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NII Holdings Inc (NIHD) Q4 2018 Earnings Conference Call Transcript

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NII Holdings Inc  (NASDAQ: NIHD)
Q4 2018 Earnings Conference Call
March 18, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, everyone, and welcome to the NII Holdings Fourth Quarter and Year End 2018 Results Conference Call. Now at this time, all participant lines are in a listen-only mode. There will be an opportunity for a Q&A session at the end of today's remarks and we will provide instructions at that time.

The conference call will be available for playback in the US through March 21 by calling 1-800-633-8625. Once again, that's 1-800-633-8625. Callers outside the US will need to dial 1-402-977-9141. Once again, that's outside the US 1-402-977-9141. The passcode for both calls is 21916103, that's 21916103.

And it's now my pleasure to turn the call over to Dan Freiman, Chief Financial Officer of NII Holdings. Please go ahead, sir.

Daniel E. Freiman -- Chief Financial Officer

Thank you. Good morning, everyone, and thank you for joining NII Holdings fourth quarter and full year 2018 results conference call. With me on the call today is Roberto Rittes, Chief Executive Officer of Nextel Brazil.

As a preliminary matter, let me inform you that some of the issues discussed today, that are not historical, will be forward-looking and, as such, should be taken in the context of the risks and uncertainties that are outlined in the SEC filings of NII Holdings, including our 2018 Form 10-K and other documents we have filed with the SEC.

In addition, during this call, we will be discussing certain financial metrics that do not conform to generally accepted accounting principles in the US, otherwise known as GAAP. For a reconciliation of these financial metrics to GAAP, please access NII's Investor Relations link at nii.com. We have also posted a presentation on our website summarizing our results for the fourth quarter. Please refer to this presentation for additional details on our progress for the year. In addition, we have posted a separate presentation on our website summarizing the agreement we announced this morning to sell Nextel Brazil. I will refer to the slides later on the call.

I would now like to turn the call over to Roberto.

Roberto Rittes -- Chief Executive Officer

Thank you Dan. Good morning and thank you for joining us today. As you saw from our news release this morning, we announced that our Board of Directors, approved a sale of Nextel Brazil to America Movil. While we're pleased with the continuing improvement in our operation, the sale of Nextel Brazil provide our best opportunity to monetize our assets and avoid the need to make significant additional investments to fund the business and potentially to fund 5G.

We plan to spend a majority of time on this call reviewing the details of the proposed transaction. However, I would like to first provide a brief review of our fourth quarter results. We reported another solid quarter as we continue to grow our subscriber base while maintaining a healthy level of churn. At the same time, we generated positive consolidated adjusted OIBDA for the second straight quarter.

In terms of subscribers, we reported 355,000 gross in Q4, up 15,000 from last quarter due to the expansion of our national retail sales channel. At the same time, churn decrease is likely to 2.62% for Q4, bringing churn for the second half of the year to 2.65%, leading our guidance of 2.75%. As a result we gained 99,000 3G net adds in Q4, bringing our total for the year to 344,000. This was significantly higher than our guidance of 300,000 net adds. For the full year, we grew our 3G subscriber base by 14% to 3.3 million subscribers, making us the fastest growing mobile operator in Brazil in 2018. Most of our other KPIs were similar or better compared to last quarter.

Our port-in ratio in Q4 was 3.6:1, slightly higher than Q3. This enable us to continue gaining market share in both Sao Paolo and Rio. Complaint from our clients to Anatel decreased 10% compared to Q3. Our net promoter score or NPS, was 33 points in December, the same level as September. This is still the highest level among all competitors. In fact, we're thrilled with our performance in Anatel's 2018, customer satisfaction survey published last week.

Our main postpaid product had an overall satisfaction score of 7.71, the highest score of any active provider. In addition, happy (ph) our digital offer achieved the highest ranking pre-sales. Our success in driving this results comes from our focus on providing a high standard of customer service, what we call customer centricity to create a differentiating factor in Brazil's competitive telephone market.

Now, I'd like to call -- to turn the call back to Dan to discuss our financial results.

