America Móvil B de C : Q1 2024 Transcript

Q1 2024 Earnings Call

Company Participants

Carlos Garcia Moreno Elizondo, Chief Financial Ofcer

Daniel Hajj Aboumrad, Chief Executive Ofcer

Daniela Lecuona, Head of Investor Relations

Oscar Von Hauske Solis, Chief Fixed-line Operations Ofcer

Other Participants

Alejandro Azar, Analyst, GBM Research

Ernesto Gonzalez, Analyst, Morgan Stanley

Fred Mendes, Analyst, Bank of America

Froylan Mendez, Analyst, J.P. Morgan

Gabriela Chaparro, Analyst, BCP Securities

Juan Cruz, Analyst, Morgan Stanley

Soomit Datta, Analyst, New Street Research

Unidentifed Participant

Victor Tomita, Analyst, Goldman Sachs

Walter Piecyk, Analyst, Lightshed

Presentation

Operator

Good morning. My name is Candace, and I will be your conference operator today. At this time, I'd like to welcome everyone to the America Movil First Quarter 2024 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. (Operator Instructions)

I would now like to turn the conference call over to Ms. Daniela Lecuona, Head of Investor Relations.

Daniela Lecuona {BIO 15302125 }

Thank you so much. Good morning, everyone. We're very excited to have you today on the line discussing our fnancial and operating results for the quarter. We have Mr. Daniel Hajj, our CEO; Mr. Carlos Garcia Moreno, CFO; and Mr. Oscar Von Hauske, COO.

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Daniel Hajj Aboumrad {BIO 1898715 }

Good morning. Welcome to the America Movil First Quarter Financial and Operating Report, and Carlos is going to make a summary of the report. Carlos.

Carlos Garcia Moreno Elizondo {BIO 1713687 }

Thank you, Daniel. Good morning, everyone. Thanks for being here in the call. Well, the strong rally in interest rates that took place in the latter part of 2023 came to an end in the frst quarter. Strong employment readings and other indications of a still vibrant economy kept pushing back the timing of expected reductions by the Fed of its discount rate and cutting back the expected number of such reductions to be had this year.

The Mexican peso, which had depreciated slightly versus the dollar at the beginning of the year, dropped of the interest rate increases and resumed its appreciating trend gaining ground versus the dollar and all other currencies in our region of operations. In the frst quarter, we added 1.5 million wireless subscribers, of which 1.3 million were postpaid clients including Brazil with 555,000, Austria with 260,000, Colombia with 126,000, and Mexico with 105,000.

On our prepaid platform, we gained 263,000 subscribers in the period, Colombia added 378,000 followed by Argentina with 226,000, and Brazil with 146,000. On the other hand, we disconnected 584,000 subscribers in Central America, mostly on account of a cybersecurity incident that afected our ability to activate clients. On the fxed-line segment, we connected 562,000 new broadband accesses, the best performance in four years. Mexico was the main contributor with 325,000 clients, followed by Brazil with 92,000, and Colombia with 23,000.

Our postpaid base increased 6.4% year-on-year while fxed broadband accesses were up 4.8%. We continue to lose strategic [ph] clients and fxed post [ph] lines and this has been a secular trend for quite some time. Our frst quarter revenue totaled MXN203 billion with service revenue expanding 1.1% in peso MXN231 billion [ph] and other revenue declining 71.2% -- 71.7% to MXN2.4 billion. The latter fgure refects extraordinary revenue in the frst quarter of 2023 on account of the sale of towers by Dominican Republic and Peru, this quarter there were practically no tower sales. At constant exchange rates, service revenue increased 5% up from 3.7% the precedent quarter. We saw an acceleration of service revenue growth on both the fxed line and the mobile platforms as you can see in the slide which improved sequentially from 3% to 5.1% on the fxed line side and from 4.2% to 4.9% on the mobile side. So an acceleration in revenue growth on both fxed and mobile which means an acceleration of service revenue growth in America Movil as a whole.

