Telecom Argentina Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 10, 2023

There are 5 speakers on the call.

Operator

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 Ariel Blasi, Chief Financial Officer and myself, please, the Aloago. The purpose of this call is to share with you the results of the 9 month period and Q3 of fiscal year 2023 ended on September 30, 2023. If you have not received our 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 investors.

Operator

Telecom.com. I would like to go over some Safe Harbor information and other details of the call. We would like to clarify that during the conference call and Q and 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 Following industry and economic regulations, possible changes in the demand for telecoms, products and services, the effects of potential changes in general market and our economic conditions and in legislation. Our press release dated November 9, of 2023, a copy of which was included in our Form 6 ks and sent to the SEC, describes certain factors that may affect any forward looking statements that could be mentioned during this call.

Operator

The company has reflected the effects of the inflation adjustment Adopted by Resolution 7seveneighteen of the Comision Nacional de Valores or CMV, which establishes that the re expression will be applied to the annual financial statements for interim and special periods ended as of and including December 31, 2018. Accordingly, the reported figures corresponding to the 9 months period of 2023 included the effects of the adoption of inflationary accounting in accordance with IIS 29. In this presentation, we will also It includes figures in historical values, which are easier to understand. Our press release is complemented by Orani's presentation. Please read the disclaimer contained in Slide 1 and Slide 2 of this presentation.

Operator

Today, We will go over our business and financial highlights and end the call with a Q and A session. Now please let me pass the call to Gabriel, our CFO, who will start with the presentation.

Speaker 1

Thank you, Luis. Good morning, and welcome to everyone. Moving to Slide 3, it summarizes our highlights So September 30, 2023, our main operational and financial achievements were: Our EBITDA margin during 1st 9 months 23% was 28.8%. We managed to keep the margin steady On a year over year basis, and we observed an expansion quarter over quarter. In the last 12 months, As of September 2023, our CapEx was approximately USD644 1,000,000 equivalent to 16% Although we have faced certain delays due to a tighter import restrictions in Argentina, We are successfully executing our CapEx plan.

Speaker 1

Our focus is now on expansion of our FTTH technology as well as developing Our cash flow generation remains strong despite the challenging context. During the 1st 9 months of 2023, We were able to generate approximately $494,000,000 in free cash flow before dividends and interest payments. This represents an improvement of approximately $125,000,000 compared to the same period in 2022. We continue to implement price increases on a monthly basis. This has contributed to improve the service revenue trend in real terms, Even in a rising inflation scenario, our mobile subscriber base continues to grow, increasing almost 4% year over year.

Speaker 1

Mobile data usage measured in average monthly gigabytes per user has grown 13%. In broadband, our FTTH FTTH accesses keep growing rapidly, while our HFC network has remained stable. During the last quarter, New FTTH access is contributing to stabilize our customer base and has grew other technologies. Flow unit customers reached almost 1,400,000, increasing 9% year over year. Additionally, Our paid TV business continued to grow steadily Paraguay.

Speaker 1

Our fitness personal pay continues to grow, Reaching almost 5,600,000 of aborted clients as of the 1st 9 months 2023. 5 gs inception is underway. We acquired 100 megahertz of spectrum in the 3.5 gigahertz span and we currently account with 2.45 gs sites, Most of them working with DSS technology. During this quarter, we canceled our most important debt commitments for the year And our maturity profile remains clear for the last quarter. Moving to Slide 4, it shows the company figures for the 1st 9 months of 2023.

Speaker 1

Telecom's revenues totaled almost $3,000,000,000 Revenues measured in constant pesos decreased 8% year over year As we have improved our path through inflation to our revenues, we generated $850,000,000 equivalent in terms of EBITDA. Our EBITDA margin was 28.8%. Telecom's mobile subscribers in Argentina amounted to 20,800,000, Increasing more than 750,000 when compared to the 1st 9 months of 2022. Broadband and Pay TV clients have totaled 4,100,000 and 3,400,000, respectively. Fixed voice subscribers, considering IP telephone lines amounting 2,900,000 during the 1st 9 months of 2023.

Speaker 1

During the same period, our total convergent unique customers Increased to $2,300,000 from $2,100,000 Up to date, 46% of our broadband customers have a mobile bundle. Our regional operations remain very solid. We are the 2nd most important player in the mobile market in Paraguay and in the pay TV market in Uruguay With $2,400,000 and $121,000 respectively. Moving to Slide 5, it Shows our price adjustment during 2023. The accumulated inflation for the 1st 9 months of fiscal year 2023 was 103.2 percent and year over year inflation in Argentina as of September 2023 has been 100 38.3 percent.

