Cablevisión Holding S.A. (CVH) Earnings Call Transcript & Summary

Good morning, and welcome to Cablevision Holdings Conference Call. My name is Jamie, and I will be your conference operator today. [Operator Instructions] Today, we will discuss Cablevision Holdings first quarter '22 results. This call is for investors and analysts only. Therefore, questions from the media will not be taken at this time. However, if you are a member of the media and do have questions, please contact FIG Corporate Communications following the call. I'll now introduce our speakers. Ms. Samantha Olivieri, Head of Investor Relations. Additionally, Mr. Sebastian Bardengo, Executive Director and Chairman, will also be available for today's question-and-answer session. The team will be discussing the results as per the earnings release distributed last Wednesday, May 11. If you have not received the report or need any assistance during today's call, please contact FIG Corporate Communications in New York at (917) 691-4047 or the company in Buenos Aires at (5411) 4309-3417. CVH has also posted a webcast presentation that can be found at www.cablvisionholding.com/investors. Comments made by management may contain forward-looking statements about Cablevision Holdings' future performance, plans, strategies and targets. Such statements are subject to uncertainties that could cause Cablevision Holdings' actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effects of the impact and duration of the COVID-19 pandemic, new or ongoing industry and economic regulations, possible changes in demand for Cablevision Holdings products and services and the effects of more general factors such as changes in the global market, economy or in regulatory conditions. We ask that you refer to the disclaimer in the earnings report or presentation for additional information regarding forward-looking statements. It is now my pleasure to turn the conference call over to Ms. Samantha Olivieri, please go ahead.

Thank you, Jamie. Good morning, everyone, and thank you for joining us. Today's call will begin with a discussion of recent events then will follow up with a brief macro overview and to the company's income statements and operating results followed by a review of the financial position. Before discussing our results for the quarter, let me share with you the latest news regarding the regulatory framework. Please move to Slide 4. The Argentine government issued the Decree 690/2020 later confirmed by Congress, declaring Mobile, Fixed Voice, Broadband and Pay TV as public essential services and freezing their prices until the end of 2020, while instating ENACOM as a regulatory agency in charge of enforcing the decree and regulating the industry prices. In May 2021, the second chamber of the Federal Court of Appeals on Administrative Litigation Matters granted Telecom, a preliminary injunction suspending the effects of Sections 1 through 6 of Decree 690/20 and of ENACOM Resolutions number 1466/2020, 1467/2020 and 204/21. On June 18, 2021, the second chamber of Federal Court of Appeals on the Administrative Litigation Matters results by majority to reject the extraordinary appeals filed by the National Government and ENACOM against the injunction granted in favor of Telecom. In October 2021, the same court extended the injection granted in favor of Telecom for an additional period of 6 months and again in April 2020 for an additional 6 months. As a consequence of such injunction, Telecom can manage the pricing policy of its services as before the Decree 690/2020. Having gone through the discussion of the regulatory framework, we will continue with the macro overview. Let's move on to Slide 5. As we discussed in our previous calls, Argentina's economy has gone through an unprecedented crisis worsened by the COVID-19 pandemic. This caused, among other effects, the higher fiscal -- highest fiscal deficit in the last decades and a significant monetary overhang derived from its almost entirely monetary financing, which set a high floor for inflation in 2021 and 2022. Already under the framework of a new program of extended facilities with the IMF, of which its goals are currently under evaluation by entity's technical staff we will review the economic performance so far and the prospects for the year. As shown on the graph, the economic activity has recovered in 2021, all that was lost from 2020, but is still behind 2017 levels and a mild recovery is expected for the first quarter 2022. Nonetheless, the loss of purchasing power of wages and pensions and the contractive nature of the IMF program for the private sector has triggered downward revisions of the GDP estimate for the year. It is worth noting that even though the government is citing price controls and reinforcing its intervention on the FX market as a main way to anchor inflation, prices keep accelerating at a higher-than-expected rate, increasing, on average, more than salaries, regulated tariffs and official FX rate. Inflation for the first 4 months of 2022 reached 23.1% and year-over-year inflation, as of April, reached 58%. Price index has accumulated 5 consecutive months of increase and expectations for the year according