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Liberty Latin America  (NASDAQ:LILA) (NASDAQ:LILA.K)
Q1 2020 Earnings Call
May. 06, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and thank you for standing by. [Operator Instructions]

I'll now turn the call over to Betzalel Kenigsztein, Chief Operating Officer of Liberty Latin America.

Betzalel Kenigsztein -- Senior Vice President and Chief Operating Officer

Good morning, and welcome to Liberty Latin America's First Quarter 2020 Investor Call. [Operator Instructions] Today's formal presentation materials can be found under the Investor Relations section of Liberty Latin America's website at www.lla.com. Following today's formal presentation, instructions will be given for a question-and-answer session. As a reminder, this call is being recorded. Today's remarks may include forward-looking statement, including the company's expectation with respect to its outlook and future growth prospects and other information and statements that are not historical facts. Actual results may differ materially from those expressed or implied by these statements. Additional information or factors or risks that could cause results to differ is available in Liberty Latin America's most recently filed Forms 10-K and Form 10-Q. Liberty Latin America disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based. 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.

I would now like to turn the call over to our CEO, Mr. Balan Nair.

Balan Nair -- President, Chief Executive Officer and a Director

Thank you, Betzalel, and welcome, everybody, to our first quarter results presentation. Firstly, I hope you and your families are safe and in good health during these challenging times. We decided to adjust our usual reporting format this quarter given the unprecedented uncertainties stemming from the COVID-19 pandemic. I hope you had the opportunity to read my letter to the shareholders published yesterday with our earnings release. In the letter, I wanted to share with you some of my thoughts on the situation and impact of our business as well as give you the confidence that we are focused, adapting and taking proactive measures to weather this storm. For today's running order, I'll start by briefly taking you through the highlights of our first quarter before adding some color to the areas I highlighted in my letter. Chris Noyes, our CFO, will then follow with a review of our financial performance, run through the COVID-19 impacts on our business in more detail and provide an overview of our capital structure management. After that, we will get straight to your questions. As always, I am joined by my senior leadership team from across the region, and I will get them involved as needed during the Q&A following our prepared remarks. As a point of housekeeping, we will both be working from slides, which you can find on our website at www.lla.com. I'll start on slide four with our key highlights for the quarter. Following the positive momentum we reported in Q4, operationally, we had a strong start to the year in Q1 with 60,000 net adds, including a record performance in Cable & Wireless.

Our financial performance was solid, growing revenue by 2% and OCF by 4% on a rebased basis with all of our reporting segments contributing. And in line with our investment thesis, which has not changed, we continue to expand our high-speed fixed footprint, adding or upgrading an additional 80,000 homes across our markets. We feel really good about the progress we are making. My team is executing on all cylinders. Looking forward, as I said in my letter, we know the next three quarters won't look like the first. While there is still uncertainty regarding the final impact of COVID-19, we expect our results will be adversely impacted. There are many unknowns. So it is unwise to give any guidance. But I suspect sometime in the second half of the year, we should be in a better position to discuss possible outcomes of this situation. We are ready for the challenge. We have analyzed various scenarios and determined what we need to do in response. I am very confident in our business over the long term and our ability to manage through this period and emerge stronger. And finally, we are happy with the upcoming acquisition of AT&T's assets in Puerto Rico and the U.S. Virgin Islands, which we expect to complete in the second half of this year. Moving to slide five and starting with Cable & Wireless on the left.

Cable & Wireless continue to drive operational execution in our fixed network as we added a record 10,000 customers and delivered the best Q1 RGU additions since acquiring the business in 2016. In mobile, Q1 subscriber additions are typically softer from a seasonal perspective as some of the additions in the Christmas period tend to churn off. Jamaica continues to be a bright spot with double-digit rebased revenue growth year-over-year despite some impact from COVID in the second half of March. Turning to VTR and Cabletica in the center. We saw good performance in Chile despite some residual impact from the social unrest in the market. In particular, broadband RGU adds were over 10% higher compared to the first quarter last year. The mobile market in Chile continues to grow steadily, but this remains a small part of our VTR business, where roughly 90% of revenues come from fixed residential services. Finally, to Puerto Rico on the right side of the slide. Our preparations to integrate AT&T's assets are moving forward at a steady pace. And this business continues to deliver with another growth quarter, adding 9,000 RGUs, driven by broadband additions over our leading high-speed network. We delivered on these numbers even with the earthquake that hit the island in January. We are used to adversity and always come out stronger.

Turning to slide six. I outlined my eight focus areas, and I wanted to build on some of these points. For each of these initiatives, I partnered with one of my executive team members to drive results. We run a very distributed decision-making process that is both effective and agile. When the crisis started, our primary focus was on the safety and well-being of our employees. We then quickly took on the second and third point under this, networks and customers, working hard to keep our communities connected when they need it most. In the next few slides, I'll run through these three areas in more detail. So let me now start with Point four, government affairs, in which I partnered with John Winter, our General Counsel and Head of Regulatory. This has been a significant focus for us. We have reached out to all of our government stakeholders at various levels, and we are partnering with them to make sure that they know we are here to provide critical services to their countries now and in the future. We are working together with government partners. We worked on gaining access to additional spectrum, enabling technicians and installers to keep our networks up and running, protect networks against senseless vandalism and to keep individuals and businesses connected. Governments are asking us to keep customers who can't pay as a result of the crisis connected, and we are agreeing to that and supporting these requests, including by adopting special lifeline plans with limited features, all going toward maintaining a strong relationship with our customers.

