América Móvil, S.A.B. de C.V. (NYSE:AMX) Q3 2023 Earnings Call Transcript

América Móvil, S.A.B. de C.V. (NYSE:AMX) Q3 2023 Earnings Call Transcript October 18, 2023

Operator: Good morning. My name is Daisy and I’ll be your conference operator today. At this time, I would like to welcome everyone to the America Movil Third 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. [Operator Instructions] Thank you. Now I will turn the call over to Ms. Daniela Lecuona to begin, Head of Investor Relations. Please go ahead.

Daniela Lecuona: Thank you so much. Good morning, everyone. We’re very happy to host this call this morning to discuss our third quarter financial and operating results. We have in the room Mr. Daniel Hajj, CEO; Mr. Carlos Garcia Moreno, CFO; and Mr. Oscar Von Hauske, COO.

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Daniel Hajj Aboumrad: Hi. Good morning. Thank you, Daniela. Thank you for being in this third quarter financial and operating report. And Carlos is going to make a summary of the results.

Carlos Garcia Moreno: Thank you, Daniel. Good morning, everyone. Well, buoyed by strong US economic data, particularly on employment levels and recently also on consumer spending and lingering inflation concerns, 10-year dollar interest rates shot up by approximately 80 basis points over a 10-week span in the third quarter to 4.6% at the end of September, driving another bout of dollar strengthening. By the end of the quarter, there was practically no more hope that interest rates would decline in the latter part of the year and there was instead preoccupation that the Fed was still not done raising interest rates. As you can see in the market, the rates have continued to go up through today and they are about to close to reaching 5% on the 10-year tenure.

We added nearly 3 million wireless subscribers in the third quarter of which 2 million were postpaid clients, 1.2 million in Brazil, 460,000 in Austria, which includes IoT devices from A1 Digital, 104,000 from Colombia, and 93,000 from Mexico. On our prepaid platform, we had net additions of 950,000 clients during the period. Eastern Europe led with 210,000 clients, followed by Brazil with 193,000, Colombia with 173,000, Argentina with 93,000, and Mexico with 81,000. In the fixed line segment, we gained 223,000 broadband accesses with 65,000 each from Argentina and Brazil. Voice lines and PayTV units decreased by 160,000 and 58,000, respectively. At the end of September, our subscriber base totaled 306 million wireless subscribers, of which 119 million were postpaid clients.

Additionally, we had 73 million fixed-line RGUs, which includes 32 million broadband accesses, 13 million PayTV clients, and 29 million landlines. Year-on-year, our postpaid base increased 3.7%, prepaid 0.7%, and fixed broadband accesses 3.2%, with fixed voice lines falling 2.6%, as you can see in the slide. Third quarter revenue reached MXN204 billion, a 3.3% year-on-year reduction in Mexican peso terms, with service revenue falling 4.3%. As has been the case throughout several quarters, these figures reflect the appreciation of the Mexican peso versus all other currencies in our region of operations, reducing the Mexican peso value of our international revenue. At constant exchange rates, service revenue growth expanded 3.8% and EBITDA 5%, which reflects among all things, the effect of tower sales in Mexico and Peru that took place in the period and one-off events in Austria.

Correcting for these, adjusted EBITDA was up 3.9% just about the same rate as service revenue as you can see on the slide. On the fixed-line platform, service revenue remained on trend, increasing 2.2% year-on-year, having risen from the 0.2% pace seen in the second half of last year, whereas on the mobile platform it rose 4.8%. Brazil attained a positive fixed-line service revenue growth of 0.1%. In Mexico and Colombia, fixed-line revenue decelerated, remaining stable in Austria and surging in Eastern Europe to 21% and in Central America to 5%. In both cases, it was the most rapid pace in at least one year. The slowdown in Mexico from 5.6% to 3.6% had to do with corporate network services. In fact, broadband revenue actually accelerated to 8.2% which is its best showing in a decade.