In most of our main markets, including Mexico and Brazil, service revenue growth exceeded infation for the period with Austria and Colombia being the principal markets where revenue did not increase in real terms. Mexico was the main driver behind fxed line revenue expansion, which went from 5.9% in the preceding quarter

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to 9.7% in the current period, the fastest rate of growth in years. It was followed by Peru, where the revenue growth rate nearly doubled sequentially from 4.4% to 8%.

Brazil reported a 1% increase, its best showing in seven years, as the headwinds from PayTV over the last fve years gave way to solid broadband revenue growth. Within the fxed line platform, corporate networks revenue which represent 21% of fxed line service revenue was the more dynamic business line climbing 13.5% year-on-year followed by broadband services that were up 6.4%.

On the mobile platform, in Mexico, Brazil, and Peru were the countries where revenue growth picked up the most sequentially going from 4.5% to 5.8% in Mexico from 7.1% to 8.5% in Brazil and from 2.6% to 4.9% in Peru. Colombia returned to positive mobile revenue growth after two-quarters of declines. EBITDA came in at MXN80.6 billion. It was 2.6% lower than a year before on account of the extraordinary tower sales for the frst quarter mentioned before, which afected the annual comparison.

But at constant exchange rates and adjusting for the tower sales, EBITDA increased 7.5% year-on-year, its fastest pace in eight quarters buoyed by strong subscriber and revenue growth on both platforms and consistent control over costs and expenses.

Our operating income reached MXN4.8 billion, a 7.6% decline from the year before correcting for the tower sales, it was up 2.5% in Mexican peso terms and 13% at constant exchange rates.

Our comprehensive fnancing cost totaled MXN13 billion in the frst quarter. They were close to zero a year before on the back of strong foreign exchange gains that had amounted to MXN13.7 billion then. This year we instead booked MXN1.7 billion in foreign exchange losses. We registered a net proft in the amount of MXN13.5 billion that was equivalent to MXN0.22 per share and 25 dollar cents per ADR.

The diference vis-a-vis the year earlier quarter is mostly explained by the aforementioned tower sales and the diference in foreign exchange gains/losses.

In cash fow terms, we obtained net fnancing in the amount of MXN17 billion -- MXN17.4 billion, which kept us fund our capital expenditures of MXN21.8 billion and covered MXN4.8 billion in shared buybacks and MXN6.5 billion in labor obligations. In the frst part of every year, we have mentioned several times, we have -- we paid working capital requirements that need to be fnanced. And on top of it, in March we have to pay duties on the usage of spectrum and several telecom-related taxes in various countries. And these taxes -- duties are paid for the most part in March. This was an important -- it's an important amount that we don't see every quarter, which in this particular quarter add up to nearly MXN13 billion.

So every year we have to make this payment. Every year it's in March and it happened this year was -- it amounted to nearly MXN13 million [ph]. Our share buybacks in the frst quarter, which were MXN4.8 billion, I mentioned before were 2.5 times greater than those of the year earlier quarter and 9% greater than those of

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the frst quarter of 2022. In fact, this quarter we acquired three times more shares than the quarter of the -- of last year than a year before.

And in terms of leverage, as you can see in the slide, it's been very fat. We've been for over a year, practically fat at 1.5 times net debt-to-EBITDA, we expect that we will be -- we will remain within the range that we have mentioned between 1.3 times and 1.5 times negative.

Okay, so with that, I will pass the foor back to Daniel and for Q&A. Thank you, guys [ph].

Daniel Hajj Aboumrad {BIO 1898715 }

Thank you, Carlos. We can start with the Q&A.

Questions And Answers

Operator

Thank you. (Operator Instructions) Our frst question comes from the line of Victor Tomita of Goldman Sachs. Your line is now open. Please go ahead.

Q - Victor Tomita

Hello all, and thank you very much for taking our questions. We would have two questions from our side. The frst one is on -- both are on Mexico. The frst one is on the commercial strategy for Mexico broadband. If you could give us an update on that commercial strategy following your investments, following your investment in fber, and also amid this swift improvement in volume trends there and also your policy of not raising prices in Mexico?