We accept our responsibility as the provider of critical infrastructure at this time. We are also working closely with our communities to provide the necessary infrastructure and tools to enable distance learning and provide free access to key educational and informational red lines. Turning to point five. A key step that we took early on was to create a special task force, led by Ray Collins, our Head of Strategy and M&A with colleagues across our operations and functions to drive three primary items: one, reviewing macroeconomic case studies and working with experts to stress-test our business and scenario plan; two, identify areas in which we should reduce costs and areas in which we should continue to invest; and three, innovate and prepare our company for a post-coronavirus world. We have taken some swift action in terms of cost reduction to manage through this period, which Chris will get into. In most cases, this accelerates plans we already had and will be a positive as we emerge from the current crisis. We see this opportunity in the medium to the long term, and part of the planning is to ensure we are able to capture it. Next is our balance sheet and liquidity in point six. Working closely with Chris, we took quick action to preserve our liquidity position in anticipation of a severe global recession and to retain the equity portion of the transaction fee for the AT&T transaction. Chris will cover this in more detail, including the continued strength of our balance sheet.

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Thanks to the work we have done over the past couple of years, we are in a good position, enabling us to continue allocating capital prudently, such as our new-build program. In terms of M&A, which is point number seven on our list. Our near-term focus is to complete the acquisition of AT&T's Puerto Rico and U.S. Virgin Island assets so we can move forward toward integrating the business. This will benefit us from what we anticipate to be an accretive deal on a free cash flow per share basis. This transaction also increases our U.S. dollar earnings in the group. As good capital allocators, we are also on the lookout for opportunities to create value and consolidation, asset swaps or just general market dislocation situations. Finally, to point eight and governance. As I mentioned in the letter, we are fortunate to have a Board with deep experience and knowledge of our industry. I am keeping them well informed and leaning on their perspectives to ensure we optimize our approach at this time. Moving to slide seven and the first point on our focus list, people and safety. Here, I partnered with Kerry Scott, my Chief People Officer. Keeping our people safe, engaged and able to work virtually has been our priority. We acted swiftly, implementing all appropriate measures right at the beginning. We estimate that about 75% of our employees have worked from home since the lockdown began, and 90% of our call center agents are working from home as well, which is a great achievement in such a short time. Commitment from all across the business, especially my front-line colleagues, to keep our customers safe and connected, is very high.

Our culture has never been stronger. In one way or another, everyone is impacted by the virus. And fortunately, helped by the proactive measures of the governments in our markets, we only had a small number of our employees infected by COVID-19, and all of them have recovered or are on the road to recovery. You can see in the charts based on Google's analytics and mobility data that our larger markets enforced stay-at-home measures earlier and more aggressively than the United States. Earlier this week, you may have seen that we launched our employee fund. The fund seeded by the financial contributions of our Board members, my leadership team and many of my colleagues is to support our employees and their families who are experiencing financial hardship at this time. And for now, while we are taking many cost measures, all our people remain employed, committed, working together to support each other, and able to contribute to their communities and local economies. Turning to slide eight and the core of our operations, the network. Partnering with Vivek Khemka, my Chief Technology Officer, our networks are strong, flexible and will provide ample capacity for this current situation and more for the future. Our fixed and mobile networks enable social interactions, education for children, connectivity forward, access to information, platforms for government to reach citizens, and our submarine cables connect this all to the global Internet. In essence, we are critical to a functioning society.

As you can see in the center of the slide, since the beginning of March, we have seen double-digit percentage peak traffic increases in our mobile networks, roughly 40% increase in our fixed network and close to 50% growth in our subsea network peak throughout usage with just our own traffic. In addition, we also grew capacity to handle traffic for our wholesale customers, adding 280 gigabytes of capacity for them. Our network team has maintained quality and capacity in every aspect of our network, such that we've handled the increased traffic and provide great service. Our investments in the network, including increasing subsea capacity, and in the home with Connect Box, advanced WiFi, paying off our customers. Many key vendors worked with us to increase capacity in the internal applications, broadband networks, our mobile networks and our subsea networks. Companies like Comscore, Ericsson, Huawei, Microsoft, Anixter and more have been really helpful. In addition, partners like Netflix and Google have been very helpful as well as we manage this traffic, which reduced bit rates and flexibility in cash and content locally for us. The graph showed this that traffic reduced from peak levels as content providers adjusted the streaming quality to alleviate pressure on networks. We've seen strong sales over the past 60 days in some of our operations, and our install crews have been working very hard. We have provided them and our repair crews with the necessary PPE gear and safety protocols. We are so proud of the commitment our front-line team have had and made to our customers and our company.

