Pioneer Power Solutions Q4 2024 Earnings Call Transcript

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February 25, 2025

There are 10 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to Assur's Fourth Quarter twenty twenty four Results Conference Call. My name is Melissa, and I'll be your operator. At this time, all participants are in a listen only mode. We will conduct a question and answer session toward the end of today's conference. As a reminder, today's call is being recorded.

Operator

And now, I'd like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.

Speaker 1

Thank you, Melissa, and good morning, everyone. Before I begin discussing our results, let me remind you that certain statements made during the call today may constitute forward looking statements, which are based on current management expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially, including factors that hinder beyond our company's control. Additional details about our quarterly and full twenty twenty four year results can be found in our press release, which was issued yesterday after market closed and is available on our website in Investor Relations section. Following my presentation, I will be available for Q and A. As usual, all comparison disclosed on this call will be year on year and figures are expected in Mexican pesos unless specified otherwise.

Speaker 1

Let me start with a review of Assur's operational performance for the quarter. Passenger traffic was basically flat year over year than 0.3% at 17,700,000 passengers. This brought our full year to close 71,000,000 passengers traveling to our airports in 2024. Sustained growth in Colombia and Puerto Rico largely offset weaker passenger traffic in Mexico. Now taking a deeper look at our geography.

Speaker 1

Colombia remain our strongest performance market with passenger traffic increasing in the mid teens year on year, supported by the favorable comps following the suspension of two local carriers in early twenty twenty three. Travel demand remained solid with international traffic up 29% and domestic traffic rising 7% as Avianca and LATAM Airlines continue to re selling routes lost last year. Looking ahead, we expect traffic trends to be normalized in the first quarter on the year towards the more sustainable levels of 2023. Puerto Rico was the next best market and senior to past quarters, maintaining its positive trend with total traffic up nearly 10%, supported by strong growth in international traffic up 29%, while domestic traffic was up 7%. We expect traffic in this market also normalize after benefiting from increasing operations by Frontier Airlines a year ago.

Speaker 1

Lastly, performance in Mexico remained soft as anticipated, declining 8% year on year with both international and domestic traffic down in the high single digits. Moving next to more details on the performance. International traffic continued to experience year on year declines from all regions during the quarter. Specifically, traffic from Europe decreased 6.4% from Canada Zero Point Six Percent, from The U. S, Eight Point Eight Percent and from South America by 11.1%.

Speaker 1

With respect to domestic traffic, the ongoing trapped and wind engine prescriptions, together with the air traffic capacity constraints at Mexico City Airport, in fact, since early twenty twenty four, are constraining traffic flows. In addition, Cancun Airport is slightly impacted by the initial ramp up phase of new Tulum Airport. Tulum Airport captured around 1,200,000 passengers from Cancun last year and is expected to capture another 1,700,000 this year compared to the 30,400,000 passengers that traveled through Cancun Airport last year. Net income we expect to normalize in 2026 as certain would be effect is reduced and Tulum initial ramp up concludes. From that point, we anticipate passenger traffic at Cancun Airport and Tulum Airport to grow at the pace consistent with each region dynamics.

Speaker 1

Now as we turn to the P and L, recall that all reference to revenue and cost figures are excluding construction. Total revenues for the quarter increased 19% year on year to ARS7.24 billion, reflecting a strong performance across all three regions. Colombia once again lead growth, posting a 30% increase in top line revenue, supported by raising passenger traffic. Mexico and Puerto Rico also delivered solid results with revenue growth in the low teens. Mexico, which accounted for 72% of total revenues, posted a mid teen increase in top line performance.

Speaker 1

Growth was primarily driven by a low 20% increase in agronautical revenues following the best recent tariff adjustments, while non agronautical revenues rose in the low single digits. Puerto Rico represented 15% of total revenues and delivered high 20% growth supported by some increase in both aeronautical and non aeronautical revenue, further boosted by the foreign exchange benefit from the weaker peso. Colombia contributing 12% of total revenues recorded a proposed 31% increase in top line revenue. This growth was fueled by strong performance in both aeronautical and non aeronautical segments. With revenues rising in the low 30s, both segments benefited from continued recovery in the domestic and financial traffic.