Daniel E. Freiman -- Chief Financial Officer

Thank you, Roberto. We ended a successful 2018 with solid fourth quarter financial results. We generated positive consolidated adjusted OIBDA for the second straight quarter, and met our expectations for positive consolidated adjusted OIBDA in the second half of the year.

On the top line, our total revenue was $142 million for the quarter, flat compared to last quarter as the higher revenue generated from a larger subscriber base was offset by lower ARPU. This primarily resulted from adjustments to revenue that we recognized during the quarter. On the cost front, our total operating expenses increased by $6 million or 5% from the third quarter. Our cost of revenues was flat with the third quarter as we recognized a reduction of costs related to operating tax credits and an offsetting loss for customer fraud identified during the quarter.

Our general and administrative expenses increased by $4 million from the third quarter, accounting for most of the increase in our operating expenses. For the fourth quarter of 2018, our CCPU was $12 the same level we reported in the third quarter. As a result of the $6 million increase in operating expenses from the third quarter, our consolidated adjusted OIBDA for the fourth quarter decreased to $2 million.

We invested $24 million in CapEx this quarter. Total CapEx for the year was $64 million, higher than our expectation that it would be at a similar level in 2017. This was in part due to our previously announced decision to accelerate some CapEx plan for the first quarter of 2019.

In terms of cash burn before debt service, for the fourth quarter we spent $26 million and an $11 million increase from last quarter. We also spent $17 million on debt service, primarily for interest payments. For the second half of 2018, we spent $41 million in cash burn before debt service and $32 million on principal and interest. This resulted in $73 million of cash burn, which was better than our guidance of $100 million.

During the fourth quarter, we received a $15.9 million minority investment from AI Media related to our joint investment in Nextel Holdings. We contributed our portion of $37.1 million in connection with this investment. In terms of liquidity, we ended the year with $175 million of cash and short-term investments, as well as $106 million of cash held in escrow.

To fund our business plan in 2019, we expect to use a significant portion of our remaining available cash and expect to receive additional investments from AI Media to maintain their 30% minority ownership. While we expect the sale of Nextel Brazil to close this year, if we were to fund our business plan in 2020, we would need to recover and start using proceeds from the Mexico escrow while also relying on additional investments from AI Media. While we wait for the proposed transaction to sell Nextel Brazil to close, we will operate our business in the ordinary course remaining focused on the continued improvement in our operations, profitably growing our subscriber base, and efficiently managing our liquidity.

Now, I would like to review the proposed transaction using the slides we posted on our website. We will start with slide 5 of the presentation. Slide 5 summarizes the key economic legal terms of the transaction. The transaction values 100% of Nextel Brazil at $905 million on a debt-free and cash- free basis, which we believe is a fair and reasonable value. The purchase price for the equity of the disposal entity comprises seller friendly features. There is a customary net debt adjustment at closing. To our benefit, that net of debt will exclude capital leases and our financing that America Movil will assume. Reported value of these liabilities was $69 million as of December 31, 2018.

Also, the purchase price will increase for the reimbursement by America Movil for cumulative CapEx spending and investment in working capital between March 1, 2019 and the earlier of closing in December 31, 2019. Both these adjustments are subject to a reimbursement cash. In connection with the transaction, AI Brazil, our minority partner, will also sell its 30% equity stake to Nextel Brazil. The proceeds will be split according to the current 70%, 30% ownership split after Access has received $2 million preferred dividends for our current shareholders agreement. The proposed transaction has been unanimously approved by our Board of Directors. The transaction is subject to customary closing conditions, the key ones being NII stockholder approval, CADE approval and Anatel approval.

Note, there is a break up fee of $25 million that will be payable to America Movil, if NII decide to pursue a superior proposal. In addition, there is a $30 million indemnity cap fully secured by an escrow. We expect to close the transaction in 2019 and then subsequently start to wind down process of NII holdings, the distribution of a portion of the proceeds received.

Slide 6 shows the simplified organizational structure of our Group, as well as the transaction parameter. The entity being sold is NII Brazil Holdings, a Luxembourg-based Holding company that indirectly owns 70% of Nextel Brazil. This structure allows us to utilize our tax basis to avoid US tax leakage for NII. As discussed a few moments ago, Access Industries will participate in the proposed transaction and sell its stake in Nextel Brazil. Following the sale of its last remaining operating company and the repayment of the convertible notes, NII Holdings will essentially be left with cash in the remaining escrow from the sale of Nextel Mexico to AT&T in 2015. As I just mentioned in my remarks, we are continuing to aggressively pursue the recovery in Nextel Mexico escrow.