Speaker 1

Since March 2023, we have adjusted our pricing policy responding to a rising inflation scenario, Moving to monthly price increases. We have increased both the frequency and magnitude of our price increases to improve our pass through of inflation to our service Revenues in an increasingly complex environment. Thanks to these measures and although we continue to observe lag versus Inflation, we have been able to improve our revenue strength in real terms as of the Q3 of 2023. Slide 6 Shows the evolution of our products. In our mobile segment, we have observed a total increase of almost 659,000 subscribers, Representing an increase of 3.8% year over year.

Speaker 1

This was mainly related with a good performance of our prepaid segment, Where we registered a stronger customer recharge rate. We managed to increase our subscriber base from the Q4 in a row. Our postpaid customer base has been registering a down selling to prepaid, not affecting the overall mobile customer base. Our postpaid clients make up 39% of our total mobile client base. Our broadband accesses Have decreased by almost 128,000, minus 3% year over year, explained mostly by a reduction in It's XDSL accesses.

Speaker 1

In turn, growing FTTH accesses has contributed to keep our broad Customer base is stable and outgrew other technologies. At the same time, our HFC segment remains stable. Our client base with Internet speed of 100 megabytes or more increased by 79%. Despite the reduction Of 142,000 pay TV subscribers, which represent a 4.3% decrease year over year, our Flow Platform continues to perform well and our pay TV accesses have remained steady quarter over quarter. In the 3rd Q 'twenty three, Flow's unit customers reached 1,400,000, increasing by 112,000 total clients or 9% When compared to the same period in 2022, 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.

Speaker 1

Slide 7 shows the breakdown of our revenues. Service revenues totaled ARS679,000,000,000, decreasing 9% in real terms versus the 1st 9 months of 2022, Showing a 96% nominal rise, reflecting the strong influence of the price increases we performed. Our revenue breakdown as of September 2023 showed an increase in the participation of mobile services, Equipment sales at broadband when compared to September 2022. Mobile and broadband are the segments where we Being able to greatly improve the pass through inflation to revenues. The breakdown is as follows: mobile revenues, 40.6% Broadband revenues 21.5 percent pay TV revenues 18% fixed telephone and data revenues 11.8% Equipment sales revenues 7.3%.

Speaker 1

In Slide 8, we describe the main trends in our mobile and broadband businesses. During the 1st 9 months of 2023, personnel debt inflow of postpaid mobile clients has remained stable. Mobile Internet usage has continued increasing, reaching an average 5.6 gigabytes per user per month During the 1st 10 months of 2023 and growing over 30% year over year. Additionally, we continue to increase our average broadband speeds. 88 84% of our total subs have speeds of at least 100 megabytes per second compared to 46% during the 1st 9 months of 2022.

Speaker 1

Additionally, we have observed growth in FTTH connections, which increased by 75% versus 1st line month of 2022. Slide 9 shows our regional operations. Our operation in Paraguay is performing very well. We are the 2nd most important player in the mobile market with 2,400,000 customers and we also have a fixed broadband and pay TV offering in that country with 264,000 and 104,000 subscribers, respectively. We have a fintech business in the countries of our digital wallet, Pigertera Personale, which counts with 283,000 clients.

Speaker 1

This operation has a stable EBITDA margin of almost 50%. Our operation in Uruguay is currently focused on Pay TV, And we have 121,000 pay TV customers there. During the last year, we started our cybersecurity business in Chile Under the brand name U Equal, we are expanding our presence in the market and growing our customer base. Slide 10 will present how we are building our digital business ecosystem. We offer B2B solutions and services to accompany The digital evolution process of the companies.

Speaker 1

Our main products include connectivity, cybersecurity solutions, cloud solutions And data center services, digital tools to enhance productivity and Internet of Things services, which include Special custom tailored solutions for connectivity and remote monitoring in the agriculture segment. We are also Present the FinTech business, we have our digital wallet, Personal Pay, which currently has more than 1,600,000 customers on boarding. During this year, it has incorporated a new functionality of loan generated balances for all its users. We currently have funds From our clients invested in mutual funds for over ARS 31,000,000,000. Through personal smart home, we provide automotive services, Solutions and equipment for home monitoring, security, digital interconnection and automation.

Speaker 1

Finally, Tienda Personale is our retail store Well, clients can acquire a wide variety of electronic devices. I will now pass the call to Rodrigo Luebago, who will go over our financial performance.

Speaker 2

Thank you, Gabriel. In Slide 11, we provide an overview of our main financial figures. Consolidated revenues grew by 98% on nominal terms during the 1st 9 months of 2023, Reaching more than ARS 732,000,000,000. When analyzing said figure adjusted by inflation, revenues amounted to more than ARS 1,000,000,000,000, showing a decrease of 8% in real terms versus the same figure of 2022. This lag of suspension is explained, among others, by the effect of certain discounts and promotions we grant after price increases to retain our customers in a strong competitive environment.

