Millicom International Cellular S.A. Common Stock 2026 Q2 Earnings Call

Hello everyone, welcome to our second quarter 2026 results call. This event is being recorded. Our speakers today will be our CEO, Marcelo Benítez, and Bart Vanhaeren, CFO of the company. The slides for today's presentations are available on our website, along with the earnings release and our financial statements. Please turn to Slide 2 for the safe harbor disclosure. We will be making forward-looking statements, which involve risks and uncertainties, which could have a material impact on our results. On Slide 3, we define the non-IFRS metrics that we will be referencing throughout the presentation. You can find the reconciliation table in the back of our earnings release and on our website. With those disclaimers out of the way, let me now turn the call over to our CEO, Marcelo Benítez.

Marcelo? Thank you, Luca, thank you everyone for joining our call today.

Before I begin, I want to thank our teams across all markets. These results are a direct reflection of their commitment to our customers and their relentless focus on execution. They are the reason why we're delivering another quarter of strong performance. Last quarter, I spoke about the strength of our operating model and our ability to keep growing while integrating new businesses and absorbing the associated restructuring cost. This quarter reinforces that point. We are executing against the same priorities we've outlined throughout the year: delivering a better customer service, increasing our pull through for more strategy, simplifying the business, improving efficiency, and turning that operational execution into stronger cash flow. Before reviewing the operational highlights, let me provide some context around our mobile and home subscriber performance this quarter.

As part of Coltel integration, we deliberately reduced promotional activity to avoid overlapping commercial offers between the two brands. At the same time, we completed the harmonization of subscriber reporting standards across the organization, improving consistency and transparency. As a result, our reported Prepaid and home subscriber figures in Colombia includes a normalization effect this quarter. This is simply an accounting and reporting alignment. It does not reflect any deterioration in our underlying business. With this work now substantially behind us, we expect subscriber trends to normalize and growth rates to return to more typical levels over the coming quarters. More importantly, the underlying commercial momentum remains very healthy. Our Prepaid to Postpaid strategy continues to deliver excellent results. Excluding M&A, Postpaid net adds increased by 167,000 sequentially, demonstrating the continued strength of our commercial execution.

Home net adds were broadly stable versus the first quarter, reflecting the normalization I just described. Even so, home service revenue delivered another strong quarter. Better pricing execution, combined with the positive impact of the FIFA World Cup broadcasting rights, allowed us to grow revenue despite modest subscriber growth. That's exactly the kind of balance we want to achieve, growing value, not simply volume. At the group level, service revenue reached $2 billion, growing 5% organically year-over-year, our strongest organic growth since 2021. Combined with our continued focus on efficiency, this translated into record adjusted EBITDA of $1 billion. The first time Millicom has surpassed that milestone in a single quarter. Adjusted EBITDA margin remained solid at 46.3%, only slightly below last year's level, despite the restructuring cost associated with the Colombian integration. Most importantly, our operating performance translated into record equity free cash flow of $327 million.

I believe this is one of the most important message for the quarter. These results are not only the contribution from our recent acquisitions, but also the financing cost associated with those transactions. Even after absorbing those costs, our acquisitions are already equity free cash flow accretive within the first year. That is exactly the outcome we expected when we made these investments, and it reflects both the quality of the assets and the discipline of our execution. Given our first half performance, the progress we're making with the Colombian integration, and the visibility we now have for the balance of the year, we are raising our 2026 equity free cash flow guidance from at least $900 million to around $1.1 billion. At the same time, we're improving our year-end leverage target to below 2.5 times.

These upgrades reflect our confidence in the cash generating capacity of our expanded portfolio and our ability to continue executing with discipline. Consistent with that confidence, our board has approved an additional interim dividend of $1.50 per share, payable in two equal installments of $0.75 per share in January and April of next year. With that, let me turn to our mobile business. The strength of our commercial strategy is clearly reflected in our mobile results. As we've discussed before, that strategy is built on two simple principles. The first is discipline management of our Prepaid base through our more for more strategy, where we're giving more value, primarily through ledger data bundles, while driving healthy and sustainable ARPU growth. The second is our targeted pre to post migration strategy.

Our analytics allowed us to identify the customers who are ready to move to a Postpaid plan, creating value both for the customer and for Millicom. For our customers, the benefit is significantly better experience. On average, they remain connected nearly twice as many days each month after migrating to Postpaid. For us, it strengthens customer loyalty, improves unit economics, and increases lifetime value. This strategy continues to deliver strong results. Our Postpaid customer base has grown by more than 31% over the past year, supported by our expanded perimeter and continued commercial execution. Approximately two-thirds of our new Postpaid sales comes from Prepaid customers migration to higher value plans, demonstrating our ability to monetize our customer base while creating long-term value. Following the Coltel acquisition, conversion rates temporarily softened in the first quarter as we align commercial practices across the combined business.