And I tell you, we are leaning into our thesis by continuing to invest in our products and planning to further expand our high-speed fixed footprint through the rest of the year. Finally for my section, to slide nine and our commercial actions. Partnering with Betzalel Kenigsztein, our Chief Operating Officer; and the CEOs in each of our market, Inge Smidts; Guillermo Ponce; and Naji Khoury; we are moving fast to react and be proactive in our go-to-market activities. Our focus has been to keep our customers and communities connected when they needed it most. There have been many challenges. Retail stores have had to close following lockdowns, impacting sales and collections. Call center traffic has increased at the same time we've needed to enable agents to work from home. Capacity utilization is at its peak. And our B2B customers faced macro pressures, particularly those exposed to the hospitality industry in some of cable wireless's markets. Our commercial teams have stepped up and delivered innovative solutions. We created virtual stores and expanded self-install processes. We enabled our call center colleagues to work from home and introduce a new WhatsApp channel for customers to service their accounts. We created new connectivity plans for customers facing economic hardships. And we put in new ways for customers to pay us with roving cash collection vans in the Caribbean and promotions of our digital channels. These initiatives are showing results. We have had some of our highest broadband daily sales in the last four to five weeks in Puerto Rico and in Chile.

In Panama, as another example, we have now over 50% of interactions via WhatsApp compared to less than 5% in early March. Overall, we had a good first quarter. And we know the challenges ahead of us are not going to be easy. We are taking the proactive steps we believe necessary to run our business effectively and to come out even stronger. This crisis has accelerated many things that we were planning on doing. And we feel good about that. We are not deviating from our strategy. While we must address the current challenges, we are still managing for success over the long term. Everybody in Latin America and across the Caribbean wants broadband. Everybody wants to be connected. Everybody wants great service, and everybody wants a great network. We intend to provide all that with good value everywhere we operate. And I couldn't be prouder of all my colleagues in LLA. This is not our first rodeo in dealing with a crisis. We are running this like a hurricane just hit us, but unlike a hurricane, we have nothing to rebuild at the end of this. Now we are realistic about the challenges that we face, and we will stay ahead of it. That is why we are confident about the future.

With that, I'll now pass you over to Chris Noyes, Chief Financial Officer, who will talk you through our financial performance before we take your questions. Chris?

Chris Noyes -- Senior Vice President and Chief Financial Officer

Thanks, Balan, and to everyone on the call, I hope you and your families are safe and well. I will begin on slide 11 and will quickly summarize our Q1 results. We delivered $931 million in revenue, representing 2% rebased growth. Our U.S. dollar reported revenue was 1% lower as the rebased growth combined with a modest $17 million contribution from M&A was more than offset by $47 million in net foreign currency impacts, principally the 21% average appreciation of the U.S. dollar against the Chilean peso. Importantly, each of our operating segments reported rebased revenue growth, as I will highlight on the next slide. Moving to OCF. We posted $364 million in Q1 2020, a similar reported result to Q1 2019. Consistent with our revenue trends, foreign currency weighed on our reported OCF result. Our consolidated rebased OCF growth rate was a solid 4%.P&E additions totaled $133 million in Q1 or 14% of revenue, reflecting a reduction as compared to $139 million or 15% of revenue last year. During the quarter, we continued investing in our footprint, as Balan pointed out. Finally, we reported negative $49 million of adjusted free cash flow in Q1. As I mentioned on our Q4 call in February, our Q1 2020 result was impacted by a trade working capital unwind, stemming in part from our strong Q4 collection activity. This compares to $48 million in Q1 2019. However, last year's result was positively impacted by $67 million in insurance recovery proceeds. Moving to slide 12, where we present our Q1 segment results, starting with C&W. We reported $589 million of revenue for 2% rebased quarterly growth.

Our performance was driven by a 5% rebased increase in residential fixed and a 4% rebased increase in B2B, while residential mobile experienced a 6% rebased decline. In terms of individual markets, Jamaica continued to show strong year-over-year rebased growth of 8% on the strength of its volume gains over the last year. Q1 OCF rebased performance was 6% as we generated $233 million in OCF. This growth was supported by the aforementioned revenue growth as well as the benefit from reduced sports content costs. C&W's P&E additions were $71 million or 12% of revenue and included approximately 40,000 new or upgrade homes during the quarter. Moving to VTR in Chile and Cabletica in Costa Rica. We reported revenue of $240 million, up 1% year-over-year on a rebased basis, and OCF of $93 million, representing 2% rebased growth. Our OCF growth was partially muted by nonfunctional FX exposure in Chile as the Chilean peso has weakened significantly to the U.S. dollar over the last year. Our P&E additions were $45 million in Q1, reflecting a year-over-year decrease to 19% in revenue from 20% in last year's Q1. During the quarter, we added approximately 30,000 new or upgraded homes. Finishing on the right. Liberty Puerto Rico continued its strong track record of delivering growth and generated $105 million of revenue or 3% rebased growth as compared to Q1 2019. This solid result was helped by 34,000 subscribers added over the last year and partially tempered by a $2 million credit provided to customers following the January 2020 earthquakes.