In connection with the agreement to sell Nextel Brazil, we have reached an agreement with AI Brazil to solve our standing agreement relating to the escrow. If the proposed transaction is consummated, AI Brazil will be entitled to the first $10 million and 6% of additional amounts recovered from the Mexico escrow.

Slide 7 provides a bridge from the enterprise value to our current best estimate of the distributable proceeds to NII stockholders. As discussed earlier, America Movil will pay a reimbursement for CapEx and working capital incurred between March 1, 2019, and December 31, 2019, which we estimate to be $49 million assuming an August 31, 2019 closing. We will then deduct net debt excluding capital leases within the entities being sold at closing, which we currently estimate to be $535 million, resulting in a $420 million estimated purchase price for LuxCo. As we have material (ph) amounts for reimbursement and debt denominated in local currency, there may be some fluctuation of the amounts I noted due to the closing FX rate. Our 70% share of the net proceeds after deducting $2 million preferred dividends due to AI Brazil, is estimated to be $293 million. After considering transaction costs, and wind-down cost, we estimate that NII's net debt will be minus $106 million at closing, which reduces the net proceeds to NII to $186 million. Factoring in and assume $75 million recovery of the escrow after incorporating the settlement with AI Media, the estimated value to NII stockholders is $263 million or $2.58 per share. It is important to note that a closing $30 million of the net proceeds to NII will be placed into an 18 month escrow to satisfy any identification claims made by American Movil and losses against the Nextel Brazil escrow may reduce the final distributable value to stockholders.

Turning to slide 8. I want to emphasize that proceeds distributable to NII stockholders in the figures discussed on the previous page are dependent on several factors, some of which are outside of NII's control. They include timing the closing, FX rate at closing, performance of Nextel Brazil to closing, impacting net debt at closing and therefore purchase price, recovery of $30 million indemnity escrow related to the proposed transaction and the overall recovery of the Nextel Mexico escrow. In our decision to sell Nextel Brazil, we consider the risks in running Nextel Brazil as a stand-alone entity.

Slide 9, highlights some of the challenges the company has faced in the long run should it remain stand-alone. First, Nextel Brazil competes in Brazil's two most competitive markets, with a subscale position. Other players are larger with a broader product offering and more importantly, have more assets and resources to ensure medium and long term development. Second, despite strong EBITDA in cash flow recovery, Nextel Brazil is still not yet cash flow positive. Finally, and more important, our current liquidity is only enough to fund the business for two years, assuming we recover the Mexico escrow. We will still need a significant amount of additional capital to fund current operations and continue investing service financial debt to competitively participate in the 5G spectrum auction expected in 2020.

Turning to slide 10, the contemplated transaction is a result of exhausted sales process. Nextel Brazil has been marketed often on NII Holdings files for Chapter 11 reorganization in 2014 in three different sales processes. We conducted a broad search in terms of potential deals structured and counterparts. Significant number of local and global strategic players, as well as financial investors were contacted. The sale of the business and other forms of structures were evaluated. We negotiated an increase in the value between the initial indications in today's price, the company was assisted by leading global financial and legal advisors throughout the process. At the end of the day, that extensive process led to only one reasonable and actionable offer.

Finally, I would like to conclude on slide 11 with a summary of the reasons we believe stockholders should support the transaction. First, based on the competitive backdrop and Nextel Brazil's financial position, we believe it is a fair and reasonable proposal from an economic standpoint. Second, it is a result of a multiyear exhaustive sales process and there is no indication that another offer will materialize in the future. Third, it represents an opportunity to monetize our investments in Nextel Brazil. Finally, if we were to continue stand-alone, we would need to raise a significant amount of capital to fund the business with the risk that may not provide us with any reasonable return.

Now, I would like to turn the call back to Roberto for few closing remarks.