And our second question would be on the very solid EBITDA margin performance you saw in Mexico if you could give us some more color on the drivers supporting that margin and on whether this 42% margin level could be sustainable in coming quarters? Thank you very much.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Well, talking on Mexico, frst, in the fxed side, I think all the big investments in fber that we have been doing for the last three years, I think they are working and we're having good. What we put in the report is that we have around 17 million fber households, home passes, and 80% of our customers are already with fber. So helps a lot to reduce the churn. And the customers are in with a very good speed with the service. So that helps.

The second one is that we have good packages, we haven't increased prices and we have very good packages in the market. A lot of bundling in that. We do some

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streaming, we do more speed and that's working. And the operation also all around the customer experience, it's -- every day is doing much better in the fxed side.

Oscar, I don't know if you want to (Multiple Speakers)

A - Oscar Von Hauske Solis {BIO 2053819 }

No, I think you already covered it.

A - Daniel Hajj Aboumrad {BIO 1898715 }

That's all. I think that's -- and it's working. And we have the best growth of broadband subscribers this quarter since, I think some years that we have. We have more than 300,000. So it's working. Let's churn good service, good speed, fber, new packages. So all around makes a good, very good for our customers. A good concession [ph]. Ofer. A good -- very good ofer for our customers.

In the margin, I think in Mexico also in the wireless, our 5G network is working very good. I think we already have 125 cities with 5G, good coverage, good quality and what we're seeing is we are also not increasing prices in the wireless side. And what our people, what we're seeing is that our people is choosing for a new plan, a higher plan, moving for a better ARPU, more data. And that is working very good too. So all the 5G investments that we are doing are working very good in Mexico. So those are the two things that we're seeing in Mexico.

Q - Victor Tomita

Very clear. Thank you very much.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Thank you.

A - Oscar Von Hauske Solis {BIO 2053819 }

Thank you.

Operator

Thank you. Your next question comes from the line of Alessandro Olmos [ph] of UBS. Your line is open. Please go ahead.

Q - Unidentifed Participant

Hello, can you hear me well?

A - Daniel Hajj Aboumrad {BIO 1898715 }

Yes.

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Q - Unidentifed Participant

Okay. Good morning, everyone. First of all, congrats on the revenue performance. We saw a few records in both mobile and fxed. Very glad to see it. But I'll center my questions on CapEx. We noticed Q1 had a low fgure. Of course, there's seasonality. Can you discuss a little bit how do you expect the seasonality of CapEx throughout 2024?

A - Daniel Hajj Aboumrad {BIO 1898715 }

Can you -- we don't hear you very well. Can you talk a little bit slowly, because we don't hear you so well.

Q - Unidentifed Participant

Yes. Better now?

A - Daniel Hajj Aboumrad {BIO 1898715 }

Better, better now.

Q - Unidentifed Participant

Okay. So frst I said congrats on the revenue performance. We saw a few records on mobile and fxed. Very glad to see it. And I'll center my questions on CapEx. We noticed a low fgure in Q1. And the frst question is how -- what's the seasonality we expect on the remaining 2024? Should we continue to expect the guidance to be matched? And second, going forward in 2025, do you expect the CapEx fgure to go back to $8 billion per year? Thank you very much.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Well, as we said last call, we have like a three-year plan in the CapEx. And the rest, what we're going to do this year is around 7.1 billion. We are on track on that. We do a little bit more the previous years and that is helping us, as I said, there is fber in Mexico, 5G in other countries, the data centers, a lot on corporate services, applications. And that is helping us a lot. We think that we are okay with what we have been -- what we're going to invest this year. And your question for the next years? We're still reviewing what we're going to do in the next two years. We still don't know. But this year, I can tell you that our CapEx is going to be 7.1, 7.2. I think is what we said last call and we're on track on that. So that's what we can say.

Q - Unidentifed Participant

Okay, this is good news. Thank you very much. Have a great day.

Operator

Your next question comes from the line of Walter Piecyk of Lightshed. Your line is now open. Please go ahead.

