América Móvil, S.A.B. de C.V. (NYSE:AMX) Q1 2023 Earnings Call Transcript

América Móvil, S.A.B. de C.V. (NYSE:AMX) Q1 2023 Earnings Call Transcript April 26, 2023

Operator: Good morning. My name is Elliot, and I will be your conference operator today. At this time, I would like to welcome everyone to the America Movil First Quarter 2023 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session . Now I will turn the call over to Ms. Daniela Lecuona, Head of Investor Relations.

Daniela Lecuona: Thank you. Good morning, everyone. Thank you for joining us today to discuss our first quarter financial and operating results. We have on the line Mr. Daniel Hajj, CEO; Mr. Carlos Garcia Moreno, CFO, and Mr. Oscar Von Hauske, COO.

Daniel Hajj: Thank you, Daniela. Thank you, everyone for hosting the first quarter of ‘23 financial and operating report and Carlos is going to make a summary of the results. Go ahead, Carlos.

Carlos Moreno: Hello, everyone. Thank you, Daniel. Good morning. Throughout the first quarter dollar interest rate are volatile hovering between 3.4% and 4%, a sentiment in the U.S. has merit between relief and inflation are claiming they had come under control anguish from the potential inflationary consequences is what appeared to be an increasingly hot labor market and fear of contagion stemming from the fall of important banks in the U.S. and Europe. The value of our upgrade currencies vis-a-vis the dollar reflected the volatility, although they all ended up at the same versus the dollar and . It didn’t pay for being the only exception, mostly compared to 2.5% in Brazilian real, 4% in Colombian peso, 4.7% and the euro 1.2%.

In the first quarter, we are at 1.1 million wireless subscribers, of which 1.9 million were postpaid clients. Almost half of the new postpaid shops mainly coming from the 4,000 came from Brazil to currently 5000 from Austria, 144,000 from Colombia, and 128,000 from Peru. On our prepaid platform, we had net disconnections of 754,000 clients, as Brazil disconnected 1.4 million, including 1.6 million former Oi subs, and we’re not generating traffic. Organically we have solid growth, including Columbia with 354,000, and Brazil and Argentina, with approximately 200,000 each. On the fixed-line segment, we have 313,000 broadband accessories, including 139,000 in Mexico, 74,000 in Argentina, 47,000 in Brazil. In some of these countries, Mexico and Brazil, these were the best numbers that we have had before in broadband for a long time.

We ended March, with 301 million wireless subscribers of which 116 million were postpaid clients and 73 million fixed-line RGUs, including 31 million broadband accesses and 13 million Pay TV clients. We can insert an acceleration in excess growth, particularly in mobile, with our postpaid base increase in 8.7%, year-on-year, and prepaid platform 6%. On the fixed-line platform, broadband accesses were up to 2.6% and Pay TV was practically flat. Having recovered from the 2% decline from the year before. First quarter revenue was up 1.7% to 209 billion pesos with service revenue declining 2.2% in Mexican peso terms on account of the appreciation of the Mexican peso, versus substantially all of our operating currencies, which we do get better value for our international revenue.

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EBITDA totalled 83 billion pesos in the quarter. It was up 3.2% in Mexican peso terms. Correcting for foreign exchange effects, service revenue was up 6.3%, a slightly faster pace than in the prior quarter and the same as the prior one. The top rate of growth that we have seen in a long time as well, just more than a year 6.3% revenue growth, which brings about an EBITDA growth of 5.8% after adjusting for profits obtained from the sale of telecom towers in the Dominican Republic and Peru. So, as you can see, on the — turn the slide, the trends have been very good in terms of revenue growth and EBITDA. And both comes via exceeding the forecast that we have given back in our investor day in October of 2021. On the fixed-line platform, service revenue growth came in at 1.8% at constant exchange rate.

Its better performance in over a year, on the back of a strong expansion of broadband revenue 9.6%. On the mobile platform, revenue grew 9.3%. Mobile service revenue accounted for 62% of total service revenue. So we do see a slight deceleration in mobile revenue growth but upswing in fixed-line revenue growth, and the aggregate of the tools service revenue growth was 6.3%, one of the best rates, better in the first quarter — the fourth quarter of last year, and the bottom third quarter of last year. The improvement of fixed-line service revenue growth was driven mostly by Mexico, Brazil, and Colombia, jumping to 4.1% from minus 1.3%, the prior quarter in Mexico to minus 1.4% to minus 3.5% in Brazil, and plus 4.2% from minus 3.6% in Colombia.

