Telecom Argentina S.A. (NYSE:TEO) Q1 2024 Earnings Call Transcript

Telecom Argentina S.A. (NYSE:TEO) Q1 2024 Earnings Call Transcript May 11, 2024

Telecom Argentina S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Luis Rial Ubago: Good morning. On behalf of Telecom Argentina, I would like to thank everybody for participating on this conference call. The participants of today’s conference call are Roberto Nobile, Chief Executive Officer; Gabriel Blasi, Chief Financial Officer, and myself, Luis Rial Ubago, Head of Investor Relations. The purpose of this call is to share with you the results of the first quarter ended on March 31, 2023. If you have not received a press release or presentation, you can call our investor relations office to request the documents or download them from the Investor Relations section of our website located at inversores.telecom.com.ar. I would like to go over some safe harbor information and other details of the quarter.

We would like to clarify that during the conference call and Q&A session, we could mention certain forward-looking statements about Telecom’s future performance, plans, strategies and objectives. Such statements are subject to uncertainties that could cause Telecom’s actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effects of ongoing and economic regulations, possible changes in the demand for Telecom’s products and services, the effects of potential changes in general market and economic conditions and in legislation. Our press release, a copy of which was included in a Form 6-K and sent to the SEC, describes certain factors that may affect any forward-looking statements that could be mentioned during this call.

The company has reflected the effects of the inflation adjustment adopted by Resolution 777/18 of the Comision Nacional de Valores, or CNV, which establishes that the re-expression will be applied to the annual financial statements for intermediate and special periods ended as of and including December 31, 2018. Accordingly, the reported figures corresponding to the first quarter 2024 included the effects of the adoption of inflationary accounting in accordance with IAS 29. In this presentation, we will also include figures in historical values which are easier to understand. Our press release is complemented by our next presentation. Please read the disclaimer contained in Slide 1 and Slide 2 of this presentation. Today, we will go over our business and financial highlights and end the call with a Q&A session.

Now, let me pass the call to Gabriel, CFO, who will start with the presentation.

Gabriel Blasi: Thank you, Luis. Good morning, and welcome to everyone. Slide 3 summarizes our highlights as of March 31 of 2024. Our main operational and financial achievements were our EBITDA margin during the first quarter of ’24 was 30.3%. Thanks to our effective cost management and pricing strategy, our margin remained steady in a year-over-year basis despite the challenging macroeconomic environment. In the first quarter of 2024, our CapEx was approximately $122 million equivalent to 15% of our revenues. The current focus of our CapEx is on expansion of our FTTH technology, as well as expanding our mobile network and developing 5G. Our cash flow generation remains strong. During the first quarter of 2024, we were able to generate approximately $116 million in free cash flow before dividends and interest payments.

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Q&A Session

Due to the real appreciation of the peso observed during the first quarter of 2024, we’ve registered a net income profit of ARS675 million associated with real exchange differences gains included in our financial results. This is mostly generated by the effect of macro variables over our debt in U.S. dollars. Our mobile subscriber base continues to grow increasing over 3% year-over-year. Mobile data usage measured in average monthly gigabytes per user has grown 21%. In broadband, our FTTH accesses keep growing rapidly. And during the last quarter, they have contributed to increase our customer base, while our HFC network has remained mostly stable. Flow unique customers reached almost 1.5 million increasing 12% year-over-year. Additionally, our Pay TV businesses continue to grow in Paraguay.

Our FinTech, Personal Pay holds a relevant market position reaching more than 2.5 million onboarded clients as of March 2024, while consolidating as the second player in the market in terms of clients’ remunerated account balances. We registered a strong improvement in our financial net debt to EBITDA ratio, indicating a reduction of the relative leverage at the company’s strong resilience to FX depreciation. As of March 2024, our debt split is about 60% in cross border instruments coming from more than 95% in 2018. Slide 4 shows the company figures of 2024. Telecom’s revenues totaled almost $800 million. Revenues measured in constant pesos decreased 18% year-over-year as inflation remained very high during the first quarter of the year. Nonetheless, our EBITDA improved in U.S. dollars amounted to $240 million equivalent during the first quarter of 2024, an increase in 11% against the fourth quarter of 2023.