to the Central Bank expectation survey appear to place a minimum inflation rate at 65%. Unlike previous years, the price acceleration isn't the result of jumps in the exchange rate or utility price adjustments. To tackle this new acceleration of prices and in line with the IMF agreement, the Central Bank is turning the bias of its policy. Under this responsive strategy, the monetary authority has been accelerating the pace of the peso depreciation, almost 4% in April versus 2.6% on average in the first quarter '22. While at the same time, raising the nominal reference interest rates for the fourth time end of the year towards a less negative territory. We expect this dynamic of inflation beating the interest rate in pesos and the official exchange rate sliding to continue in the coming months. We will now continue with CVH key financials. Slide 8 shows the highlights for the first quarter 2022. The company has reflected the inflation adjustment adopted by Resolution 777/18 of the Commission Nationale de Valores, CMV, which establishes that the re-expression of figures must 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 '22 include the effects of the adoption of inflationary accounting in accordance with the International Accounting Standard 29. For comparative purposes, the results restated by inflation corresponding to March 2021 contain the effect of year-over-year inflation as of March 2022, which amounted to 55.1%. In this presentation, we included some figures in historical values for the sake of clarity. CVH owns 39.08 stake in [indiscernible] and its controlling shareholders Telecom Argentina, it consolidates 100% of its operations. Revenues in the first quarter '22 decreased by 8.3% in constant currency with prices for ICT services frozen for most of 2020, keeping up with the high level of inflation, the Argentine economy has experienced over the past 2 years has been a challenge. Revenues in nominal terms increased 40%, while inflation for the same period was approximately 55.1%. The main source of our revenues is our fixed infrastructure. Broadband, Pay TV and fixed telephony and data services amounted to 53.7% of the total, while mobile service participation stood at 38.7%. EBITDA reached approximately ARS 40.6 billion in constant currency, a 4.7% decrease compared to the first quarter '21, driven by lower revenues, partially offset by lower operating costs. EBITDA margin decreased from 36.3% to 34.6%. EBITDA in nominal pesos amounted to ARS 39.5 billion, 32% higher than nominal EBITDA for the first quarter '21, while, as I mentioned, inflation for the same period was 55.1%. Net income totaled ARS 23,746 million from ARS 13,890 million reported during the first quarter '21. The increase in net income is mainly the result of higher positive financial results and a positive income tax charge versus a negative figure for the first quarter '21, mainly as a result of positive deferred tax charge in first quarter '22, partially offset by lower EBIT. Increase in positive financial results was driven by inflation adjustment and FX differences over financial debt as per IAS 29 and lower interest on financial debt, partially offset by higher negative other FX differences. As we discussed in the macro overview, the FX lag versus inflation, prevented the impact of losses and results due to the revaluation of debt in dollars under IAS 29 has happened during 2021. The equity shareholders' net income for the period amounted to ARS 9,195 million and is mainly the result of CVH participation in Telecom's net income. Now let's move on to Slide 7. Mobile revenues represented approximately 38.7% of our revenues and decreased 5.3% in real terms when comparing first quarter '22 versus first quarter '21. Personal Argentina clients increased 7.3% to 20.2 million and postpaid clients amounted to 41% of total mobile clients compared to 42% in 2021. Mobile internet usage increased, reaching an average of 5 gigabytes per user per month in the quarter of this year. Thanks to the CapEx deployment, Telecom has been able to increase the number of its 4G subscribers. This rapid growth in subscribers that use the 4G network has been the main driver of data traffic increase. In Argentina, ARPU restated in constant currency decreased by 9.4% to ARS 682.5 in the first quarter of '22, and monthly churn increased to 2.3% from 1.5% in first quarter '21. The commercial strategy has been focused on achieving higher mobile portability through convergent offers and promoting the consumption of mobile internet. Up to date, 50% of Telecom [indiscernible] customers have a mobile bundle. Since the rollout of the strategic CapEx plan and the convergent offer, the company has turned around its trend of negative portability net addition in Argentina and have been increasing the number of its subs over the last 3 years. Please turn to Slide 8. Revenues for fixed services, including broadband, cable TV and fixed telephony and data services, decreased by 11.7% in real terms, mainly driven by a decrease in Pay TV revenues. The broadband business has performed well despite the tough macroeconomic environment. The number of subs increased 1.6% to 4.2 million, while