Roberto Rittes -- Chief Executive Officer

Thanks Dan. Our accomplishments in 2018 make selling our Brazilian operations bittersweet. But as you heard from Dan, we believe it is in the best interest of our stockholders in light of the significant additional capital we need to invest in the future, including potential investments in 5G. Despite the proposed sale, we'll continue with our same approach to running the business, and we'll keep you updated on our progress.

Now I'd like to take your questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes the line of Lance Vitanza with Cowen. Please proceed.

Lance Vitanza -- Cowen and Company -- Analyst

Hey, guys. Thanks for taking the questions. A couple of housekeeping items here. So could you sort of review the cash position both in Brazil and out of Brazil. Unrestricted cash as of the end of the year?

Daniel E. Freiman -- Chief Financial Officer

Yes. Good morning, Lance. It is Dan. Yes. So, at the end of the year, our total cash consolidated was $175 million. And the breakdown of that cash is as follows: we had $94 million at NII and its related entities; we had $46 million at the Nextel Holdings level; and then $35 million in Nextel Brazil.

Lance Vitanza -- Cowen and Company -- Analyst

And refresh my memory, so the -- when we think about the 70-30 split, is that only refer to the Brazil entity or is it Nextel Holdings part of that as well?

Daniel E. Freiman -- Chief Financial Officer

Yes. Nextel Holdings is a part of the entities being sold, so that includes the $46 million and the $35 million.

Lance Vitanza -- Cowen and Company -- Analyst

Got you. Okay. And then I think you said that you made a distribution or contribution rather down into the JV in the quarter, is that right of $35 million-ish. I couldn't quite hear that amount?

Daniel E. Freiman -- Chief Financial Officer

Yes. That's right. So we -- during the quarter we had put in about $35 million into Nextel Holdings to the $46 million -- between the $46 million and the $35 million includes whatever is remaining of that contribution. And AI Brazil also put in their right of shares.

Lance Vitanza -- Cowen and Company -- Analyst

Okay. And then how do you get the $106 million of net financial debt at NII at closing? Could you give me the component parts there? I mean, obviously, I know it is the convert, but then is it just as simple as -- well, I'll let you do it.

Daniel E. Freiman -- Chief Financial Officer

Yes. No, it's right. It's the convert, obviously, the $115 million is the big liability and then it is offset by what we believe will be cash remaining after continuing to fund headquarters cost, a transaction cost. You need to leave some cash behind for winding down the company. We have to make sure that in order to wind-down, you have to leave enough cash behind to cover any potential indemnification claims or other claims made by third parties. So we have to leave enough in the business that once that process through whatever cash is left over at that time would be distributed but, that number contemplates all those numbers.

Lance Vitanza -- Cowen and Company -- Analyst

So then, OK, so you have $94 million of cash at NII today and essentially this projects that you'll have about $9 million left at closing. And closing we think is going to be sometime later this year. Is that right?

Daniel E. Freiman -- Chief Financial Officer

Yes. We expect closing will be sometime during 2019.

Lance Vitanza -- Cowen and Company -- Analyst

Okay. So then you go through about $80 million -- $85 million -- $86 million of cash over the course of the year. And then could you sort of give me the buckets? I know you mentioned some items there wind-down escrows and so forth. But how much of that $85 million burn, is that contributed down into the JV going forward or is that just wind-down cost going forward?

Daniel E. Freiman -- Chief Financial Officer

No. You're right. So we'll have to continue to fund Nextel Brazil up until the closing. So some of the reasons for the reduction in cash from the amount I told you at the end of December 31, '18 to when we close is related to the investment in Brazil and then in theory, we're getting reimbursed for a majority of those investments through CapEx, and working capital reimbursements from America Movil. So, that's the big piece of the cash burn. And, then there's just the continued cost to run headquarters that's about $4 million a quarter, that's been pretty steady. Then we'll have transaction costs. Lawyers, bankers, other types of costs like that. And then, like I said, we'll need to leave some cash behind at closing to make sure we can wind-down up any remaining liabilities.

Lance Vitanza -- Cowen and Company -- Analyst

Okay. And then how -- how and when do you intend to deal with the converts today get taken out at the wind-down or before the wind-down when the sale closes or some other time?