In several countries, Brazil, Peru, Colombia, and Central America, we had among the highest, if not the highest, net broadband additions in the past three years. Others including Mexico, Austria, Peru and Central America posted their most rapid broadband revenue growth in at least one year that can be seen in the chart with Brazil and Eastern Europe sustaining strong growth rates. This led to our consolidated broadband revenue expanding at the fastest rate in more than two years, which was 6.4%. On the mobile platform, revenue growth decelerated in Mexico from 6.4% to 4.6%, picked up in Central America to 9.5% from 8.8% with Brazil’s adjusting to a normal pace after a hump following the incorporation of Oi mobile clients in second quarter of 2022.

This is something that you can see here in the — on the slide. But going to fixed, it’s important to note that revenue from corporate network services has been gaining share within our revenue base. This quarter it became the second most important revenue line within the fixed-line platform after broadband services with the consolidated figure rising 6.5%. It already accounts for 19% of fixed-line services overall with this share reaching 39% in Austria, 30% in Eastern Europe, and 25% in Mexico. Our operating profit stood at MXN42 billion in the quarter, a 6.7% year-on-year reduction in Mexican peso terms which partly stems from the EBITDA decline mentioned before, but also from a 17% increase in depreciation of rights of use associated with tower leases.

Most of this effect had to do with successful renegotiation a year before of certain lease agreements in Brazil that reduced Claro’s obligations to a tower company. Our comprehensive financing cost totaled MXN30 billion, including an MXN8.8 billion net interest expense which was 3.9% lower than that registered a year before. Under other financial expenses, there is a MXN4.7 billion charge associated with the partial impairment of our stake in Claro Chile, our joint venture with Liberty Latin America pursuant to the fair value of the new JV for which under IFRS rules had to be defined within a year after its closing. Finally, our comprehensive financing costs also include a MXN12 billion foreign exchange loss in the quarter, resulting principally from a 3.8% depreciation of the Mexican peso versus the dollar in the third quarter.

Net income amounted to MXN2 billion. It was equivalent to MXN0.03 per share or $0.04 per ADR. Year-to-date, our net income totaled MXN58 billion. Through September, our net income totaled MXN58 billion, 2.9% lower than that registered year before. Capital expenditures came in at MXN100 billion in the nine months to September where distributions to shareholders reached MXN34 billion. These include share buybacks in the amount of MXN7.7 billion and dividends of MXN16 billion and were partly funded by MXN3.7 billion in dividend income. To cover all of these expenditures, but also labor obligations in the amount of MXN10 billion, we resorted to our operating cash flow of MXN115 billion and to net financing in the amount of MXN12 billion in the quarter — in the period with MXN5 billion coming in mostly from the payment of an earn-out on the [indiscernible] platform.

As of September, our net debt excluding leases totaled MXN390 billion and was equivalent to 1.4 times last 12 months EBITDA. As you can see on the chart, it was fairly flat leverage ratio. It was MXN8.3 billion higher than the figure at the end of December. Okay. Well, thank you. And I will pass the floor back to Daniel for the Q&A session.

Daniel Hajj Aboumrad: Thank you, Carlos. We can start.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question today comes from Victor Tomita from Goldman Sachs. Victor, please go ahead. Your line is open.

Victor Tomita: Hello, good morning all and thanks for taking our questions. Two questions from our side. The first one is on capital allocation. Given your healthy leverage position and cash flows, even considering your increased CapEx budget, do you have any plans to in anyway further increase cash deployments? So maybe by further increasing CapEx on fiber or by further increasing equity stakes in specific businesses as you did in Austria or by carrying out further M&A or even by increasing buybacks following the recent decline in share prices and seeing that you already seem to have increased buybacks based on the third quarter? The second question from our side would be on corporate networks. You highlighted that there was an increase in relevance of corporate networks in your global revenue mix.

Could you give us a bit more color on which types of corporate offerings have been driving that growth and on what their economics and margin profile is like compared to the more traditional consumer-focused telecom offerings? Thank you very much.

Carlos Garcia Moreno: Thank you. Thank you, Victor. Well, on the allocation of resources, there is really nothing we are looking at on the M&A front as we have mentioned before. I think we’re not looking at increasing anything more our CapEx certainly this year. And I think we will make some comments later regarding our budget for next year. But as regards the distributions, as you point out, we have been accelerating our buybacks. I’ve been reiterating on various calls that our free cash flow is very cyclical and we basically tend to get most of our free cash flow in the last three, four months of the year. So that’s typically when we would want to increase our share buybacks. If you look at the distribution or share buyback so far this year, we spent about US$100 million in the first quarter and $50 million in the second quarter, $272 million in the third quarter.