Our EBITDA margin was 30.3% holding steady compared with the first quarter of 2023. Telecom’s mobile subscribers in Argentina amounted 21.2 million increasing in more than 680,000 when compared to 2023. Broadband and Pay TV clients have totaled 4.1 million and 3.3 million respectively. Fixed voice subscribers considered IP telephone lines amounting 2.8 million during 2024. Our regional operations remain very solid. We are the second most important player in the mobile market in Paraguay and in the Pay TV market in Uruguay with 2.4 million and 116,000 respectively. Slide 5 shows our price adjustment during 2024. The accumulated inflation in Argentina for the third quarter of 2024 was 51.6%, while year-over-year inflation as of March reached 287.9%.

We continue to adjust our prices in a monthly basis during the first quarter of 2024 in a very high inflation scenario. Even in this challenging context, the quarter-over-quarter service revenues evolution in real terms improved during the first quarter. It is important to highlight that our pricing strategy is also focused on minimizing the stress that price increases generate over our subscriber base. And in that sense, we are not passing 100% of inflation due to retention actions, mainly discounts and promotion granted to our clients. Moving to Slide 6, it shows the evolution of our products. As mentioned before, our pricing strategy has yielded good results in terms of the evolution of our subscriber base. In our mobile segment, as we mentioned before, we have observed a total increase of more than 680,000 subscribers, representing an increase of 3.3% year-over-year.

This was mainly related with good performance of our prepaid segment, where we registered a stronger customer recharge rate. We managed to increase our subscriber base for the sixth quarter in a row. Our postpaid subscriber base has increased since the fourth quarter of 2024 by 0.7%, reversing the decreasing trend observed during 2023. Our postpaid participation of our total mobile subscribers continued to be strong, reaching 39% of our total mobile customer base. In our broadband segment, we have observed growth in FTTH accesses while our HFC accesses have remained relatively steady. Thanks to this, we have been able to register growth both in the quarter-over-quarter and year-over-year comparison and stabilize our broadband subscriber base in a challenging competitive environment.

In turn, we have observed a reduction in xDSL accesses, which we are migrating to FTTH. In Pay TV, our Flow platform continued to perform well and our Pay TV accesses have remained steady quarter-over-quarter. In the first quarter ’24, Flow’s unique customers reached almost 1.5 million increasing by 162,000 clients or 12% when compared to the same period of 2023. Flow Flex, our broadband subscription modality, also delivered good results during the first quarter of ’24 amounting to over 120,000 subs. The reduction of subs in our total Pay TV customer base is in line with the decrease observed in the market as a whole for this segment. Thus, our market share has remained constant. Our fixed voice segment continued to register a reduction in accesses mainly in our traditional fixed copper network, which we are replacing partially with new IP telephone accesses over our HFC and FTTH networks.

Slide 7 shows the breakdown of our revenues. Service revenues totaled over ARS586 million has decreased in 16% in real terms versus the first quarter of 2023 showing a 214% nominal rise mostly due to the price increases we performed. Our revenue breakdown as of March ’24 showed an increase in the participation of fixed and data services when compared to March ’23 fueled by the growth observed in our B2B segment. In this segment, contracts are set following the FX evolution. This also reflects on the increased participation of dollar-linked revenues in our total service revenues. Mobile represents 41% of the revenues. Broadband and Pay TV add up to almost another 40%. The rest is composed of fixed telephone and data revenues, representing 40% of our revenues and equipment sales 4.7%.

Moving to Slide 8, it shows our regional operations. Our operation in Paraguay is performing very well. We are the second most important player in the mobile market with 2.4 million customers. And we also have fixed broadband and Pay TV offering in that country with 285,000 and 107,000 subscribers respectively. We have a FinTech business in Paraguay through our digital wallet, billetera personal counting with 305,000 clients, which has been rebranded as Personal Pay since April 2024. This is our first step in integration of our regional FinTech businesses. This operation has a strong EBITDA margin of almost 50%, while the remaining almost unlevered with a net debt EBITDA ratio of only 0.11 — 11x. Our operation in Uruguay is currently focused on Pay TV, and we have 160,000 Pay TV customers there.

We have potential to grow in the local broadband market as we are obtaining licenses to offer the service in certain locations in the country. In Chile, Ubiquo brand’s vision is to strengthen the cybersecurity business in the region and to provide solutions that best adapt to customer needs. There we are expanding our presence in the market and growing our customer base. In Slide 9, we present how we are building our digital business ecosystem. We offer B2B solutions and services to accompany the digital evolution process of companies. In response to the constant changes demanded by the market, we maintain our strategy to position ourselves as an integrated service provider for large customers by offering convergent ICT solutions, including fixed and mobile voice, data, Internet, multimedia data center and application services through sales, consulting, management and specialized and targeted post sale customer services.