Speaker 1

Colombia has part of the strategy to expand commercial offerings. We opened 45 new commercial spaces over the last twelve months. This included 12 locations in Mexico, Five in Puerto Rico and 28 in Colombia. As a result, total commercial revenues grew in the high single digits with Puerto Rico posting a 26% increase, Colombia delivering a strong year over year growth of 31%. In Mexico, commercial revenue show a low single digit increase, marking a positive shift from the previous trend.

Speaker 1

On a per passenger basis, commercial revenue grew in the high single digits year on year, reaching MXN 130 in the quarter. This sort of performance was supported by the growth across all three markets. In In Puerto Rico and Colombia, commercial revenues for passenger rose in the mid teens, with Puerto Rico benefited from a stronger U. S. Dollar and Colombia from new openings.

Speaker 1

Mexico also posted solid growth in the Los Ingots regions to 158 pesos per passenger, also benefiting from the FX impact. On the cost front, total expenses increased 13% year on year. In Mexico, costs were up 12%, primarily reflecting the 80% increase in the concession fees mandated by the Mexican government and a 20% in minimum wages, mainly affecting cleaning and security services, both effective since January. These impacts were partially offset by a 50% reduction in terms and assistance fees. In Puerto Rico, cost increase in the high teens driven mainly by the depreciation of Mexican peso against the U.

Speaker 1

S. Dollar, West Columbia cost rose, just 7% benefiting from El Vedelsas in the provision for maintenance and conservation, which helped to mitigate overall cost pressures. Consolidated EBITDA was up 23% year on year to over ARS5 billion in the quarter, while the adjusted EBITDA margin, which includes excludes construction, improved 200 basis points to 69.7%. Driven by solid profitability across the three regions, Colombia reported the strongest performance with India, up 61%, Puerto Rico with a 39% increase, while Mexico posted an increase of 70% in EBITDA. Our balance sheet remains robust, closing the quarter with cash and cash equivalent of 1,000,000,000 with a debt to last twelve months adjusted EBITDA remaining at the negative of 0.3 times.

Speaker 1

During the quarter, capital expenditure accelerated, returning $2,500,000,000 and accounting for half of the full year of total $4,400,000,000 in 2024. Main projects during the quarter included the total construction and expansion of Terminal 1 at Encun Airport, as well as expansion of Terminal Oaxaca Airport. In Puerto Rico, expansion works at Terminal B and runway remodeling remain on track. As a reminder, all the construction activities will take place outside the operational areas to ensure no disruption to airport operations. We expect investments gradually ramp up CapEx through this year as we advance in the key infrastructure projects.

Speaker 1

Those projects include the construction and expansion of Telenagua Apekun Airport with estimated completion in 2026, while Terminal 4 is scheduled for completion by 2028. Terminal '2 is expected to see operational improvements once Terminal 1 is completed, helping to alleviate bottlenecks on the non aeronautical side of the business. This engagement will also optimize the processing of traffic to and from South America, further supporting revenue generation opportunities. Wrapping up, we closed 2024 with another strong quarter, a solid full year performance despite the navigating industry challenges such as prep and wind engine issue and capacity reductions in Mexico City. Net majority income for the year rose 33% year on year to $13,600,000,000 supported by a resilient operational performance at the Anadisik linked execution.

Speaker 1

Our results also benefited from a $2,000,000,000 foreign exchange gain, driven by the depreciation of the Mexican peso against the U. S. Dollar compared to the FX came nearly of $840,000,000 in 2023. We remain focused on strengthening our airport network through strategic infrastructure investments that enhance the passenger experience, expand commercial opportunities, support long term traffic growth and create value for shareholders. We achieved substantial progress on our strategy objectives and have a solid foundation in place, which positions Azul for continued success in 2025 and be joined.