Highlighting operational leverage, we posted OCF of $51 million, reflecting rebased growth of 4% in the quarter. Finally, we reported $13 million of P&E additions or 13% of revenue in Q1 as we added over 5,000 new homes to our footprint. Building upon Balan's earlier statements, we thought it was helpful to frame key elements of our business that we are particularly focused on in this uncertain environment and how our business may be impacted across our diverse set of geographies. Starting on the left part of the slide. First, travel and stay-at-home lockdown restrictions has had a profound impact in our markets, both in terms of curtailing economic activity but, importantly, slowing down the infection rate. Going forward, the timing, phasing and success associated with the release of these restrictions will be critical to economic recoveries. We are seeing some good signs, as across our more than 20 consumer markets in aggregate, the rate of doubling in reported cases is approaching three weeks thanks to the proactive measures from our governments. Second, as it pertains to our business, we currently expect residential fixed, residential mobile and B2B will be impacted differently. And thus, based on product composition with each operating segment, we will experience a different outcome. Third, our operating businesses are in different stages of digital evolution. The degree of digitalization combined with the need for face-to-face interactions will influence our level of sales and collections, customer service and install activity.

For the reasons which I just flagged, we expect that our traditional cable businesses, such as VTR and LTR, will be much more resilient in the face of COVID-19. Touching upon each of our operating segments, beginning at C&W, the operating segment which provides consumer, B2B and subsea services across the Caribbean and portions of Latin America. Our consumer markets have various restrictions and lockdowns in place with several of our largest markets, such as Panama, Bahamas and Barbados, having quite aggressive plans. Across C&W, many of our islands are highly dependent upon tourism and hospitality, and the lack of such over the coming months will impact us directly and indirectly. For example, we estimate pre-COVID that we generated about $15 million in quarterly revenue from businesses in the hospitality sector. We also expect that businesses and governments at-large will be financially impacted by the lack of tourism and economies in our markets will suffer. Our residential customers will continue to reduce prepaid wireless usage and top-up less as they remain at home. With roughly 50% of our revenue derived from nonsubsea B2B and prepaid wireless, we expect to see significant near-term pressure on these revenue streams. On the flip side, fixed residential, postpaid mobile and our subsea businesses account for the remaining 50%, and we expect these services to be far more resilient as network connectivity is in high demand.

Rounding out C&W, the Caribbean is still predominantly a cash society, and face-to-face interactions remain an important way for us to sell our services and collect on bills. Due to lockdowns, only about 65% of our stores are currently open, and we are working hard to increase usage of digital payment channels. As restrictions lift, our ability to further secure payment will be much improved. Even in the last 10 days, collections have meaningfully improved versus the first few weeks of April when the shutdowns were taking effect. Moving to our cable operations in Chile and Costa Rica. Both countries had controlled lockdowns in March, including rolling lockdowns across Chile. Commercially, the majority of our stores are open across both countries. Importantly, our largest single operation, VTR, has a significant proportion of collections flowing through its digital channels. From a business perspective, fixed subscription revenue and postpaid subscription revenue account for over 95% of our total revenue in these two markets, which is a distinct positive. Turning to Puerto Rico. The island aggressively locked down relatively early and has controlled the rate of infection. Even with many of our stores closed, we have continued to see demand for residential products, and collections have remained consistent. With nearly 90% of our business in Liberty Puerto Rico tied to residential consumers, our broadband products are most popular of the bundle and predominantly digital collection channels.

We remain cautiously optimistic about our near-term prospects. Moving to the last column and the financial and operational implications of COVID-19. Although our overall business held up well during Q1, we are withdrawing our 2020 guidance given the substantial uncertainty that we face within our markets. We expect to see a far more pronounced revenue and cash flow financial impact beginning in Q2, especially at C&W. We are monitoring macroeconomic conditions across all of our markets, including movements in foreign currencies and the health of balance sheets of the governments within our footprint. Operationally, our commercial teams have begun rolling out lifeline products for customers in need and are generally not disconnecting customers for nonpayment at this time. Collections will remain difficult, particularly in markets with commercial lockdowns in place and markets that are challenged economically. A lag in collections will adversely pressure near-term trade working capital. However, we're devising new methods to collect and are monitoring and managing our operating cash flows closely. As Balan discussed, we are enacting $150 million of fixed operating cost and capex reductions, split about evenly between both categories, and to a large extent, the reductions will be concentrated at C&W. We expect that our variable cost, such as COGS and activity related costs and capex will also decline with reductions in revenue. With additional actions identified, flow may be needed to preserve financial flexibility and liquidity if conditions across our markets were to deteriorate more than we expect.

All said, we remain focused as a company to deliver positive free cash flow this year. On slide 14, I wanted to cover our balance sheet and liquidity situation in some detail, starting with the hexagons on the left. We ended Q1 with $6.1 billion of net debt and with a net leverage ratio at LLA of 3.8 times for Q1. Two things to note. Our purchase of the AT&T assets in Puerto Rico and USVI will total $1.95 billion, the debt financing for which has already been completed. We borrowed 50% of our U.S. dollar RCFs in March, totaling $467 million across our three primary credit silos, and this cash resides in our balance sheet today. This was principally a precautionary move to preserve financial flexibility and ensure access to capital as well as to fund a portion of the AT&T acquisition. Excluding the restricted cash balance, we have total liquidity of $2.2 billion, consisting of $1.6 billion of cash on hand and approximately $650 million in undrawn available liquidity under our revolving credit lines. Our weighted average maturity exceeds six years as depicted in the bottom right of the slide, and we have minimal debt due over the next few years. Our fully swapped borrowing costs have fallen by 20 basis points to 6.4% as compared to Q4 as the $1.6 billion January refinancing reduced our term-loan costs at C&W by 100 basis points to LIBOR plus 225 basis points. An important element of our risk mitigation strategy is that we match our borrowing through our underlying OCF generation. And as a result, approximately 85% of our debt is hedged to our underlying functional currency. Given the situation,