And so far this month, we’ve increased an additional $70 million. So, basically $350 million between the end of June and until so far in October. So still to go. Obviously, in addition to this, we have already paid US$200 million of dividends and we have another payment of the same magnitude that we will be expecting in the middle of November. But so, again, some we can say something on CapEx budget for next year.

Daniel Hajj Aboumrad: I can — what we discussed and we have been saying in the last year is that we have a budget of $24 billion for three years, that’s ’23 — ’22, ’23, and ’24. And so we are on that budget. We increased a little bit the CapEx this year. We haven’t finished our budget for next year, but I think we are going to accomplish with that. So what we increased this year, maybe we are going to reduce that the next year. So that’s more or less what we’re thinking. We don’t have anything extra on CapEx for 2024. So, we are on budget and we think we can do that. On the corporate network, I think that’s a segment that we are doing well. We are increasing in all the countries. And Oscar can talk a little bit about what are the new products and the products — what we’re looking is to have and to manage the networks of the customers and that’s more or less what we’re aiming for. And Oscar can tell you a little bit more on that.

Oscar Von Hauske: Yeah. Thank you, Daniel. As you say, the first step is how do we manage the network of the customers. And there is the SD-WAN technology that allow us to do this in an easiest way. So when we move the customer through SD-WAN, we are trying to bring security, cloud services as well bundled in the services. And as well we are offering what we call horizontal solutions. We are selling data lake as a services. We are selling AI as a services in our cloud. We develop what we call cloud broker that we — we are agnostic as the type of cloud that the customer wants. If the customer want hyperscaler or one over cloud, they have a dashboard that could manage both clouds in an easy way. And as well, we are getting into the private wireless network.

I’m talking about vertical solutions for mining, for retail, for manufacturing and have been well received in the market. We see a big opportunity in this — in this segment because it improves the efficiency of the customers, brings productivity. And, you know, we are all on digital transformation and these products support that evolution. That’s why we — we see that market has a very good trend in the near future. So, all overall, on summary, we’re not offering only the classic and connectivity products that it’s broadband or fixed or wireless or prepaid or postpaid or — we’re offering all these new services to all the B2B customers.

Carlos Garcia Moreno: Another is that we are fully convergent. So in our offering, we offer as well mobile and fixed altogether to the customers.

Victor Tomita: Very clear. Thank you very much.

Daniel Hajj Aboumrad: Thank you.

Carlos Garcia Moreno: Thank you.

Operator: Thank you. Our next question is from Eduardo [Ruby] (ph) from UBS. Eduardo, please go ahead. Your line is open.

Unidentified Analyst: Hi, everyone. Thank you very much for taking our question. I would like to know if you could provide an update on the Mexican regulatory environment, discuss the proponent revision and there is an additional regulatory risk for AMX, particularly on the concession given what happened in airports? And another one, if you could discuss also the spectrum prices, if you see any additional risk there too? Thank you very much.

Daniel Hajj Aboumrad: Well, on the regulatory side, I think, to make a little history, we have been having 10 years of having these regulatory measures, 10 years accomplished all the measures that IFETEL has been putting us. And — and not too much to say. Only, I think that we expect and we think that these regulatory measures should relax in the future. At the end of the day, what the markets need is investment and what the customer wants is quality, price, coverage that you attend the customer in a good way. So all these things you cannot put measures on that. So that what is happening in the last 10 years. And I think in Mexico, in a lot of our products, we have the preference of our customers. And we hope that the IFETEL take a very deep revision on what is happening on the market and we relax the measures that we have. So that’s more or less. We don’t know nothing more on that, but we hope that we have that.

Unidentified Analyst: Sure. That’s clear. Thank you very much.

Daniel Hajj Aboumrad: Thank you.

Operator: Thank you. Our next question is from Walter Piecyk from LightShed. Walter, please go ahead. Your line is open.