Speaker 2

But most importantly, the adjustments we have done in pricing policy proved effective at this lag versus inflation Before D and A, I've also grown below inflation, decreasing 8% in real terms versus the 9 months of 2022. We have continued to manage our cost structure in order to reduce the impact of inflation. During the Q3 of 2023, We managed to increase our margin in a considerable proportion when compared to the same period the year before. This is a good indicator that our pricing and cost management Strategies are guiding us in the right direction. Slide 12 shows the evolution of EBITDA year over year and the impact Of the different components of revenues and costs.

Speaker 2

During the 9 months of 2023, the company was able to contain the pressure coming from inflation In most of these cost trends, as most of them experienced a decrease or remain in line when compared with inflation. We observed good results in labor costs, programming accounting costs, interconnection costs and some other items such as hard debt. The company's efforts have been very successful As evidenced by most cost lines keeping the same share of our revenues, with almost every cost line decreasing more than our revenues in real terms. This allowed us To increase our EBITDA margin for the 1st 9 months of 2023 in a year over year basis. Slide 13 shows the company's net results and EBIT.

Speaker 2

We registered an improvement in the 9 months of 2023, mainly

Speaker 3

due to

Speaker 2

the fact that in the 9 months of 2022, The company recognized an impairment of goodwill amounting to ARS 495,000,000,000 in the currency as of September 23, that was allocated to depreciation and amortization and impairment of our fixed assets. The operating margin during the 9 months of 2023 was minus 5% of consolidated revenues. In historical figures, the same margin was 20.6%. In the 1st 9 months of 2023, the company had a net income of almost ARS 85,000,000,000 mainly due to a positive net financial result ARS61,500,000,000 driven by inflation adjustment gains and positive FX results in real terms To a positive income tax of MXN76,000,000,000. Slide 14 displays a summary of the company's CapEx in PP and E And intangible assets in the 1st 9 months of 2023, which amounted to more than ARS 147,000,000,000 For an equivalent of $421,000,000 at the official FX rate.

Speaker 2

This amount is 17.5% lower when compared to the Last year period, our consolidated amount of CapEx for the 9 months of 2023 amounted to around 40% of our total revenues. Notwithstanding the fact that we observed certain layers in seasonality in our CapEx, our investment level was influenced by tire import restrictions in the 9 months of In our oil and spite of this situation, we are on good track to execute our CapEx plan for this year and the performance of our network is currently very solid. Technical CapEx was mainly composed by investments in our access network and technology. Our investments are mainly geared to our access network. In the 1st 9 months of 2023, 97 new mobile sites were deployed while other 100 And while other 1084 system sites were upgraded.

Speaker 2

Additionally, up to date, we count with 2.45 gs sites, most of them working under DSS technology. In our fixed asset network, We increased the deployment of new FTTH over 15,000 new blocks, including the overlay over our HFC network. We also improved the upstream capacity of our HSE network by over 11,000 blocks. The balance of our CapEx Allocated to installations and customer premise equipment or CPE, which are installations and equipment in the front of our clients and to our international operations. In Slide 15, we expand on 5 gs and the spectrum auction.

Speaker 2

In August, Enacom approved the 5 gs spectrum auction in Argentina. On October 24, we acquired 100 megahertz spectrum block in the 3.5 gigahertz band for $350,000,000 to be paid in pesos at the official FX rate. We have initiated payments related to the frequency bonds following the scheduled statutory action This new one allows us to have a greater efficiency in the use of our spectrum holdings and to encompass the growth in data traffic coming from greater Usage from our customers. 5 gs holds strategic significance offered, improved customer experiences based on enhanced Mobile broadband capabilities, fostering our competitive position and market penetration and also enabling higher opportunities Capacity, reduced latency, network slicing and higher overall reliability of the mobile network open new doors to interesting business use cases. The transition to 5 gs architecture brings exciting opportunities for various economic sectors, including agriculture and oil and gas, both important sectors In Slide 16, we describe open cash flow generation during the 1st 9 months of Our cash flow generation was very robust.

Speaker 2

Despite experiencing a lower EBITDA In real terms, our free cash flow has increased due to our reduction in CapEx and working capital gains during this period. During the 1st 9 months of 2023, our free cash flow before dividends and interest payments amounted to approximately $494,000,000 which represents an improvement compared to the same period in 2022. Slide 17 shows the breakdown of our financial debt. Total outstanding debt as of September 2023 amounted to almost $2,600,000,000 In the 3rd Q of 2023, we canceled our most important cross border debt commitments for the year, significantly clear our maturity profile for the remainder of the year. Almost 75% of the remaining maturities for this year are denominated in pesos, which can be easily refinanced in the local capital markets and with local financial Institutions taking into account the solid credit profile of telecom.