Speaker 1

This ends my presentation remarks. Melissa, please open the floor for questions.

Operator

Thank you. Our first question comes from the line of Rodolfo Ramos with Varesco BBI. Please proceed with your question.

Speaker 2

You. Good morning. Thanks, Alonso, for taking my question. I have a couple, if I may. Can you share with us your traffic growth expectation for this year and whether you're seeing any pickup in route openings or network development by airlines specifically on the Mexico side?

Speaker 2

And then the second question is on the commercial revenue per passenger. I mean, the Mexican peso depreciation certainly helps on that front. But all else, Constan, do you expect the traffic to loom these 3,000,000 passengers that you expect now this year on a full annualized basis to cannibalize your commercial revenue per passenger? I know if you see a higher spend per passenger on that particular passenger that was cannibalized from Tudo.

Speaker 3

Thank you, Rodolfo, and good morning.

Speaker 1

In the case of the Mexican traffic, we will continue suffering from the restriction in capacity of Mexico City and the problem of Pratt and Whitney. I'm sure that you have heard what Polancia said yesterday. And basically, they are expecting to have or to continue with the prep and Whitney engine problem during next year. Of course, they have been receiving air planes in accordance with the requested airplanes they have done in the past. So it's true that we would suffer from some aircrafts to be on ground as a result of Part Time Whitney.

Speaker 1

But the situation is improving. I would say, yes, we will be affected, but not as we were affected last year. I hope that by the end of the third quarter, situation will improve in that front as well in the case of the restriction of Mexico City Airport. In terms of commercial revenues, as I said during the initial remarks, we are still suffering in the case of Terminal 2. We know that we are losing some commercial opportunities there, and we are expecting those to improve once we open Terminal 1.

Speaker 1

We expect to open Terminal 1 at the end of second quarter twenty twenty six. So for the moment, we don't see a decrease, but we know that we are losing commercial opportunities.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from the line of Pablo Ricardo with Itau. Please proceed with your question.

Speaker 4

Hi, good morning, Rodolfo. I have two questions. One is a follow-up to Rodolfo's. We have seen some press that the capacity of the Mexico City Airport should increase this year. I don't know if you heard something on that front.

Speaker 4

And the other one is on dividends. I don't know if you have some expectations in what you propose to make shareholders meet.

Speaker 1

In the case of the capacity of the restriction in the capacity of Mexico City from 52 to 43 ATMs per hour, what I have seen in the news recently is that the Mexico City Airport Manager is open to eliminate this restriction and probably to go back to the 52. Remember that we are coming from the 63. So that's why I'm expecting this to be lifted by the end of the quarter. Also, remember that next year, we have Mexico City will receive some passengers due to the World Cup that will take place in June year. So I hope that the comment will change this restriction by the third quarter.

Speaker 1

And also as Volaris has more claims, I'm sure that they will put some pressure on this front. In addition to dividends, I have prepared my proposal, and it will be sent to the Board of Directors. And I'm sure that you will hear from these on March 14. That's what I can say for the moment.

Operator

Our next question comes from the line of Stephen Trent with Citi. Please proceed with your question.

Speaker 5

Thank you very much for taking my question, Adolfo, and good morning. I know that certainly there's a lot of political rhetoric at the moment in North America. And we've, of course, seen some currency movements, which you've mentioned. Are you seeing any nuances in your international traffic flow, for example, Canadians visiting Mexico more frequently than you expected and maybe some of these folks are no longer going to Disney World or something like that. Any sort of pivots that you've noticed?

Speaker 1

Well, I'm sure that you have heard my initial remarks. In the case of international traffic for the quarter, all the regions were negative. In the case of Canadians, they were negative 0.6%, which is almost flat, I would say. I don't see any change due to the situation in The U. S.

Speaker 1

During the last quarter. The traffic was weaker. Of course, you need to understand that some of this traffic is going to Tulum. Tulum last year got around 1,200,000 passenger traffic and 75 of this was from The U. S.

