Earnings Call - MILLICOM INTERNATIONAL CELLULAR SA

Financial Performance:

• Group service revenue reached $2.1 billion, growing 5.4% organically year-over-year (YoY).
• Adjusted EBITDA hit a record $1.1 billion, up 7.7% organically, achieving a 48% margin despite ~$30 million in severance expenses.
• Equity free cash flow (EFCF) totaled $316 million for the quarter (up ~30% YoY), bringing YTD EFCF to ~$870 million.
• Reported revenue increased 6.1% YoY due to foreign exchange and acquisitions; organic growth was 5.4%.
• Capital expenditure was $263 million, with spectrum payments at $67 million.
• Net leverage ratio decreased to 2.53x at quarter-end, on track for the full-year guidance of below 2.5x.
• Adjusted EBITDA margins by market: Guatemala (57.2%, record), Paraguay (54.8%), Panama (51.9%), Ecuador (47.8%), Group (48%), Colombia (44.2%).
• Chile (non-consolidated 49% stake) achieved a 33% EBITDA margin, up ~10 percentage points YoY.

Guidance and Future Outlook:

• Full-year EFCF guidance remains at ~$1.1 billion; leverage target of <2.5x remains intact.
• Management targets EFCF of ~$2 billion over the "mid-term" (3-5 years) via operational leverage, growth, and efficiencies.
• Colombia aims to reach ~50% EBITDA margin by 2027 as integration efficiencies and commercial synergies fully realize.
• Fourth quarter is expected to be strong for cash flow, with reduced seasonality compared to historical patterns.
• 2027 planning is underway, with potential for forward investment to normalize performance.

Business Segments and Product Lines:

• Mobile revenue grew 7.2% organically to $1.3 billion; postpaid base reached 17.2 million (+31% YoY), with 73% of new postpaid sales coming from prepaid migration.
• Home service revenue increased 3.4% organically to $542 million, despite a net loss of 86,000 customers due to pricing strategy and earthquake impact.
• Fixed-mobile convergence (FMC) penetration reached 38% group-wide; Colombia's FMC reached 40% post-merger.
• B2B revenue reached $404 million (+2.1% organic); digital services grew 5.9% to $105 million, though recent large project expirations caused Q3 moderation.
• Key product strategy: "More-for-More" approach increasing data allowances and ARPU while migrating prepaid to postpaid.
• Brand consolidation: Tigo brand fully launched in Colombia and Ecuador to unify operations and marketing.

Market and Competitive Landscape:

• Colombia: Post-merger scale allows aggressive network expansion (doubling 5G coverage, 1,000+ new sites); 40% FMC penetration demonstrates strong convergence potential.
• Guatemala: Market leader with 18.7% postpaid growth and 87% prepaid-to-postpaid conversion rate; legal uncertainty resolved via settlement.
• Chile: Highly competitive four-player market; company focusing on stabilizing top-line growth after cost-cutting phase.
• Ecuador: Focus on expanding coastal coverage with 500+ new sites following Tigo brand launch.
• M&A Strategy: Focused on in-market consolidation and minorities in Latin America; explicitly stated Brazil and Venezuela are not current priorities due to regulatory/cultural barriers.

Risks and Challenges:

• Natural Disasters: Significant earthquakes in Colombia and Panama caused service disruption, resulting in a loss of 27,000 customers in Colombia (~$10M impact) and reduced home additions.
• B2B Volatility: Revenue fluctuation due to the expiration of large government and corporate projects (e.g., Medellin traffic management, Panama telemedicine).
• Ecuador Margin Pressure: Anticipated short-term margin moderation in Q4 due to increased marketing spend on brand launch.
• Competitive Environment: Chile faces intense competition requiring careful stabilization of the customer base.
• Execution Risk: Ongoing need to integrate Colombia operations and maintain pricing discipline to balance subscriber churn against ARPU growth.

Management Commentary and Tone:

• Tone was highly confident and optimistic, emphasizing "consistent execution," "strong commercial strategy," and "operational efficiency."
• Management highlighted the successful removal of integration risks in Colombia and legal risks in Guatemala.
• CEO stressed a long-term vision of building a stronger company through network investment and the "Millicom Playbook."
• CFO reinforced the transition from a "paper budget" to achieving ambitious internal financial targets.
• Management expressed strong commitment to shareholder returns, with extraordinary dividends of $0.75/share for Q1/Q2 2027.

Analyst Questions and Answers:

• Capex Intensity: Confirmed CapEx ratios will not increase despite the 4-year investment plan in Colombia/Ecuador; investments fit within existing envelopes.
• Prepaid-to-Postpaid Migration: Identified digital wallets and third-party cash collection points as solutions to banking penetration hurdles in Central America.
• Colombia Margins: Expected to approach the 50% club in 2027 driven by full run-rate efficiencies and commercial cost harmonization.
• Dividend Policy: Announced $0.75/share extraordinary dividends for next year's Q1/Q2 on top of the standard $0.75/share.
• Chile Turnaround: Priority is returning to organic growth; cost efficiencies and AI adoption are expected to drive further margin and cash flow expansion.
• $2B EFCF Target: Clarified as an ambitious internal target, not formal guidance, to motivate team behavior regarding efficiency and growth levers.
• B2B Outlook: Expects seasonality from project expirations to normalize, supported by solid organic growth in SME and corporate segments.

Other Key Points:

• Chile's earn-out arrangement was renegotiated to offer flexibility on capital allocation without recourse to Millicom.
• Chile JV is projected to generate triple-digit millions in EFCF next year.
• Legal settlement in Guatemala resolved all pending material claims, creating a $4M one-time benefit and removing regulatory uncertainty.
• Colombia's earthquake response restored all mobile sites within two days; fixed network recovery took longer.
• Group-wide FMC penetration saw a slight sequential decline due to the inclusion of Coltel's lower FMC metrics in the Colombia report.