That process is now largely complete. Conversion rates have returned to levels consistent with our historical performance. The important point is that we are now achieving those same conversion rates across a customer base that is roughly twice the size, giving us a much larger platform for future growth. As a result, strong Postpaid momentum, together with healthy output trends, drove mobile service revenue growth to 6.9% organically year-over-year to $1.2 billion this quarter. We're very pleased with this performance and give us confidence as we move into a second half of the year. With that, let me turn to our home business. Turning to home, we're encouraged by the continued improving of the competitive environment across our markets. Competition is becoming more rational, with less emphasis on aggressive entry-level pricing and greater focus on network quality, higher broadband speeds, and differentiated content.

We believe this is creating a healthier market structure and a more sustainable foundation for long-term growth. Despite the subscriber harmonization actions we discussed earlier, our home customer base continued to grow modestly during the quarter. At the same time, our fixed mobile convergence strategy continued to gain traction, with FMC penetration now approaching 40%. This not only strengthens customer loyalty and lifetime value, but also improves the overall quality of our subscriber base. These commercial trends translated into another solid quarter for the home business. Service revenue grew 3% organically to $513 million, supported by disciplined pricing, high-value broadband offers, continued growth in convergence, and strong customer response to our FIFA World Cup content. We believe we are now seeing the benefits of our strategy we've been executing over the past several quarters.

A more rational competitive environment, continued ARPU expansion, and increasing convergence and creating a strong and more sustainable home business. While there is still more work to do, this quarter represents another important step in the turnaround of the home segment and reinforces our confidence in the path ahead. Let us now discuss the B2B segment. Turning to B2B, the strong momentum we saw in the first quarter continued into the second. Digital services remained one of our fastest-growing businesses, with revenue increasing 14% year-over-year to $120 million. This reflects the continued demand for cloud, cybersecurity, managed services, and other high-value solutions that are becoming an increasingly important part of our B2B portfolio. We are also seeing encouraging performance across all customer segments. In the SME segment, our strategy continues to deliver consistent results.

Simple commercial offers, disciplined channel execution, and greater conversion helped drive revenue growth 8% year-over-year for this segment. In the corporate segment, we continue to benefit from a regional footprint and our ability to deliver integrated cross-border technology solutions for large multinational customers. These remain an attractive market where we can differentiate beyond basic connectivity. We're also seeing good opportunities in the government segment, where our network capabilities and experience managing large mission-critical projects position us well to support the digital transformation of public institutions. As a result, B2B service revenue grew 3.8% year-over-year to $401 million. Overall, we are pleased with the continued evolution of the business. Our strategy of expanding beyond connectivity and increasing the mix of higher value digital services continues to strengthen the quality of our B2B revenue base. With that, let's move to our two most important markets, beginning with Guatemala.

Guatemala delivered another outstanding quarter, and it continues to set the benchmark across our operations. Our Prepaid to Postpaid migration strategy remains a key driver of performance. During the quarter, 86% of our new customers' Postpaid sales come from Prepaid. That's an exceptional conversion rate and a clear demonstration that our commercial strategy continues to resonate with customers. As a result, our Postpaid customer base grew almost 20% year-over-year, combined with healthy ARPU. This translated into mobile service revenue growth of 6.4% to $295 million. Overall, Guatemala delivered its strongest quarterly performance in the last 10 years. Congratulations to Carlos, our general manager, and to the entire team for another exceptional quarter. Let me now turn to Colombia. This is our first full quarter reporting Coltel under full ownership following the completion of the transaction in April. I'm pleased with the progress we're making.

The underlying commercial performance remains strong. Postpaid customers grew 7.1% organically year-over-year, with nearly two-thirds of new Postpaid sales coming from Prepaid migrations. This continues to strengthen customer loyalty, improve ARPU, and increasing long-term value. In home, our customer base grew 2.4% organically year-over-year. We are also making good progress with convergence. Fixed mobile penetration has reached 44%, reinforcing customer value while creating additional opportunities for cross-selling and long-term value creation. Overall, I'm encouraged by the progress we're making. The integration remains on track, and we're beginning to see the benefits of applying the Millicom playbook to a much larger business. Before I hand the call over to Bart, let me briefly update you on Chile. This was our first quarter of operations, and the team has made an excellent start.