Speaker 1

So if you make the math, that's basically what we are losing in terms of The U. S. Traffic. Canadians are not so much, and the other, let's say, 20% is Mexico, it's domestic traffic. But no, I have not seen any change due to the new quantics in The U.

Speaker 1

S.

Speaker 5

Appreciate that, Adolfo. And just one other quick follow-up. I wasn't sure if I heard you, but are you getting or do you expect to get any meaningful traffic flow out of Felipe Angeles, for example, if authorities do not make any adjustment in Benito Juarez air traffic movements?

Speaker 1

Well, the case of the IFR is basically traffic to and from Tulum, and I would say in the second place to Cancun. Most of the traffic is it's been managed by Viva Erugrul directly to Tulum. Also, Mexicana Airlines is having some flight there as well. The airport is growing, of course, because of the restriction in Mexico City Airport. And I hope that if the restriction is lifted, we will have some benefit there from Volaris flying directly to Cancun.

Speaker 5

Okay, very helpful. Thanks, Adolfo.

Speaker 1

You're welcome.

Operator

Thank you. Our next question comes from the line of Pablo Montalbanes with Barclays. Please proceed with your question.

Speaker 6

Hi, Alalbaut. Thanks for taking my question. Just wanted to learn a little bit more if you had any conversations on FIFA, particularly from U. S. Carriers towards capacity expansion plans into Cancun for the second half of Q3?

Speaker 7

Thank you.

Speaker 1

Well, we are in the process to receive the summer season schedule. So that should be received, I would say, in the coming weeks. So for the moment, we do not have visibility for the summer season.

Speaker 6

Perfect. And a second question, if I may. On the commercial revenues, once you do the works that are expected to be done in the MDP, is there any target on commercial revenues per passenger that you are estimating?

Speaker 1

Well, there is no specific number. It's, I would say, and we used to say internally that it's a moving target. We always want more. And that is why we are always looking for what the passenger is looking in terms of price, product and service. So what we know today is that we are losing commercial opportunities due to the lack of capacity in some commercial areas, specifically in Terminal 2.

Speaker 1

And that's why we are expanding and reconstructing Terminal 1 that, as I said before, we're expecting to be open at the end of the second quarter twenty twenty six.

Operator

Our next question comes from the line of Alberto Valero with UBS. Please proceed with your question.

Speaker 1

Thank you. Thank you for taking my question, I do for two quick follow ups on my side. Actually, I mean, one on we see that you had some rebalance met in Colombia and Puerto Rico. If you could provide a little bit of the details on these rebalance met? And also, from your expectation, how Tulum has been operating so far?

Speaker 1

How have you been the trust to Tulum versus your expectation so far? Thank you very much. Well, in the case of Colombia and Puerto Rico, I would say they are working and they are giving great results. I'm really surprised of the resilience of Puerto Rico. I was expecting the traffic to became more normal.

Speaker 1

If you see the report on the case of January, it's still strong, very strong. And Colombia, of course, is in the process to well, it has concluded process to recuperate the two elements we lost at the beginning of twenty twenty three. So we are back on track, and I hope that Colombia will continue with a normal growth in the coming quarters. That's basically what I can say for the two cases.

Operator

Thank you. Our next question comes from the line of Jens Spies with Morgan Stanley. Please proceed with your question.

Speaker 8

Yes. Thank you, Adolfo. So just one question on capacity in Cancun, like under a hypothetical scenario where international remains weak and there's an increase in capacity that the local domestic airlines want to increase to Cancun. Are there any constraints in the terminals where you service the national carriers? Or would you be able to allocate or would you need to reallocate basically your operations there?

Speaker 8

Any color on that? Appreciate

Speaker 1

it. Absolutely. Well, today we do not have restrictions in terms of operational capacity in Terminal 2. What we have is restrictions in the non aeronautical side. The capacity, I would say, in the case of the middle of the day, probably you will not find the space to have your meal.

