Telecom Argentina Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

There are 2 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 Nadia Blasi, Chief Financial Officer and myself, Chris Villaluago, Head of Investor Relations. The purpose of this call is to share with you the results of our Q1 ended on March 31, 2024. 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 imbersores.telecom.com.

Operator

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 of ongoing industry and economic regulations, possible changes in the demand for telecoms products and services, the effects of potential changes in general market and or economic conditions and in legislation. Our press release, a copy of which was included in our Form 6 ks and sent to the SEC, described 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 77718 18 of the Comision Nacionalo Valores or CMB, 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 Q1 of 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 earnings presentation. Please read the disclaimer contained in Slide 1 and Slide 2 of the presentation.

Operator

Today, we will go over our business and financial highlights and end the call with a Q and A session. Now 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. Slide 3 summarizes our highlights as of March 31, 2024. Our main operational and financial achievements were: our EBITDA margin during the Q1 of 2024 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.

Speaker 1

In the Q1 of 2024, our CapEx was approximately $122,000,000 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 5 gs. Our cash flow generation remains strong. During the Q1 of 2024, we were able to generate approximately 100 and $16,000,000 in free cash flow before dividends and interest payments. Due to the real appreciation of the peso observed during the Q1 of 2024, we've registered a net income profit of COP 675,000,000,000 associated with real exchange differences gains included in our financial results.

Speaker 1

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%.

Speaker 1

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 unit customers reached almost 1,500,000, increasing 12% year over year. Additionally, our pay TV businesses continue to grow in Paraguay. Our vintage personal pay holds a relevant market position, reaching more than 2,500,000 onboarded clients as of March 2024, while consolidating as the 2nd player in the market in terms of clients' remunerated account balances.

Speaker 1

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 $800,000,000 Revenues measured in constant pesos decreased 18% year over year as inflation remained very high during the Q1 of the year. Nonetheless, our EBITDA improved in U.

Speaker 1

S. Dollars amounted to $240,000,000 equivalent during the Q1 of 2024, an increase in 11% against the Q4 of 2023. Our EBITDA margin was 30.3%, holding steady compared with the Q1 of 2023. Telecom's mobile subscribers in Argentina amounted 21,200,000, dollars increasing more than 680,000 when compared to 2023. Broadband and Pay TV clients have totaled 4 $100,000 $3,300,000 respectively.

Speaker 1

Fixed voice subscribers considered IP telephone lines amounting $2,800,000 during 2024. 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 $116,000 respectively. Slide 5 shows our price adjustments during 2024. The accumulated inflation in Argentina for the Q3 of 2024 was 51.6%, while year over year inflation as of March reached 287.9%.

Speaker 1

We continue to adjust our prices in a monthly basis during the Q1 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 Q1. 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 percent 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.

Speaker 1

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 6th quarter in a row. Our postpaid subscriber base has increased since the Q4 of 2024 by 0.7%, reverting the decreasing trend observing during 2023.

Speaker 1

Our postpaid participation over total mobile subscribers continued to be strong, reaching 39% 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 ex DSL 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.

Speaker 1

In the Q1 of 2024, Flow's unique customers reached almost 1,500,000, 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 Q1 of 2024 amounting to over 120,000 subs. The reduction of served in our total pay TV customer base is in line with the decrease of served 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.

Speaker 1

Slide 7 shows the breakdown of our revenues. Service revenues totaled over ARS586 1,000,000,000, a decrease in 16% in real terms versus the Q1 of 2023, showing a 2 14 nominal rise mostly due to the price increases we performed. Our revenue breakdown as of March 2024 showed an increase in the participation of fixed and data services when compared to March 2023, fueled by the growth observed in our B2B segment. In the segment, contracts are set following the FX evolution. This also reflects on the increased participation of dollar linked revenues in our total service revenues.

Speaker 1

Mobile represents 41% of the revenues, broadband and pay TV adapt 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 2nd most important player in the mobile market with 2,400,000 customers.

Speaker 1

And we also have fixed broadband and pay TV offering in that country with 285,107,000 subscribers respectively. We have a fintech business in Paraguay through our digital wallet, Bicatera Personal, counting with 305,000 clients, which has been rebranded as Personal Pay since April 2024. This is our first step in the 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 times. Our operation in Uruguay is currently focused on pay TV, and we have 160,000 pay TV customers there.