I wanted to highlight the ample cushion we have with respect to our maintenance covenant at each of our key credit silos at Q1 as the chart on the far right of the slide illustrates. At C&W, our maintenance test is based on 5 times proportionate net senior secured debt. We were roughly 2.1 times at Q1. This covenant falls away when we have less than 1/3 drawn on our $625 million RCF. At VTR, our maintenance test is based on 3 times net secured debt at the Chilean operating company level. And we were at 0.3 times secured at the end of Q1. At LPR, we have a maintenance test at 5 times net secured debt and finished Q1 at 4.4 times. Following the closing of the AT&T transaction, we expect headroom to improve within this credit silo. Beyond our debt and liquidity, we put in place a 2-year $100 million stock repurchase program in mid-March. By having an authorized program, we have additional flexibility to capitalize on valuation dislocation, ensuring we remain focused on efficient capital allocation, and obviously, we'll be highly protective of our liquidity given the uncertain outlook for COVID-19. Within the quarter, we repurchased a small amount of equity and have continued this activity into the second quarter. Moving to slide 15, I will wrap up our prepared remarks. Our first quarter results highlight that we're on the right track and that our underlying operating strategy is working. Our focus remains on fulfilling our customers' needs through connectivity and network superiority and also achieving operating efficiencies. No doubt, we find ourselves in a rapidly changing and difficult environment.

The impact and duration of COVID-19 is highly uncertain. And as a company, we believe it will change how we interact with customers. We expressed in our earnings materials and on our call today that our business, like that of other telecom operators in our region, will face financial and operational challenges, driven in part by the financial health of our customers and the overall economies in which we operate. As Balan pointed out, we have management and operational experience dealing with adversity. We have well-developed processes to quickly make decisions, allowing us to support our employees and customers in this time of need. Cash flow generation remains at the core of how we run this company. We're taking constant capex reductions across our business to assist in our drive to maintain positive free cash flow this year and to offset expected declines in revenue. To the extent needed, we have additional levers at our disposal to improve our cash flow and financial flexibility. Turning to our acquisition of AT&T's assets in Puerto Rico and U.S. Virgin Island. We have the funding in place to complete the transaction, and we remain confident that it will significantly enhance our U.S. dollar cash flows in the coming years. We will maintain ample financial flexibility, and we'll be disciplined in how we utilize any excess capital to drive returns for our shareholders.

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

Questions and Answers:

Operator

[Operator Instructions] We'll take our first question from James Ratcliffe with Evercore ISI.

James Ratcliffe -- Evercore ISI -- Analyst

Good morning, thanks for taking the question. I've a few questions. First of all, on the cost-savings plan, can you talk some more about on the operations side? Are these sort of short-term emergency measures or more sustainable cost reductions? And how much of the pull-forward cost-reduction plans we already planned on? And on the capex side, what sort of capex we will previously looking for? What won't you be spending money on? And secondly, can you just talk about how that's affecting customers so far? For example, how many customers would you have disconnected by now if you weren't forbearing? Any indication of customer activity thus far?

Balan Nair -- President, Chief Executive Officer and a Director

Thanks, James. Sure. On the cost-savings side, we've been quite prudent about it. It's not something that's extremely aggressive. And we looked at both our capex and our opex. So an example, on the capex, cuts would be something would be like towers. We've already expanded all of LTE migration, and we save you know what, there's probably 10, 20 towers that we decided we probably don't need to build this year. And probably, in a year or two, we may go back to that. On the opex side, it's usually a lot of the same things. We look at some of the third-party costs, consulting costs. We looked at some of the thinner labor costs. So a number of things that we've taken out. And I'd say a chunk of it are costs that we would permanently pick up. So it's quite a positive. On the pandemic itself, right now, as you know, as we pointed out, both in Chris' comments and mine, that a lot of the customers that cannot afford to pay, we've decided to keep them on. We've moved them to a lower-speed product. So the disconnects continuous dropped naturally, but I think that it probably would look about the same, maybe a tick higher if we had to disconnect people at this point.

James Ratcliffe -- Evercore ISI -- Analyst

Great, thank you.

Operator

We'll take our next question from Soomit Datta with New Street Research.

Soomit Datta -- New Street Research -- Analyst

Thanks for the questions. A couple, if possible, please. Just on the I guess we're all trying to gauge a sense as to where revenues are going. You were guiding to cash flow of USD150 million, and you're now sort of hoping for growth, which is a delta of maybe $150 million, and then you're looking at savings from capex and opex of $150 million. So is it right to think that perhaps the worst-case scenario here is a $300 million revenue hit? Or am I sort of trying to be a bit too cute about that thinking? And then just a follow-up on subsea cable. Obviously, the volumes are going to be strong, and you explained that in the presentation. Is that one of the businesses perhaps where you can monetize more reasonably the higher data volumes? Does the pricing model allow for that?