Speaker 1

But in the case of the production upfront, we do not have problems. Of course, once Volaris recuperates its operations from the problem they have with Proton Whitney, we will need more capacity. And that's why we're constructing and expanding Terminal 1. In Terminal 2, what we have is basically Bivampolaris plus South America. So what we're intending to do is to subtract South America and move that to Terminal 1, and that will leave additional space for these two elements.

Speaker 8

All right, perfect. Thank you.

Speaker 1

You're welcome.

Operator

Thank you. Our next question comes from the line of Alan Lucius with Bank of America. Please proceed with your question.

Speaker 3

Hi, good morning, Alberto. Thank you for the call. Just a question on Mexican tariffs. Were you able to implement the increase last year? And is there any spillover that we might see for this year?

Speaker 3

Thank you.

Speaker 1

Alan, hi, good morning. I cannot hear you. Your line is coughing. So if you can repeat your question, please.

Speaker 3

Yes. Can you hear me better? Better. Yes. Just on Mexican tariffs, if you were able to implement the increase in 2024 and if we might expect some spillover for this year on Mexican tariffs?

Speaker 3

Thank you.

Speaker 1

It was basically implemented last year.

Operator

Thank you. Our next question comes from the line of Enrique Sojo with Bunder Manta Investments. Please proceed with your question.

Speaker 9

Hello, Adolfo. Thanks for my question. My My question is actually related to passenger growth. It's a bit of a double click on some things you mentioned. As you referred to last yesterday in the earnings call that they expect GTS issues to affect a significant portion of their fleet all throughout 2025, '20 '20 '6 and 2027.

Speaker 9

And

Speaker 1

Enrique, again, could you repeat your question, please?

Operator

Sorry, it seems that we've lost Enrique. We'll move to the next question. Our next question comes from the line of Gabriel Himelfarb with Scotiabank. Please proceed with your question.

Speaker 3

Hi, Alvaro. Thanks for the call.

Speaker 9

A

Speaker 1

question on Tulum. Is there any somehow offsetting mechanisms or compensating mechanisms for the traffic that is being taken from the Tulum Airport from Cancun? Thank you. Hi, Gabriel. I will not call it compensation because at the end of the day, if you go back to the regulatory regime that was published on 10/19/2023.

Speaker 1

The formula is looking forward, is not looking backward. Of course, the effects of the LUM Airport were included in those calculations. So to answer to give you a very clear response is yes, it has been included the effects of Tulum, but of course, we cannot compensate. So they were included on the MDP on last year's tenancy? Absolutely.

Speaker 9

Thank you very much.

Operator

Thank you. Our next question comes from the line of Anton Mortancatter with GBM. Please proceed with your question.

Speaker 7

Hi, Adolfo. Thank you for the call and congrats on the results. I'm sorry if this has already been asked. I have some issues with my line. But my question is related to the commercial side.

Speaker 7

I mean, we saw really good performance on the non hydroper packs growth. I was wondering, I mean, is this a result of the mix from having maybe a stronger U. S. Dollar and maybe some pent up demand or something? Or also if there has been any strategic shift in how you renew your contracts, maybe a little bit of a pricing power on that side?

Speaker 7

I'm not sure if you could provide some color there.

Speaker 1

Absolutely. Well, it has to do with the FX. You can see it very clearly in the fourth quarter results and partially on the third quarter last year results because we saw some kind of vessel devaluations since the third quarter. But of course, the most important effect was in the fourth quarter. That's basically what we have for the fourth quarter.

Speaker 1

Some effects, good results, no question about that. But I don't see any problem for the future, except that we know that we are losing commercial opportunities there.

Speaker 7

And also just a little bit of a follow-up there, Adolfo. Roughly, what amount of your commercial contracts are due each year? And are you able to renew with them with, I mean, maybe open terms? Or are those renewed with maybe fixed terms or an automatic loss or something like that?

