América Móvil, S.A.B. de C.V. (NYSE:AMX) Q1 2024 Earnings Call Transcript

América Móvil, S.A.B. de C.V. (NYSE:AMX) Q1 2024 Earnings Call Transcript April 17, 2024

América Móvil, S.A.B. de C.V. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. My name is Candice and I will be your conference operator today. At this time I’d like to welcome everyone to the América Móvil First Quarter 2024 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. [Operator Instructions] Thank you. I would now like to turn the conference call over to Ms. Daniela Lecuona, Head of Investor Relations.

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

Daniel Hajj Aboumrad : Good morning. Welcome to the América Móvil First Quarter Financial and Operating Report. And Carlos is going to make a summary of the report. Carlos.

Carlos Garcia Moreno : Thank you, Daniel. Good morning, everyone. Thanks for being in the call. Well, the strong rally in interest rates took place in the latter part of 2023, came to an end in the first 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, rubbed off 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 first 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 affected our ability to activate clients. On the fixed-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 Columbia with 23,000. Our postpaid base increased 6.4% year-on-year, while fixed broadband accesses were up 4.8%. We continue to lose PayTV clients and fixed post lines and this has been a secular trend for quite some time. Our first quarter revenue totaled MXN203 billion pesos, with service revenue expanding 1.1% to MXN171 billion, and other revenue declining 71.7% to MXN2.4 billion.

The latter figure reflects extraordinary revenue in the first 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 fixed-line and the mobile platforms, as you can see in the slide, which improved sequentially from 3% to 5.1% on the fixed-line side and from 4.2% to 4.9% on the mobile-line side. So an acceleration in revenue growth on both fixed and mobile, which means an acceleration of service revenue growth in [América Móvil] (ph). In most of our main markets, including Mexico and Brazil, service revenue growth exceeded inflation 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 the fixed-line revenue expansion, which went from 5.9% in the precedent quarter 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 of the last five years gave way to solid broadband revenue growth. Within the fixed-line platform, corporate network revenue, which represents 21% of fixed-line service revenue, was the most dynamic business line, planning 13.5% year-on-year, followed by broadband services that were up 6.4%. On the mobile platform, 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 the year before on account of the extraordinary tower sales for the first quarter mentioned before, which affected the annual comparison. 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 financing cost totaled MXN13 billion in the first quarter.

They were close to 0 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 raised a net profit in the amount of MXN13.5 billion that was equivalent to 22 peso cents per share and 25 dollars cents per ADR. The difference vis-a-vis the year — earlier quarter, is mostly explained by the aforementioned tower sales and the difference in the foreign exchange gains/losses. In cash flow terms, we obtained net financing in the amount of MXN17 billion — MXN17.4 billion, which helped us fund our capital expenditures of MXN21.8 billion and covered MXN4.8 billion in share buybacks and MXN6.5 billion pesos in labor obligations. In the first part of every year, we have mentioned several times, we face working capital requirements that need to be financed.

And on top of it, in March we have to pay [duties] (ph) 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 [amount] (ph) 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 this year, it amounted to nearly MXN13 billion. Our share buybacks in the first quarter, which was MXN4.8 billion I mentioned before, were 2.5 times greater than those of the year earlier quarter and 9% greater than those of the first quarter of 2022. In fact, this quarter we acquired 3 times more shares than the quarter of last year than the year before.

And in terms of leverage, as you can see in the slide, it’s been very flat. We’ve been — for over a year practically flat at 1.5 times. Net debt to EBITDA, we expect that we will remain within the range that we have mentioned, which is 1.3 times and 1.5 times net debt to EBITDA. So with that I will pass the floor back to Daniel for Q&A. Thank you, Daniel.

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

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Vitor Tomita of Goldman Sachs. Your line is now open. Please go ahead.

Vitor Tomita : Hello all and thank you very much for taking our questions. We would have two questions from our side. The first one is on – the both are on Mexico, the first one is on the commercial strategy for Mexico broadband. If you could give us an update on that commercial strategy, following your investments in fiber and also amid the 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.

Daniel Hajj Aboumrad: Well, talking on Mexico, first in the peak size, I think all the big investments in fiber that we have been doing for the last three years, I think they are working and we’re having [good] (ph) — what we put in the report is that we have around 17 million fiber households, home passes, and 80% of our customers are already with fiber. So it helps a lot to reduce the churn and the customers are 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 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 fixed side. Oscar, I don’t know if you want to add something.

Oscar von Hauske: No, no, you already covered.

Daniel Hajj Aboumrad: I think that — it is working and we have the best growth of broadband subscribers this quarter since I think some years that we have more than 300,000. So it’s working less churn, good service, good speed, fiber, new packages. So all around makes a good — very good for our customers, a very good offer 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. 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.

Vitor Tomita : Very clear. Thank you very much.

Daniel Hajj Aboumrad: Thank you Vitor.

Operator: Thank you. Your next question comes from the line of [Leonardo] (ph) Olmos of UBS. Your line is open. Please go ahead.

Leonardo Olmos: Hello, can you hear me well?

Daniel Hajj Aboumrad: Yes.

Leonardo Olmos: Okay. Good morning, everyone. First of all, congrats on the revenue performance. We saw a few records in both mobile and fixed-line. Glad to see it. But also, — in terms of my questions on CapEx, we noticed Q1 had a low figure. Of course, there’s seasonality. Can you discuss a little bit how to expect seasonality of CapEx throughout 2024?

Daniel Hajj Aboumrad: We don’t hear you very well. Can you talk a little bit slowly, because we don’t hear you so well.

Leonardo Olmos: Yes. Better now?

Daniel Hajj Aboumrad: Better. Better now.

Leonardo Olmos: Okay. So, first I said, congratulations on the revenue performance. We saw a few records on mobile and fixed. Very glad to see it. And I’ll center my questions on CapEx. We noticed a low figure in Q1 and the first question is, what’s the seasonality to expect on the remaining 2024? Should we still — continue to expect the guidance to be matched? And second, going forward in 2025, do you expect the CapEx figures to go back to $8 billion per year? Thank you very much.

Daniel Hajj Aboumrad: 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, as fiber 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 billion, $7.2 billion. I think is what we said last call and we’re on track on that so that’s what we can say.

Leonardo Olmos: 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 open. Please go ahead.

Joseph Galone: 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 inflation in most of the markets. Is it just bundling? Are there price increases available there?

Daniel Hajj Aboumrad: 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 fiber. 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 are 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 Oscar can talk a little bit, what we’re doing in the corporate side that is giving us a very good increase in revenue.