Balan Nair -- President, Chief Executive Officer and a Director

Sure, Soomit, and maybe I'll ask Chris to also think about an answer here on the first question. I think everybody is going to try to do the backward math to get to our revenue numbers. We've modeled quite a few things. And I think it's not going to be that simple to model it back, one, because we really don't know how it's going to play out. We have I'll tell you internally, we have what we think is going to play out. We have a worst-case condition. We have a super worse-case condition, and we stress-test our balance sheet many different ways, and Chris has done a really good job with that. But suffice to say that we are going to run this business for positive free cash flow. Chris and I have both committed to it. My full management team is committed to that. And I don't think it would be a stretch for us to do that. On the subsea side, we're not taking price increases. We're taking a lot more volume on subsea. A lot of customers need the additional capacity. And we're not being greedy, nor are we trying to take advantage of the situation right now because people need that additional capacity. They need it fast. A lot of our wholesale customers are dependent on it. And it's time for us to step up and provide that capacity for them. Chris, you want to give a little bit more color on the...

Chris Noyes -- Senior Vice President and Chief Financial Officer

Yes. I would say just on the revenue component, I mean, a key variable, at least in the near term, is that the status of the lockdown and the number of the markets. They are starting we're starting to see them release. But that's a key variable in terms of how revenue will play out over the next few months. So that's one that's obviously outside of our control. It's with the government. But as that changes, then we're able to to the extent it was to extend longer, then we're able to take more cost out of the business to deliver what Balan was speaking about around positive free cash flow profile.

Soomit Datta -- New Street Research -- Analyst

Okay, great. Thank you.

Operator

Our next question comes from Michael Rollins with Citi.

Michael Rollins -- Citi -- Analyst

Hi, good morning and thanks for taking the questions. I'm curious if you can kind of go back to the history that you've seen across your businesses. How does the unemployment rates in these different countries affect businesses and payments by those customers for your products, maybe just to get a sense of the sensitivity to the economy relative to the behavior? And then the second question I had is, with the cost cutting, is the cost cutting variable to the revenue? So if we're through the crisis and your revenue is recovering, do those expenses come back, or is this simply accelerating some of the cost efficiencies you've been wanting to bring to the business, and you've articulated in the past such that the operating leverage on a recovery might look different than maybe over the past couple of years?

Balan Nair -- President, Chief Executive Officer and a Director

Sure, Michael. On your first question on the unemployment rate, of course, unemployment will affect buying power, but this is how I would look at it. We the business that's probably more sensitive to that is our prepaid business. And prepaid, it's not a huge part of our revenue stream, but it's about 2/3 of our mobile revenue stream, which is about less than 1/4 of our total revenue. So there's an impact on prepaid with unemployment. But the way I would look at it, if you look at our lines of business and what's really exposed here. As Chris pointed out, for the first couple of months of the COVID experience, the big challenge for us is really the lockdown. The lockdowns put people at home, stores are closed, and that's challenging. And by the way, that's coming out. I would say that, as of today and in this coming week, we would probably have more than 2/3 of our stores coming back online, and that's going to be a positive. So that's one part. Then the second part as you look at, clearly, it's a no-brainer that the hospitality business is going to be challenged. And given that we operate in a lot of these islands where the primary source of local revenue is the hospitality and tourism business, they'll be somewhat challenged. And that's B2B business, so we see it in two ways. The B2B business, which these hotels are our direct customers, they'll be closed for a few months, and so that will have an impact. And that, by the way, in our total B2B revenue, this is a small part of it. It's not even 5% of our total B2B revenue.

Now the second part of it is a lot of these hotels employ our customers, and that's where your question around unemployment hits us. And most of these customers usually are prepaid customers. And so people are going to be to conserve, they'll probably spend less on prepaid. But things will come back. And I think it's a combination of them losing their jobs and staying at home that they'll put the pressure on prepaid initially. But as soon as the lockdowns are done when people start going out, they'll want their mobile devices. They'll want their services as well. And then you'll start seeing the top-ups happening again. But clearly, our exposure is really in that those niche areas. Your second question on the cost. Yes, so there's two parts to costs, as you point out, the fixed cost and the variable cost. What we discussed earlier and what Chris and I talked about is the fixed costs. These are costs that we would take out. Now variable low costs like COGS, like content costs and all that will naturally go down if activity drops, installation costs and all that will go down. That's not in our $150 million. The $150 million are fixed costs.

Michael Rollins -- Citi -- Analyst

And so does that mean on a recovery that you could see better incremental margin flow-through because you're taking out fixed costs, and presumably, to what you're describing, it may not come back?

Balan Nair -- President, Chief Executive Officer and a Director

Yes, you're absolutely right, Michael. I see just a few things that I think is positive here. One, some of this cost goes out. Two, going forward, we are going even more deeper into self-installations. And there's a whole bunch of labor costs and supply chain costs that also goes out as we come out of this. We're now in the low single digits. So once we get into the double digits, into the high double digits, which is what my team is focused on, you'll see when we come out of this, a lot of installed costs, which are mostly contracted, by the way, a lot of that comes out as well in the future. You see our movement to digitization, a lot of the channel cost is going to change. I'll tell you, our call centers, as we pointed out, almost 90% of our call center agents are now working from home. The whole concept of a call center a year from now is going to be so different than what it was just three months ago. The world is changing around this. And the cost structures are going to change for that as well. And more than just the cost, it brings us more flexibility in the way we serve our customers when our agents can work from home. Now they can take a shift at 10 p.m. to one a.m. if they want to. It is a lot of things that change quite positively for a company like ours coming out of this.