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Q - Walter Piecyk {BIO 1510511 }

Yeah, hi, this is Joe for Walt. Thanks for taking the question. You discussed Mexico and the dynamics driving growth there. What's happening in the other markets that is giving you the ability to accelerate revenue growth? I know you mentioned that it's exceeded infation in most of the markets. Is it just bundling?

Are there price increases available there?

A - Daniel Hajj Aboumrad {BIO 1898715 }

We have to -- well, what we're doing in Mexico is exactly what we're doing in other markets. We're investing in 5G, we are improving and giving better plans, moving ARPUs, doing fber. In some markets, we increase prices. Not in all of them. In some of them, we increase, in other ones, we don't increase. Depending on the competition, depending on the segment, depending on what we're selling. Maybe in broadband, we don't increase in wireless yet. In prepaid, I think we're not increasing in any market, any price. So it's a mix of everything. But what we are doing in all the market is investing in 5G, having a good network, giving good packages, moving better ARPUs. And in -- Oscar can talk a little bit what we're doing in the corporate side, that is giving us a very good increase in revenue.

A - Oscar Von Hauske Solis {BIO 2053819 }

No. As we mentioned before, we are pushing the market what we call digital services. So within these digital services, we include all. There is cybersecurity, cloud, network management. And in cloud, we are receiving software as a services, infrastructure as services has been very, very well received in the market. And as well we are doing a lot of network management, moving from MPLS networks to SD- WAN and have been working pretty good on the B2B market.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Yes, we just launched a new data center in Peru, but we haven't had one there. So we are launched and we fnish in January. So we're going to put also more corporate focus on this market, I think we are in all the markets we're having already corporate services, I think best networks and best customer service gain better customer clients. So and that's what's happening in Mexico, in Brazil, in Colombia, in Peru, in Dominican Republic, in Central America, all around.

A - Oscar Von Hauske Solis {BIO 2053819 }

In Austria.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Austria. Austria is doing very good also.

A - Oscar Von Hauske Solis {BIO 2053819 }

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And I think what also important to -- not to underestimate the change in Brazil. Brazil was the main headwind that we were facing on the fxed-line platform because PayTV used to be the largest [ph] revenue line -- the largest revenue line. And -- but over the years, broadband has really more than overtaken PayTV. So the headwinds from PayTV are now being felt less, they are less important. So we are confdent that we can continue to grow revenues on the fxed-line platform in Brazil going forward.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Brazil and all -- last year we do around in fber, I think we do 14 million house, home passes. So that helps to sell and to do more customers in broadband.

Q - Walter Piecyk {BIO 1510511 }

Great, thanks.

Operator

Your next question comes from the line of Froylan Mendez of JP Morgan. Your line is now open. Please go ahead.

Q - Froylan Mendez {BIO 19072347 }

Hello, good morning, can you hear me?

A - Daniel Hajj Aboumrad {BIO 1898715 }

Yes, yes.

Q - Froylan Mendez {BIO 19072347 }

Perfect. Thank you so much. Two questions, please. The frst one on Brazil, we saw that ARPU grew around 3%. However, we did see a lot of the base migrating to a postpaid plan within the Brazilian base. We were wondering why didn't the ARPU grew a little bit better or faster. What's the explanation behind that?

And secondly, in Mexico broadband, you mentioned 17 million home pass. How far can that number go? Or are we reaching like a trough level? Is that the maximum capacity in fber that you can handle?

A - Daniel Hajj Aboumrad {BIO 1898715 }

Well, in Mexico we do already 17 million from home -- fber home passes. We're reviewing what -- and we are seeing where it makes sense for us to still go and do home passes. There is still a lot of capacity in these 17 million home passes. So we can penetrate more also these houses. And it's what we're doing all around. In Brazil. In Brazil, the ARPU. Let me see the ARPU. What -- your question is that the ARPU is growing in Brazil.

