Acquisitions Driving Growth at Liberty LiLAC Group

By Markets Fool.com

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Liberty LiLAC Group (NASDAQ: LILAK), the Latin America arm of Liberty Global, has been on an acquisition binge in the past year, trying to solidify its spot as a major player in the region. But it's a tough battle, and there's little free cash flow being thrown off by the business at the moment.

Long term, however, we're seeing progress in attracting customers, which should lead to cash-flow growth. Here are the highlights from the recently reported second quarter.

Liberty LiLAC Group results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YoY)

Sales

$602.9 million

$311.4 million

93.6%

Operating Cash Flow

$231.1 million

$127.6 million

81.1%

Free Cash Flow

($35.3 million)

$53.7 million

n/a

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Source: Liberty LiLAC Group earnings release.

What happened with Liberty LiLAC Group this quarter?

Customer additions are still going strong, and acquiring CWC will bolster that story. Here are a few metrics from the business that provide an idea of what's driving revenue and cash flow.

  • 46,000 revenue-generating units (RGUs) were added in the second quarter, including 18,000 organic customers. Thirty-one thousand customers were broadband additions, while 10,000 were video, and 5,000 were telephone.
  • Chile continues to be a point of strength, contributing 37,000 RGUs in the quarter.
  • The CWC acquisition, completed in May, helped drive the incredible growth numbers you see above, and management expects the company to provide synergies by the end of this year.
  • Most of the company's 3.8 million mobile subscribers came in the CWC acquisition, so look for Liberty LiLAC to start offering customers a more-complete solution. Especially considering CWC has been a free-cash-flow drag, it's those synergies that will make the acquisition worthwhile.

What management had to say

Free-cash-flow generation is expected to be limited in 2016, including the CWC acquisition. Growing investments in capital expenditures and lower cash flow from operations will continue, but the goal is still to build a solid business in Latin America long term.

Customer and market-share growth continue to be the primary goal in the developing Latin America market. And until the infrastructure is built out and adoption rates are high enough, there may be limited cash flow.

Looking forward

Investors should keep an eye on the synergies that Liberty LiLAC should be seeing from the CWC acquisition, and accelerating RGU additions, as well. Building scale in growing markets will be key to long-term success, and these moves are a step in that direction. But it may still be a while until an improving market share leads to a significant amount of free cash flow for investors.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Liberty Global and Liberty LiLAC Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.