Speaker 1

Well, there is no way to say that this year 20% of the contracts will be there. Every business line has its own term. I would say it could go from seven to three years depending on the business line. Normally, what we do is to continue with the same kind of terms, increasing, as you have mentioned, increasing prices, increasing the concession fee is not the way to maximize revenues. Probably, in some cases, could be the opposite.

Speaker 1

Remember that what we want is they to sell more and we to get more. So in that sense, the most important thing is to be able to get as much as we can in terms of sales, not in terms of prices. Perfect. That is really clear. Thank you.

Speaker 1

You're welcome.

Operator

Thank you. Our next question comes from the line of Guillermo Mendez with JPMorgan. One moment. Please proceed with your question.

Speaker 9

Hey, Adolfo, thanks for taking the question. First one is a follow-up on Toulon. You said it was included on the MDP. But can you share how it's trending when compared to your expectations it's going in line or not? And the second one, in terms of capital allocation, there was some news on the Dominican Republic asset last year.

Speaker 9

I understand it's still on hold. And if there's anything else that the company would be closer outside Mexico?

Speaker 1

Yes. In the case of Toulon, really what I can say to you is as we expected basically, probably not so strong. Let me say this year, probably originally, we're expecting around $3,000,000 I'm saying $2,900,000 for this year, and that will be the ramp up for Tulum. So the ramp up between 24 and $25,000,000 and from there, Tulum will have to grow as the dynamics of the region. In the case of Dominican Republic, we do not have any update.

Speaker 1

We continue with the legal process there, and I hope that we will have some results during this year.

Speaker 9

Okay. Thank you. And just to confirm, anything else outside Mexico and outside Dominican Republic that you would consider?

Speaker 1

Well, of course, we want to consider all. We review all the projects that are there. But for the moment, I would say, I do not have any significant product in front of me in the short term.

Speaker 9

Perfect. Thanks very much, Adolfo.

Speaker 1

You're welcome.

Operator

Thank you. Our next question comes from the line of Enrique Sojo with Fundamenta Investments. Please proceed with your question.

Speaker 9

Apologies. My line dropped. Were you able to listen to me?

Speaker 1

No, I can hear you.

Speaker 9

Okay. Thank you. My question is actually kind of a double click on some things you mentioned, more specifically Volaris. As you mentioned yesterday stating in the earnings call, they are 3.5 GTF engines for this year and next year and possibly 2027. And they have moreover renegotiated the aircraft to the risk of the Airbus to further slow down capacity increases.

Speaker 9

Do you believe that this new information significantly hinders growth in the short to medium term? Do you think it may be indicative of more weak domestic market and players? Thank you.

Speaker 1

Yes, Enrique. Well, what is important for us is the additional capacity they are including as we speak, not just Polaris, also in the case of Iberia and in the case of Aeromexico. If you see the report of Polaris, of course, I'm not so sure that what they report is the operational aircrafts. But if you see the report at the end of twenty twenty three, they reported 130. At the end of twenty twenty four, they reported 143.

Speaker 1

So if we just use those two numbers, we will say they have more aircrafts that in comparison to what they had before Pratt and Whitney. The problem with those two numbers is that we don't know how many of those are in the shop. Also, it has been announced yesterday by them that some of the aircrafts that have already been recalled will have to go again for some additional works. So that is why I said during my remarks that next year, we will see the problem will feel there. Of course, in a more smaller manner, my expectation is that these first three quarters are going to be the last strong effects from Pratt and Whitney in the case of Polaris.

Speaker 9

Great. Thank you very much.

Speaker 5

You're welcome.

Speaker 6

Thank

Operator

you. Mr. Castro, it seems there are no other questions at this time. I'll turn the floor back to you for any closing comments.

Speaker 1

Thank you, Melissa. And thank you all of you again for joining us today for this fourth quarter twenty twenty four conference call. We wish you a good day and goodbye. Now you may disconnect.

Operator

Thank you, ladies and gentlemen. This concludes today's conference call.

Speaker 7

You may

Operator

now disconnect.

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