Daniel E. Freiman -- Chief Financial Officer

Yes. Once the sale closes a portion of the cash will go to pay down the converts at that time.

Lance Vitanza -- Cowen and Company -- Analyst

Okay. And then just on the business, I mean, it looks like the business is actually doing very well. I hear you regarding the, you know, the need to fund the business and whatnot and the competitive factor and so forth. But it does occur to me, I mean, you know, the $905 million of enterprise value, I believe if I've got the number that's less than the company paid for, you know, for its spectrum holdings several years ago, I think I totaled those numbers up to closer to $950 million. So I'm wondering if there were -- I know you ran a very thorough process. This is the best that you could do. I'm wondering if there were specific issues that dissuaded other people from coming in, participating more aggressively in the process, or is there any sort of additional color that you can provide there to give us some sense for how we wind up at this price?

Daniel E. Freiman -- Chief Financial Officer

Yes, sure. No, and we -- as we mentioned, we ran a pretty competitive process. We contacted probably 40, 50 different extra parties in the last couple years. At the end of the day, there was a handful of interested parties that engaged with us in diligence in other ways. You know, we ended up with only one credible, reasonable offer. It's one that we acted on and announced, which is America Movil. We did have one other unsigned, non-binding offer that was worse, than the one we got from America Movil. So, we ran the process, but we got the feedback from the market that suggested this is what the companies were in their view. I think there's puts and takes that we don't obviously know, exactly how everybody thinks internally about the value. But clearly, you know, there's value in the spectrum and in the subscribers. I think there's some offsets and negatives that people saw.

In particular, the network is, you know, there's a lot of potential overlap with other network operators. So there's the cost of having to take down the network. There's the continuing obligations we have under all of the leases both operating and capital for many, many years that are effectively a liability, but not necessarily completely on the balance sheet.

There's a significant amount of contingency exposure that's out there. As you know, most other operators have as well when we operate in Brazil. It's kind of part of doing business there. A significant amount of potential exposure for tax and other types of contingencies we've disclose that. I believe in the 10-K the latest amount was over $800 million possible contingencies. So I think, as market participants view the opportunity, they weighed both the pros in terms of the assets as well as cons and that's worked.

Lance Vitanza -- Cowen and Company -- Analyst

Got it. And one last question, if I could. I want to go back to the conversion. There was some language in the press release that I didn't quite follow regarding possible amendment to eliminate obligations contemplated under, or an escrow agreement providing for a deposit in accordance with the indenture. Could you clarify what that is? And I apologize if I missed it earlier.

Daniel E. Freiman -- Chief Financial Officer

Yes. Sure. I mean, in the convertible notes, documents, we have a requirement under our change control that we have to set aside the amount under the converse with escrow. So that's what's contemplated by the agreement is that we would do that, so, unless we otherwise and then there's a requirement that once the transaction closes, we'll take $115 million of the proceeds and place it into escrow to pay the convertible noteholders.

Lance Vitanza -- Cowen and Company -- Analyst

Thanks very much.

Operator

(Operator Instructions) We do have a question from Sergey Dluzhevskiy with Gamco investments. Please proceed.

Sergey Dluzhevskiy -- Gamco investments -- Analyst

Good morning, guys. Just a clarification question on slide 7.

Roberto Rittes -- Chief Executive Officer

I'm sorry. I can't hear you.

Sergey Dluzhevskiy -- Gamco investments -- Analyst

Can you hear me now?

Daniel E. Freiman -- Chief Financial Officer

Yes. That's better. Thanks.

Sergey Dluzhevskiy -- Gamco investments -- Analyst

Okay. A clarification question on Mexico escrow recovery. You put it at $75 million net of settlement with AI Brazil. Does it assume that -- is your starting point $106 million or do you assume a lower Mexico escrow recovery amount net of that settlement? So I guess the question is whether there is a delta between $106 million and $75 million, is just a settlement or some other items as well?

Daniel E. Freiman -- Chief Financial Officer

Yes. It's a combination of both. We're expecting Nextel, as we've had it with other settlements, with the Mexican tax authorities, we've had to pay some amounts for each of the tax years we've settled, so we expect that will continue, until we assume some continued leakage to be conservative. So that accounts for part of the difference between the $106 million and the $75 million and then the other part is the settlement with AI Brazil that we mentioned, the $10 million upfront for 6% of any incremental proceeds. So the combination of those two factors reduces the estimated escrow proceeds from the current balance of $106 million to the $75 million.