Michael Rollins -- Citi -- Analyst

Thanks very much.

Operator

Our next question comes from Matthew Harrigan with Benchmark.

Matthew Harrigan -- Benchmark -- Analyst

Thank you. Two questions. Firstly, you have some aggressive deal-making DNA with your most well-known shareholder, to say the least. And even right now, I mean, you're seeing dislocations of some of the blue-chip public companies, major holders of telecom assets in markets like Mexico. I mean, the stock prices are not even at the '98 Russian crisis level or 2008, I mean, you have to go back to the early 1990s or even the 1980s. And I think some of those companies are probably intent on some sort of restructuring process at some point in time. I know you've got a lot on your plate just dealing with indigenous issues in your markets, but do you still feel that you have latitude to be opportunistic given all the dislocations in the market? And then secondly, I know it's a difficult question, but once you even get past COVID-19, people ask whether there's going to be a Carnival Cruise Lines around. I mean, you could have issues with canal traffic in Panama and all that with different trade patterns. I mean, do you think there's anything that right now, I mean, clearly, in this market, you're still seeing great demand for your products. But do you think there's something that you could get two or three years out, there's a permanent dampener on the economic activity and some of these markets on account of the structural changes in the world economy, I mean, even with copper down in Chile as well. I know these are kind of quasi-theological questions, but I'd still love to get your feedback on it, if you don't mind.

Balan Nair -- President, Chief Executive Officer and a Director

Sure, Matthew. There's quite a few questions in there. Let me start with the M&A side. Of course, we are on the lookout for any dislocation and any opportunities. Ray Collins was closely with me and I work closely with him. We are on the lookout, and we talk to everybody, and I think anybody that has a good idea and know that they can always reach out to us, and as you can imagine, many have. Now I would say, as we always say, to be a buyer, you have to have a seller. So it may be a dislocation right now, but maybe sellers may not think it's dislocated yet. So time will tell. And I think any business that's already struggling in month one of COVID-19 is probably not a business that we would be interested in anyway. We're looking for good quality companies and in areas that we are interested in expanding our business. And so I think as time goes on, the pipeline will get richer and richer, but we'll be very, very disciplined on this one. On the COVID-19, the impact, the larger macro, my team and I have spent time with adjacent industries. So I've talked to the folks at Carnival, my executives in Cable & Wireless, Inge, she's been talking to all the hotels, Atlantis, Sandos. We get a good sense of what those guys are doing. And you probably saw the announcement from Carnival that they think, in August, some of their ships are going to be out eight of their ships are going to be out of Miami, Florida. By October, they'll have some more ships. This is not going to be easy. It's not going to be fast, but things are going to start coming back. There's a lot of money in all of the adjacent businesses that needs to get to work.

And if you look at our islands and where we operate, the hotel owners want to reopen. Strip malls want to reopen. People are going to get creative, and they're going to figure things out. Any which way you look at this, our services are still necessary for them. Even when a hotel is closed, by the way, they still keep our services because you need security cameras. Your reservations desks need to still be open to either handle cancellations or new orders. So activity is still happening. It's not happening as much as we would like, but it's happening. And I think my sense is, and this is just a personal opinion, over the next 12 months, you're going to see a lot more things coming back. People will want to travel. They'll want to go down to these islands. And these islands are taking all the necessary measures to protect their livelihood, which means all the tourists coming into the islands. You can see how aggressive they've been with the lockdowns and with controlling and flattening the curve. They are very serious about this, and that's very good news for us. I think that business Maybe if you're interested, I can have Jim provide you an opinion on that.

Matthew Harrigan -- Benchmark -- Analyst

My questions are a little bit maybe too far extended. But I was just thinking about the very long-term economic impact versus the short-term impact. It sounds like you're still very confident on the growth vector for the region. Thanks, Balan. I appreciate you taking the question.

Balan Nair -- President, Chief Executive Officer and a Director

Sure. Thanks, Matthew.

Operator

Our next question comes from Kevin Roe with Roe Equity Research.

Kevin Roe -- Roe Equity Research -- Analyst

Thank you. Good morning. Governments throughout your footprint have taken different approaches to maintaining mobile and fixed service for those impacted by COVID. You mentioned lifeline in your prepared remarks, payment concessions. It seems there could be further regulatory or legislative actions in certain of your markets. Could you discuss this topic generally and what markets you're monitoring for potential incremental regulatory or legislative actions?

Balan Nair -- President, Chief Executive Officer and a Director

Sure. John Winter, my General Counsel is with me here as well so maybe ask him to comment in a second. He's done, by the way, a great job in managing all these relationships and expectations with governments. And I think we've been very clear to them that we're here to support them. We're here for the economy. We're here for their citizens. And we understand what their interests are as well. I mean, they want to do what's right for their communities, and we want to support them on that. Now the one exposure we may have is in Panama, which John is working on very closely. It's public right now. They've been trying to make some changes in their laws. And we are working closely with the government to minimize the impact. And I think we're getting there. So John, you want to make a comment?