Q - Froylan Mendez {BIO 19072347 }

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It was 3%. We found that number a little bit low. Given the postpaid migration that we saw, we would have expected like a faster acceleration on ARPU. But just want to know if something changed or what could be the explanation of that low ARPU (Multiple Speakers)

A - Daniel Hajj Aboumrad {BIO 1898715 }

I don't know exactly, but I can tell you. I can tell you that in Brazil, we're doing very good in postpaid. We're growing around 8% the base of postpaid. The subscribers in postpaid is good. Maybe some of these postpaid are in the higher plans, other ones are in the lower plans.

But all over all, Brazil is doing good and we are moving a lot of our postpaid also to -

• a lot of our prepaid also to postpaid new customers plus upgrades from prepaid. And these upgrades from prepaid are moving slowly, so they are not moving to the high-end plan, so they are just jumping to postpaid. And then in the next years, I'm sure that with 5G and better handsets and more usage, these can improve the ARPU. So that's more or less what is happening in Brazil.

Q - Froylan Mendez {BIO 19072347 }

Thank you so much.

Operator

Your next question comes from the line of Fred Mendes of Bank of America. Your line is now open. Please go ahead

Q - Fred Mendes {BIO 22302086 }

Hello. Good morning, everyone, and thanks for the call. I have two questions here. The frst one on Telmex, and, you know, especially net adds [ph] results are very, very strong. Just trying to understand this dynamic. Obviously, as you pass through your fber, 80% of the natural per annual [ph] fber, I think that explains a lot.

But trying to understand the profle of these clients. If you're basically getting new clients, or if you're being able to get from other operators, basically trying to understand the dynamics behind such a strong results. That would be my frst one and then the second one on Colombia.

There were some news, I guess, that mentioned that you expect to do $1 billion investment CapEx this year. Correct me if I'm wrong. So just trying to understand your expectation there. It seems it's still a competitive market, but one of the players is facing some challenge. So just trying to understand the rationale if this is true. And the strategy for Colombia for 2024. Thank you.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Well, frst in Colombia, I don't have exactly the disclosure of what's going to be the CapEx in each country. But if you can talk to Daniela, we can review and see what

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we're going to do in this CapEx. I don't know if they are accounting for the frequencies that we already get and renew the frequencies that we renew in February. So I still don't know very good on that. But we can show you exactly what we're doing. But all over all in CapEx, we're going to do the CapEx that we commit and we're on target. And it's what the plan is. It's $7.1 billion, $7.2 billion on CapEx for this year. In Telmex, I don't know, Oscar, if you want to give your view.

A - Oscar Von Hauske Solis {BIO 2053819 }

Yes, one is what you mentioned. I mean, we did a lot of migration to fber that helped us to reduce the churn. So that brings us net adds. Secondly is that the market is still growing, so we are taking share of the role of the market. And the rest, I suppose is coming from competition. Right. So what has been working is what you mentioned. The new packages that we send to the market that include streaming video and very good speeds. And another one that is important is that when getting to the fber, we ofer symmetrical speed. And that has been very well received in the market. So that's why we see this growth.

Q - Fred Mendes {BIO 22302086 }

Perfect. Very clear. Thanks, Daniel. Thanks, Oscar.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Thank you.

Operator

Thank you. Our next question comes from the line of Ernesto Gonzalez of Morgan Stanley. Your line is now open. Please go ahead.

Q - Ernesto Gonzalez {BIO 23336087 }

Hi, thank you for taking our question. It's two. The frst one is this quarter we saw a large increase in lease related debt. Just wondering if you could give us some color on the drivers. And then the second one is on the outlook for Chile. The JV ownership is up for review soon. And you also had a deal with OneNet. On the latter, we were wondering if it's only for expansion to replace the existing network. And if you have any volume commitments with KKR. Thank you.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Well, what we do is we do an agreement with OneNet to use the fber. Yes. It's a complex contract. We have a volume and they give us some prices. So it's a contract that we think it's good for us. We -- in one side, we have fber in Chile and we're going to use our fber network in the other side where we don't have fber, we're going to use OneNet fber. So that's what we do. And I think makes sense to do that. What else in Chile?

Q - Ernesto Gonzalez {BIO 23336087 }

Yes, on the JV ownership review.

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