Sergey Dluzhevskiy -- Gamco investments -- Analyst

Thank you.

Operator

The next question comes line of Peter Fisher with Points Bank (ph) Capital. Please proceed.

Peter Fisher -- Points Bank Capital -- Analyst

Yes. Hey, guys. Can you just remind me of the tax assets that the company Brazilian operations have and whether those transfer in the sale?

Daniel E. Freiman -- Chief Financial Officer

Yes. I don't have the numbers in front of me. Pete, I think it's pretty significant. I think I want to say it's a couple billion dollars of NOLs. We understand from America Movil that those have little value to them and there weren't other operators that suggested that that had a lot of value. I believe they do transfer in the sale, but I'm not sure that there is a plan unnecessarily for this to be utilized.

Peter Fisher -- Points Bank Capital -- Analyst

Sorry, did you say there were other operators who did value them or did not?

Daniel E. Freiman -- Chief Financial Officer

Did not. No. (Multiple Speaker) already had NOLs adding more to the bucket, didn't seem to be adding much value for them.

Peter Fisher -- Points Bank Capital -- Analyst

Okay. Understood. Thanks.

Operator

(Operator Instructions) The next question comes from line of Tom Hill with Quest (ph) Tech. Please proceed.

Tom Hill -- Quest Tech -- Analyst

My question was answered. Thank you.

Operator

(Operator Instructions) The next question comes line of Pierre Safa with Silver River. Please proceed.

Pierre Safa -- Silver River Capital -- Analyst

Yes. Hi, good morning. Thank you for taking my question. So, I guess, just going back to the NOLs. I have to -- I mean, I understand your comment about what the AMX believes, but you have $2.1 billion NOLs in Brazil. So I'm surprised to hear that, you know, some of these third parties believe that there's no value to that. So that's a first, I guess, question, comment. And then the second one, is the NIHD the whole thing in Luxembourg has a very significant billions of dollars of NOLs additional NOLs. So I'd like to understand what happens to these post the transaction?

Daniel E. Freiman -- Chief Financial Officer

Yes. Couple of comments. So I don't have the numbers in front of me. I'd suggest just go check the filings of the other operators, we believe they already have a lot of NOLs themselves. And so in Brazil you can only use NOLs for 30% of your income every year. So imagine that for years and years and years they have their own NOL, they would use up to 30%, by the time they get to our NOLs is potentially separate out there. It really has very little entity. Again, but that's it's neither here nor there. We ran a process. We got to offer and a value for the whole company that takes into account total assets and liabilities in the kind of it is what it is.

In Luxembourg, we do have NOLs as well, and those would only be potentially valuable to someone that actually had operations in Luxembourg and had gains or income that they needed to offset. So the same response, there really weren't many parties even interested in buying in Luxembourg because a lot of parties don't have business there. And so for us, it was a preferred structure by being able to sell Luxembourg entities, simplify for us, it allowed us to avoid tax leakage on the transaction. We don't expect to have any tax leakage. So that was a plus for us. And the NOLs will go with the companies that are being sold.

Pierre Safa -- Silver River Capital -- Analyst

Understood. Thank you very much. And then just quickly, you said you expect to consume $85 million in cash between December 31, 2018 and the transaction closing. How much of that is CapEx that you believe will be reimbursed?

Daniel E. Freiman -- Chief Financial Officer

Well. So to be clear, that's the cash that's sitting at NII. It does not include cash in being spent in Luxembourg or in Brazil. So we'll invest a portion of that cash in both of those entities and then get reimbursed to the extent that that cash is used to fund the CapEx and to fund working capital. We put into the investor presentation on our website an estimate of the amount of reimbursement that we would have assuming an August 31st close. It's an arbitrary close. And it's $49 million of reimbursement for the period between March 1st and August 31 for those reimbursements.

Pierre Safa -- Silver River Capital -- Analyst

The next question comes from the line of Adrian Keevil with PlusTick. Please proceed.