Speaker 1

We have potential to grow in the local broadband market as we are obtaining licenses to offer this service in certain locations in the country. In Chile, UiCual Brands' 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.

Speaker 1

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. This business segment represent around 18% of our revenue as of the Q3 of 2024. We expect to continue increasing this figure substantially in the future. We presented the 1st connectivity cluster in rural areas. The project aims to cover an area of more than 500,000 hectares with continued connectivity, where telecom will enable the new mobile sites with 4 gs technology and IoT networks.

Speaker 1

Our B2B segment has been gaining participation in our revenues due to the fact that contracts are set following the FX evolution. This is a market where the growth potential is very high, and we expect to increase the participation of our B2B segment in coming years. We are also presenting the FinTech business with our digital wallet, Personal Pay, which currently accounts with more than 2,500,000 onboarded clients. We launched a year ago, and in an industry with exponential growth, we already have a relevant position. During this year, it has incorporated the new functionality of remunerated balances for all of its users.

Speaker 1

As of March 2024, we have funds from our clients invested in mutual funds for our COP170,000,000,000 and our FinTech is the 2nd most important in terms of clients' account balances in the market. I will now pass the call to Luis, who will go over our financial performance.

Operator

Thank you very much, Ariel. In Slide 10, we provide an overview of our main financial figures. Consolidated revenues grew by 207% on nominal terms during 2024, reaching more than MXN615 1,000,000. When analyzing said figure adjusted by inflation, revenues amounted to almost ARS684 1,000,000,000, showing a decrease of 18% in real terms versus the same figure in 2023. We increased our prices, but we also focused on maintaining our subscriber base.

Operator

And in this sense, the lag versus inflation in our revenues is explained, among others, by the effect of certain discounts and promotions, we ramp up the price increases to retain our customers in a strong competitive environment. EBITDA increased by 2 28% year over year in nominal terms, generating a nominal EBITDA margin of 32.8% during 2024, sorry. In turn, EBITDA margin in real terms was 30.3%. Additionally, our operating costs before D and A have also grown below inflation, decreasing 18% in real terms versus the 1st Q of 2023. We have continued to manage our cost structure to reduce the impact of inflation.

Operator

OpEx in U. S. Dollars represented 13.5% of our total operating expenses as of the Q1 of 2021. In March 2024, we reached the 4th quarter in a row, maintaining or increasing 4th quarterly margin compared to the same period of the year before. This is a good indicator that our pricing and cost management strategies are guiding us in the right direction, taking into account the difficult macroeconomic situation in Argentina.

Operator

Slide 11 shows the evolution of EBITDA year over year and the impact of different components of revenues and costs. During the Q1 of 'twenty four, the company was able to contain the pressure coming from inflation in most of its cost lines, as most of them experienced a decrease or remained in line when compared with inflation. Particularly, we had good results in labor costs. During this quarter, we observed that in average, salaries have increased below inflation. Salaries have started to decouple versus inflation since December of 2023, and this has contributed positively to our EBITDA margin.

Operator

We registered good performance additionally in programming and content costs, commission and advertising costs and some other items such as bad 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 maintain our EBITDA margin in the Q1 of 2024 in a year over year basis despite the increase in revenues. Slide 12 shows the company's net results and EBIT. EBIT decreased in the Q1 of 2024 due to higher D and A expenses.

Operator

The operating margin during the Q1 of 24% was minus 3.8% of consolidated revenues, and in historical figures, the same margin was 26%. Due to the result of high inflation and stable effects during the Q1 of 2024, the company had a net income of ARS 675,000,000,000. These results are financial in nature. The strong appreciation experienced by the peso in real terms during the quarter generated positive results, mainly in connection with our financial debt denominated in foreign currency. This led to positive exchange differences in real terms, which amounted to MXN 951,000,000,000 during the Q1 of 2024.

Operator

Slide 13 displays a summary of the company's CapEx, NPP and E and intangible assets during 2024, which amounted to almost ARS 105,000,000,000 or an equivalent of $122,000,000 at the official FX rate. This amount is more than 6% higher when compared to the previous year in Pakistan pesos. Our consolidated amounted CapEx for the 1st Q of 2024 represented more than 15% of our revenues. Technical CapEx was mainly composed by investments in our access network and technology. During the Q1 of 2024, 26 new mobile sites were deployed, while other 149 existing sites were upgraded.