John Winter -- Senior Vice President, Chief Legal Officer and Secretary

Yes, sure. I mean, Panama, the government signed a law, their president did earlier this week, but we're working closely with his advisors and the other members of the industry to make sure that the impact of that law balances like we do in all countries, both the need of the citizens in the country with also just the need to provide services. And we're reminding the government that, where people can pay, they should be paying, and people need to be responsible during this time. And we're doing that in Panama. Chile, we're focused on. Bahamas and Jamaica, those are some of our primary markets. And Puerto Rico, we work with the government there, but that's following the model that people have seen in the U.S. with the Keep America Connected Pledge. So and then moving on, we'll work with the governments to help them get out of this crisis themselves.

Balan Nair -- President, Chief Executive Officer and a Director

Great. Thanks, John. Yes, I think we feel really good about the relationships we've built and how cooperative a lot of these governments are with this because they realize we are one of the largest employers on their respective countries, and they also want to make sure that we stay healthy and keep all of our employees employed.

Kevin Roe -- Roe Equity Research -- Analyst

Thank you.

Operator

Our last question comes from Vitor Tomita with Goldman Sachs.

Vitor Tomita -- Goldman Sachs -- Analyst

Hi, good morning all and thanks for taking our question. So our question is, given COVID-19, how do you see the competition's response to this crisis in your market and especially in Panama and Jamaica, which were cited in the earnings release as markets where our competition has been affecting it at?

Balan Nair -- President, Chief Executive Officer and a Director

Sure. I'll ask Betzalel to also think through an answer for that. But so far, I think competition has been very rational across the board. You point at Jamaica. We compete with Digicel there. And Digicel, they've been very rational. They're going through some of their debt issues right now. But they I think they'll get it all solved, and they've been actually a good competitor to us. In Panama, we've always had a challenge in Panama with four mobile operators, but even then right now, that's really not the issue for us. It's mostly the lockdown. That's really the issue in Panama. Betzalel, do you have would you like to provide some more insight?

Betzalel Kenigsztein -- Senior Vice President and Chief Operating Officer

Thank you, Balan. I think that, as you said, we don't see any significant change in the competitive picture related to coverage. Maybe the other way around, we are cooperating with our competitors when we are discussing measures that or cooperation to help the government in the different market. So I don't see any significant change in the competitive landscape because of profit.

Chris Noyes -- Senior Vice President and Chief Financial Officer

And I would add on the fixed side in both Jamaica and Panama, and you can see in our first quarter results, we continue to drive really nice growth in that area. So a key for us as we move forward here is continuing to push in that area.

Balan Nair -- President, Chief Executive Officer and a Director

Thanks, Chris. Is that our last question?

Chris Noyes -- Senior Vice President and Chief Financial Officer

Yes.

Operator

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

Balan Nair -- President, Chief Executive Officer and a Director

Thank you, operator. So maybe I say a couple of things. One, it's really unfortunate what we're all going through right now. And for a company to come out stronger out of this, you really need a few things. One, you need a management team with deep experience and knowledge about the business, a management team that's on top of it but also deep in the weeds, making sure they know the numbers, they know what they need to do. Second, you need a company that has a strong balance sheet and a company that's generating positive free cash flow. Third, you need a company that has a product that people want. They actually have a product that people need. And if you look at us right now, we have all three. I think my management team is ready for this. We've been ready for this, and they've been doing an amazing job. And of course, I would say that. But I've worked with many teams, and the team is doing really well. And our balance sheet, I mean, Chris is on top of it. Our balance sheet is strong, and this team will deliver positive free cash flow. And the product that we have, it's not only what people want. This is a product that's necessary in this moment. Even when you're running to trouble, you need your mobile phone. You need your broadband. You need the connectivity that we provide. You need the entertainment services that we provide. And that's why we've had great sales in Puerto Rico, in Chile, in Jamaica. So I think we're good. But on the flip side, we realize this is going to be tough. Chris pointed out the lockdowns have had an impact, but the lockdowns are going to end. And this team realizes, and we don't take this lightly that this is a challenging period. But we're ready for it, and we feel really confident, and we're really leaning into this business for now and the future. So thank you so much for your support, and have a great day. Ladies and gentlemen, this concludes Liberty Latin America's First Quarter 2020 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 material.

Duration: 61 minutes

Call participants:

Betzalel Kenigsztein -- Senior Vice President and Chief Operating Officer

Balan Nair -- President, Chief Executive Officer and a Director

Chris Noyes -- Senior Vice President and Chief Financial Officer

James Ratcliffe -- Evercore ISI -- Analyst

Soomit Datta -- New Street Research -- Analyst

Michael Rollins -- Citi -- Analyst

Matthew Harrigan -- Benchmark -- Analyst

Kevin Roe -- Roe Equity Research -- Analyst

John Winter -- Senior Vice President, Chief Legal Officer and Secretary

Vitor Tomita -- Goldman Sachs -- Analyst

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