posture. That's changing. We are going to be very aggressive, we are going to win, whether it's in Jamaica, Panama, Bahamas. We are out to win. And you'll see that in our net adds and then subsequently, and that's a very good leading indicator of future financial improvements.

Sorry, Bahamas. Let me address Bahamas as well. Bahamas is -- we were the incumbent with 100% market share. A competitor came in, and obviously, you're going to concede some share to a new entrant. That's inevitable. I think I've mentioned in the last quarter or a couple of quarters ago that we should probably see the bottom of that in 2019 on the topline. But I'll tell you, on the bottom line, this is a gift that's going to keep on giving. We see EBITDA expansion there for the next few years. It is one of -- it is a business that, when we inherited it, was not run the most efficiently, for a variety of reasons, not the previous management, but we are making some changes. And we think we can gain EBITDA points in that business for quite a few years. So we feel really good about both assets. If you asked me the same question in January of 2018, I may have given you a slightly different answer.

Soomit Datta -- New Street Research -- Analyst

Okay. Sounds very promising. Thanks a lot. Cheers.

Operator

And we have a question now from Diego Aragao at Goldman Sachs.

Diego Aragao -- Goldman Sachs -- Analyst

Good morning, everybody. This -- look, apologies, if I would ask about something that was just discussed, but I got disconnected for a few minutes. So look, first, I was hoping to get your thoughts on recent M&A developments in the region, specifically how do you see the deal announced yesterday by Millicom affecting, not only your business in Panama and Costa Rica but also your M&A strategy going forward?

And secondly, in Chile, Antigua announced their plans to offer ultra-broadband through a combination of FTTH and WTTx, starting this year. So I was wondering whether this could potentially affect your growth rate in that market as well. Thank you.

Balan Nair -- President, Chief Executive Officer and Director

On M&A -- we really don't comment on M&A much. So I'll -- especially pending transactions or other people's transactions, we just soon not to say anything about that. But I'll tell you, we are competitive in the two countries you mentioned, Costa Rica and Panama, and we will remain competitive. And we are going to be fighting and making sure that we grow market share in both areas. Vis-a-vis Millicom, it's a good company. And so we have nothing other than to say that they are a good company with good people.

On Chile, we already do ultra-broadband there. So anybody that comes in with an ultra-broadband product, they're going to be up against someone who not only already has the product, has significant experience, has the highest quality network, and of course, I'm a little biased, but I think also has the best management team on the ground. Commercially, operationally, any which way you look at it, this has been a consistent grow. Now we will face some headwinds, but we know that how to address them. And I think the bottom line would be we're not that afraid of competition. Everywhere that we operate, we are up against someone who has a good network, a good plan. And that does not faze us at all. And I'd say the same thing about Chile.

Diego Aragao -- Goldman Sachs -- Analyst

Perfect. And just quickly, just a follow up. So how do you see the video as a main instrument for you to differentiate your offer from those guys that are now basically offering naked broadband in those markets?

Balan Nair -- President, Chief Executive Officer and Director

Well, video is still a very strong product for us. We actually grew video subscribers in 2018. And in some of our markets like Chile, we are launching a new video product there this year. It's going to be phenomenal with voice remote controls. It's a product that is co-developed with the company that I came from, Liberty Global, as well as Comcast. So it's a great product. And if you look at markets where we are an attacker, we're coming out also with really good products and over-the-top products. We also have a setup box-type product there. We think video will be a growth driver for us as well. This is not -- we don't view it as a declining revenue segment. We think this is a segment that we can actually grow into.

Diego Aragao -- Goldman Sachs -- Analyst

That's helpful. Thank you.

Operator

And now we have a question from Julio Arciniegas at RBC Capital Markets.

Julio Arciniegas -- RBC Capital Markets -- Analyst

Good morning, thanks for taking the question. Regarding Panama, again, on the network. According to the 10-Q, I believe that still 40% of the network in Panama is VDSL. Do you think that basically the sort of percentage, 40% VDSL, 60% cable is enough, having in mind that probably has a higher coverage, and I guess, that now with Millicom, they are going to push more conversions with Millicom on Telefonica deal? Thank you.

Balan Nair -- President, Chief Executive Officer and Director

Sure. So let me say it this way. We've got a great interesting network. We think VDSL is a great product, once you get the bundled pair, you get VDSL as well. And we have a bunch of other parts of our network that we are going to upgrade quite a bit. You're also going to see us put in 2019 fiber-to-the-home in Panama, and you're going to see us upgrading even bigger parts of our ADSL network in there. We are focused on this. We will spend the capital to be not only competitive, to be the market leader. So that is our plan in Panama.

Julio Arciniegas -- RBC Capital Markets -- Analyst

Okay. My follow-up. I remember from last call that actually someone asked something similar. The company said that actually in Panama, the strategy was going to increase the penetration and create a footprint that it wasn't going to be -- to extend your current cable network. So is it fair to say that this has changed? And now actually you are going to increase your cable and fiber-to-the-home coverage, I guess, yes, now?

Balan Nair -- President, Chief Executive Officer and Director

I think the way I answered it as well is we have spent a significant amount of capital in 2017 to expand our network. And I think in 2018, we said let's have the team show they can sell into the network that we've built. And you can surmise that now that we are excited about expanding even further that our team has shown the capability to really sell. And so I've challenged the team, you can sell, we will build. And now we are going to build.

Julio Arciniegas -- RBC Capital Markets -- Analyst

Fantastic. Thanks a lot.

Operator

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

Balan Nair -- President, Chief Executive Officer and Director

Thank you. Thanks, Kevin. Well, I think you saw we had a really good year 2018. We said 2018 is our fixer-upper year and we did it. And while fixing the networks, fixing the business, getting our culture in place, we also delivered on all of our commitments and guidance that we've given to the Street. I think now that we're done with a lot of this fixing. In 2019, we are off to the races, and we feel really good about 2019. The guidance that Chris Noyes gave you, we feel really good about it. And we've -- we see nothing but upside this year.

So with that, I want to thank you for your support, and have a great day.

Operator

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

Duration: 57 minutes

Call participants:

Brian Zook -- Chief Accounting Officer

Balan Nair -- President, Chief Executive Officer and Director

Chris Noyes -- Senior Vice President, Chief Financial Officer

James Ratcliffe -- Evercore ISI -- Analyst

Jeff Wlodarczak -- Pivotal Research Group -- Analyst

Jason Bazinet -- Citigroup -- Analyst

Matthew Harrigan -- Buckingham Research Group -- Analyst

Soomit Datta -- New Street Research -- Analyst

Diego Aragao -- Goldman Sachs -- Analyst

Julio Arciniegas -- RBC Capital Markets -- Analyst

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