Operator

We partnered with over 100 5 gs sites working in the 3.5 gigahertz band, and we expect to count with 200 sites as of the end of 2024. In our fixed access network, we increased the deployment new FTTH over 1200 new blocks, including the overlay of our HFC network. We also improved the upstream capacity of our HFC network by 3,000 blocks. The balance of our CapEx was allocated to installations and customer premise equipment, or CPE, which are installations and equipment in the homes of our clients and to our international operations. Slide 14 describes our cash flow generation during 2024 compared with the same period of 2023.

Operator

Our cash flow generation remained very robust, factoring in the macroeconomic situation in Argentina. It has been affected mostly by a lower EBITDA in real terms. Our cash flow generation before dividends and interest payments was equivalent to USD160 1,000,000 Slide 15 shows our key figures for 2024. The conversion to U. S.

Operator

Dollars is obtained, dividing the figures in constant pesos as of the end of each period and using the end of period spot FX for each year. Our gross debt amounted to $2,800,000,000 as of March 31, 2024. The company closed cash and equivalents for $533,000,000 having a net debt of about $2,300,000,000 We have built a liquidity reserve in U. S. Dollar denominated sovereign bonds, which have significantly increased the market value.

Operator

EBITDA for the last 12 months as of the end of the Q1 of 2024, using the aforementioned conversion method for figures invested to U. S. Dollars, was approximately equivalent to $971,000,000 Last 12 months EBITDA EBITDA, sorry, as of March 2024 in U. S. Dollars increased by 35% versus the same period as of December 2023.

Operator

This is an important increase and shows that the company's ability to recover operating profit in U. S. Dollars is high and that it is resilient to FX depreciation. Slide 16 gives more insight regarding the impact of the macroeconomic situation and our figures and the debt. After the huge devaluation occurred by the end of 2023, our main figures, among others, credit clearance and EBITDA experienced a decrease while measured in U.

Operator

S. Dollars. Because of this, our net debt EBITDA ratio increased temporarily. And in order to cope with the macro volatility during this year, in March 2024, we requested and obtained waivers from our loan's creditors, which allowed us to increase the net debt EBITDA maintenance ratio above the originally established level, raising it to 3.75 times. Thanks to our effective pricing policy and VFX stabilization, we have been able to increase our main figures measured in dollar terms, resulting in a net debt EBITDA ratio more aligned with levels before the December 2023 devaluation.

Operator

In fact, nonetheless, there is still considerable dispersion in the estimates. During 2024, the market is expecting, in general terms, a real appreciation for the peso. EBITDA might sustain in current levels if this type of macro scenario finally comes through. Lastly, we have to add additional debt to subscribe corporeal bonds. In order to sell the commercial debt generated by the restrictions to asset FX market during the past administration.

Operator

This is the solution provided by the Central Bank to address this situation. Slide 17 shows the breakdown of our financial debt. Total outstanding debt as of March 2024 amounted to more than $2,700,000,000 We currently have a very clean maturity profile. We have access to the official exchange market for other of our maturity scale according to current Central Bank regulations. As mentioned before, we have been working to increase the participation of peso denominated debt issued in local capital markets.

Operator

Nowadays, across border debt is 59% of our total debt. We expect to continue accessing the local capital markets for our potential financing needs during this year as we have been doing lately. We will also explore the possibility of executing some greater liability management transaction abroad in order to manage our longer term maturities if we find the market conditions appealing. In Slide 18, we conclude with some final remarks underlining some favorable highlights of the company. We've managed to maintain our EBITDA margin in a challenging context in Argentina.

Operator

We managed to grow our customer base in mobile and broadband and stabilize by TV in a very competitive environment. We have shown resiliency versus the FX depreciation, allowing us to strongly recover the figures in U. S. Dollars. And finally, the company's financial management continues on the right track.

Operator

We have a solid and stable free cash flow generation before dividends and interest payments, generating between $400,000,000 $500,000,000 annually during the last years, considering ordinary CapEx for each year. Our cash position is strong and is mostly denominated in U. S. Dollar investments, allowing us to lower the pace of volatility. And with this, now we are more than pleased to answer any questions you may have.

Operator

However, before we start, we would like to remind you how you can address your questions during the Q and A session, which we will open immediately. Please use the raise hand button to let us know that you want to formulate a question. We will let you know when it's your turn to speak, and we will unmute you so you can proceed with your question. Thank you very much.

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Earnings Conference Call
Telecom Argentina Q1 2024
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