Broadband revenue was up 9.6% in the quarter at constant exchange rates, while corporate net revenue increased 12%. With respect to mobile service revenue, Brazil lead the way with 21.5% followed by Eastern Europe and Mexico at 9.2% and 8.1% respectively. In deceleration we consolidated mobile revenue growth, reflect the slowdown of Colombia and Austria, with the pace of growth being reduced to 2.2% from 4.7% preceding quarter in Colombia, and to 3% from 4.9% in Austria. Brazil and Eastern Europe also lead the way in leading the growth upto 15.7% and 9.7%, respectively. They were followed by Brazil and Mexico at approximately 6% each. We turned an operating profit of 44 billion pesos in the quarter, up 9.7% year-on-year, which helped bring about a 30 billion pesos net profit in the quarter, slightly down 2.1% from the year-earlier quarter.

The decline in net income had to do with a reduction in foreign exchange gains, down from 22 billion pesos in the first quarter of 2022 to 13.7 billion pesos in the first quarter of this year. We had a significant reduction in foreign exchange gains. And that’s what explains the operating profit particularly that net income was practically flat slightly down as compared to an increase of nearly 10% in operating profit. Capital expenditures totalled 29 billion pesos in the quarter, with share buybacks amounting to 1.9 billion pesos. These items were funded by our operating cash flow, net borrowings of 2.4 billion pesos and the freeing-up of 5.9 billion pesos in assets formerly invested in our pension funds. Our operating cash flow was supported by the sale of towers in the Dominican Republic and Peru that provided 6.4 billion pesos and dividend income of 0.7 billion pesos coming from that item.

Our net debt excluding leases totalled 365 billion pesos at the end of March, having come down by 16 billion pesos from the end-of-December. It was equivalent to 1.39 times LTM EBITDAaL. So with this, I will pass the floor back to Daniel and we will start the Q&A session.

Daniel Hajj: Thank you, Carlos. We can start with Q&A.

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Q&A Session

Operator: Our first question comes from Walter Piecyk from LightShed. Your line is open.

Walter Piecyk: Thanks. Carlos, I guess the first question is on it’s kind of a weird specific ones, so I apologize I usually ask larger macro. But, if you look at Mexico your equipment revenue grew year-on-year but if you look at the subscriber growth your net ads I think were lower and churn rate was lower, so are you just selling more expensive phones in Mexico driving that a higher equipment sales?

Carlos Moreno: I think what is happening in Mexico we have the fourth quarter that it’s Christmas in Christmas last year, we sell a lot of equipment, and we have some disconnections, because people only change the equipment, they bring the same in their new equipment, and that’s why you’re seeing higher sales and changing the theme so you don’t see too many new subscribers. I think we’re doing good in selling equipment. We have a good profit, good revenue there. And overall, I think we’re doing very well on new subscribers. Also in Mexico, you’ll see the postpaid is starting to grow again, we have around 85,000 postpaid new subscribers. So I think our 5G network is doing good. We’re putting a lot of customers in this network. We are bringing also 5G in prepaid in those days. So overall, I think we’re doing good in equipment and net adds in Mexico.

Walter Piecyk: Daniel, just an overall question, I guess in the U.S., the replacement cycle is lengthening people are holding on to their phones longer. And I think that’s kind of what I was trying to understand is, I understand that in near market there’s a lot of SIM cards that are connected to gross ads, and net ads. I’m just curious, so, given the investments you’ve made in 5G, how are overall phone sales in general across the markets, whether it’s just Mexico or Brazil in general? Are they — are people holding their phones longer? Are you seeing more upgrades in your markets because of your network investments? Can you give us a sense of what that market looks like?

Daniel Hajj: When our ARPU is growing in Mexico, so you’re seeing people is using more in prepaid and also in postpaid people is upgrading their plans to a better plan for 5G, I think 5G is working very good. Also, we’re doing good financing in the handsets, we’re also financing in the prepaid market. So we’re financing postpaid for a long time, and we’re starting to do a little of financing in the prepaid and it’s bringing good sales and good customer. So that’s doing good in the cycle. I think it’s reducing — it’s getting a little bit longer — the people everybody is thinking a little bit what is happening, interest rates and everything in the economy. So people is trying to hold a little bit more for a long — a little bit more time there found, but we’re not seeing the big changes right now in Mexico and Latin America. Let’s see what happens in the next quarters.

Walter Piecyk: And I just — if you don’t mind on the capital. I’m sorry. Go ahead, Carlos.

Carlos Moreno: To make it clear that everybody is focused on this equipment revenue, we’re growing nearly twice as fast in Mexico service revenue, okay. And that’s basically a lot of what these have to do with a minimum of expenses, a lot of equipment financing that we’re providing to every insurance and that has proven to be a very good combination. We are getting a good margin on sales and we’re getting a good margin out of financing itself. So that’s something that some people do not cover.

Daniel Hajj: And I’m going to add another thing. The other thing on that is, I think, last year, the increased increase of importing handsets in the market has been growing, and with interest rates getting higher, I think the importing handsets has been reduced. So give us the opportunity to sell more through that. I don’t think the market is growing. But I think the sell is growing, selling more and more handset. It’s what is happening right now.