Adrian Keevil -- PlusTick -- Analyst

Hey, guys. I had a quick question. How much cash would it cost to operate the company in 2020 and beyond? And the reason why I ask is it feels to me like the Brazilian telecom market is on the cusp of consolidation. You have an excellent management team. The results have been great. There are ways to run the business more efficiently. Like I -- there is a roaming agreement announced last week. And, you know, my question is, what do you think it would cost to run the business if the stand-alone. Are you selling? You feel like you're selling the company too early on the cusp of what could be a major transformation both in the economy of Brazil and in the industry itself?

Daniel E. Freiman -- Chief Financial Officer

Sure. Yes. So I think we said in our remarks that we expected to use a significant portion of $175 million of cash, we had a December 31st to fund the business for 2019, and that we would need to be able to access the remaining funds in the Mexico escrow to be able to fund us through 2020. If we're not able to access those funds, then by the end of this year we would be in a pretty significant liquidity crunch.

We do continue to expect to recover most of that escrow as one of the previous people asked. we are estimating $75 million, but the timing of the release is not in our control. Something we've been working on and continue to work on and we're making progress. But it's a risk.

Beyond 2021 -- 2020, sorry, 2021, we need to continue to fund the business. You know, I would say we would need $100 million plus to continue to fund the business and so we got to be cash flow break even. So, we would need to basically use all of our existing cash, use all of our recover and use all of the cash held in escrow and raise probably another $100 million. And that doesn't even include any potential investments we'd have to make in 5G. There -- the Anatel, the regulator in Brazil recently announced that they're planning to have an auction next year, early next year for 5G. They haven't given any details. We do expect that the cost of acquiring the spectrum and building our 5G is going to be in the hundreds of millions of dollars. So we're at a point now where we've want a pretty throw strategic process. The markets have told us, indicated what the company is worth, continuing on in a stand-alone way, while the operations are obviously continuing to improve and heading in the right direction requires a significant amount of capital, and there's a lot of risk in operating Brazil.

And then a question about what role if any, we could play in 5G development. And if we don't, then it's going to be difficult for us to compete in the long run. So we kind of added all those factors up and looked at the offer on the table and decided that this was reasonable net value. We've gotten advice from advisors on valuation, we believe this is reasonable for the company and we decided this is probably the best path for our stockholders at this point in time.

Adrian Keevil -- PlusTick -- Analyst

So to summarize, you have existing cash and you'd have to raise maybe a $200 million to get through to the point of the 5G auction to continue operations. Is that fair to say?

Daniel E. Freiman -- Chief Financial Officer

Well. Just to clean that up a little bit. So the 5G auction is going to -- we expect to be early next year. So, we have enough cash to get to the 5G auction. But then the question is, could we participate, where's the capital going to come from. If we don't participate in 5G, what does it mean for us in the medium to long term that everybody else has 5G and we don't. If there's no other future offers on the table and we don't take this one, and then we invest all of our cash and then need to raise more and we don't know whether that capital is going to become available for us. There's a lot of risks in rolling the dice and continuing to move forward. So our view is, we have a reasonable offer. This is -- we've run a competitive process. We can run it again, but I don't -- we don't expect we're going to get a different outcome. So it just felt like, OK, this is the right thing to do.

Adrian Keevil -- PlusTick -- Analyst

Okay. Thank you.

Daniel E. Freiman -- Chief Financial Officer

Yes, thank you.

Operator

And there appear to be no further questions. I'll turn the call back over to you for your closing remarks.

Daniel E. Freiman -- Chief Financial Officer

Thank you. Thanks, everyone, for joining today, and we're happy to take additional questions offline today and tomorrow.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

Duration: 40 minutes

Call participants:

Daniel E. Freiman -- Chief Financial Officer

Roberto Rittes -- Chief Executive Officer

Lance Vitanza -- Cowen and Company -- Analyst

Sergey Dluzhevskiy -- Gamco investments -- Analyst

Peter Fisher -- Points Bank Capital -- Analyst

Tom Hill -- Quest Tech -- Analyst

Pierre Safa -- Silver River Capital -- Analyst

Adrian Keevil -- PlusTick -- Analyst

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