Speaker 2

Moreover, we are able to cover almost 50% of our consolidated foreign debt interest payments with EBITDA generating in an operation in Paraguay. As we have been working to deconcentrate our maturity profile, the remaining maturities going forward remain manageable. Slide 18 shows our key figures for the 1st 9 months of 2023 and constant measuring unit converted to the effects of each year. Our gross debt amounted to $2,600,000,000 as of September 30, 2023. The company closed cash and equivalents for the same period In the order of $389,000,000 having a net debt of about $2,300,000 Our net debt to EBITDA ratio as of September 2023 was 2.07x, improving quarter over quarter.

Speaker 2

Our EBITDA margin for the last 12 months is on the same level as the one observed during the fiscal year, 2022 being 27.5 In Slide 19, we conclude with some final remarks, underlining some favorable highlights about the company. We are improving the pass through of inflation to our revenues while minimizing the impact in our customer base. We managed to maintain our EBITDA margin in a challenging context in Argentina. Our EBITDA also shows resiliency versus the FX depreciation, Even with a nominal FX pricing 36% quarter over quarter, we managed to increase our EBITDA in U. S.

Speaker 2

Dollars for the last 12 months As of September 23, in comparison with the same last one months figure in U. S. Dollars as of June 2023. And we have a proven ability to pass inflation through revenues and perform cost management. This indicates that in the midterm of mismatch against the effects, Rate is not significant.

Speaker 2

We are strategically developing future technologies, 5 gs, FTTH, And we are also creating our digital ecosystem. Our financial condition is very strong. We have a manageable maturity profile, and we have kept our leverage steady. We increased the participation of local financing, which has allowed us to take advantage of lower cost of financing And to offset the increase in the base rate of our floating rate debt solven. Finally, We continue to provide long term value for our investors.

Speaker 2

We have a solid and stable free cash flow generation, generating $500,000,000 to $600,000,000 equivalent annually during the last 3 years. Our weighted average EBITDA in 2018 has been 7.7% and we have paid a dividend every year since the merger. So with this, we now are more than pleased to answer any questions you may have. However, before we start, we would like to remind you how you can So as we don't have any questions upcoming, I would like to thank you very much for participating. I'm sorry.

Speaker 2

We have one from just in the nick of time, Marcelo. So We have a question coming from Marcelo Santos from JPMorgan. Marcelo, We will unmute you so you can proceed with your question. Thank you very much.

Speaker 4

Thank you very much. Sorry, I got messed up in raising my hand. So that's why I Almost missed the opportunity. Thank you so much for allowing me to make questions. First question is, if you could please provide a competitive environment update On both the broadband and the mobile segments in Argentina?

Speaker 4

And the second question, if you could discuss a bit

Speaker 3

Hi, Marcelo. Thank you for the question. This is Roberto. Regarding the competitive environment in Argentina, in terms of mobile, As you can see, there's the situation is very stable. The main issue today and you've seen that despite that we are growing in terms of mobile There has been a change in the composition because of the restrictions of The high inflation and the domestic economies of our customers, There's a migration, a small migration from our customer base into prepaid.

Speaker 3

That could be the main factor in Argentina today. But The stock of customers is still growing. So that's on the mobile. So competition is not that aggressive. We are all increasing prices on a monthly basis, I would say, trying to catch up with inflation.

Speaker 3

And that's probably the it's a healthy industry, I would say. On the Fixed broadband, still we are facing some high competition from Newcomers, but that has been offset. If you take a look into our last Our quarter, we have been growing our customer base. The Q1 of the year, and this Back to our conversation last call. The Q1 was a really Difficult quarter for us in terms of broadband subs.

Speaker 3

We have a huge Impact of price increase because we were not doing it on a monthly basis. We did straight In one big jump in terms of price, price increase and that hit Our customer base a little bit, but that has been restored and our customers And I told you last quarter that we were expecting our customer base to be 0 In terms of changes at the end of the year, and we are committed to do that. So I would say that despite the competition, The fixed broadband is healthy too. I mean, we're all Pushing our prices into trying to catch up with inflation and our Service is improving a lot. As you see, we are improving a lot in terms of capacity and in terms of Speed and quality of broadband.

Speaker 3

So we are keeping we are still And we will keep being the leader in the broadband fixed broadband Vertical and of course, we are still the best service in the mobile. And that's we have been very, very good at The measures on Ocla and OpenSignals for the last quarters and that has been kept very well. The second question?

Speaker 2

It was regarding the fiber rollout in Paraguay.

Speaker 3

Fiber rollout in Paraguay is still I mean, We will start working on improving our penetration in our networks, but Penetrations on what we have already deployed are very good, but we still need we think that there is room for growth there. So for the next year, we will I wouldn't say stop. We will not stop For sure, but we will reduce the number of blocks that we will deploy. But we will our

Speaker 2

So now we don't have any further questions for the moment. So thank you very much for participating in our quarterly conference call.

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Telecom Argentina Q3 2023
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