monthly churn increased to 1.5%. ARPU in real terms decreased to approximately ARS 2,000.5 with prices frozen from May to December 2020, price increases in January, June, September and September 2021 and January 2022, and higher Internet speeds sold to our customer base were not enough to fully compensate the inflation. It should also be noted that due to our cross-selling strategy, fixed products have been offered with some discounts to encourage positive mobile portability. Around 74% of our 4.2 million broadband customers reached in the first quarter '22 subscribed to services with speeds of 50 megabytes or higher. Moving to the cable TV subscribers. The customer base remained stable at 3.5 million, showing a slight increase year-over-year. Furthermore, unique customers achieved 1.2 million, a 17.6% increase from figures observed over a year ago. During the past months, flow through its slow app version has continued to expand its penetration in areas where Personal has a great presence, mainly in the northern region of Argentina. This has allowed an increase in the capture of cable TV subs in regions where the company reaches to its ex DSL and fiber-to-the-home network through its content that includes not only linear TV, but serious on-demand movies, documentaries and coproductions, but also music, gaming and exclusive events. During March 2022, it broadcasted the musical festival Lollapalooza Argentina through live streaming and 4 exclusive channels. ARPU in real terms decreased by 16.7% to ARS 1,990.2 during first quarter '22 and monthly churn increased to 1.3%. Please turn to Slide 10. The company has been trying to offset the inflation impact on revenues and costs, but price increases were suspended in 2020 by a series of government decrease. And with increasingly high inflation, recovering terrain is a challenge. Year-over-year inflation as of March 31, 2022, amounted to 55.1%, while inflation for the first quarter amounted to 16.1%. During January 2022, our subsidiary Telecom increased prices on all of its services and again in April '22. Broadband prices of XDSL services increased by 12% in April on prices of the HFC and fiber-to-the-home services increased by 9%. Mobile prices were increased by 11%. Pay TV prices, including premium services, were increased by 12%. Prices of fixed voice basic services were increased by 12%. These price increases have resulted in higher ARPU and nominal terms across all services as shown in Exhibit 15 to 18. The nominal price increases were in the range of the inflation for the 3-month period of 2022, but weren't enough to offset the interannual inflation, thus resulting in lower revenues when measured in constant basis. The company will continue to monitor its cost structure, competitive environment and client behavior and household income in order to decide on future price increases to help compensate for inflation and maintain sustainability. Let's move on to the next slide for a discussion of the cost structure before we discuss quarter-over-quarter EBITDA performance. Amongst the most significant operating costs and expenses are salaries, fees for services, maintenance, materials and supplies costs, taxes and fees with the regulatory authority and programming and content costs. On Slide 12, we show the performance of EBITDA and the behavior of the different components of revenues and costs. The company continues with its efforts to expand efficiencies and has shown some positive results despite a challenging economic content. Operating costs, excluding cost of equipment and handsets decreased in real terms, 6.2%. Most of the company's cost components decreased in real terms, reflecting efficiencies, except for salaries and bad debt, which increased above inflation as a result of agreements reached with different units in the first case and the higher pressure on household income given the tough macroeconomic environment on the other. As a result, operating costs decreased 5.8% in real terms and driven by the reduction in revenues, EBITDA decreased by 12.7% in real terms, with a margin that contracted to 34.6%. Next slide, please. In first quarter '22, CapEx as a percentage of revenues, was 16% lower than the same period of the previous year. Technical CapEx was mainly allocated to network and technology and customer premise equipment, or CPE, that the balance was allocated to our international operations in Paraguay and Uruguay. During the first quarter '22, 7 new mobile sites were deployed and more than 180 existing sites were upgraded. The CapEx program will continue evolving according to Argentina's economic conditions, network performance and customers' requirements. Going to the debt financial position as to Slide 15. As of March 2022, we have reported a total financial debt of ARS 298.5 billion, and net debt of ARS 250.8 billion, equivalent to USD 2.3 billion. 100% of the debt is at operating level in Telecom Argentina. Of the total debt, 63.6% is dollar-denominated, 30.2% is in Argentine pesos, including dollar-linked local emissions and the rest is in [ Guyanese ] and renminbi. Our U.S. dollar cost of debt is approximately 6.5%. For the rest of 2022, maturities are manageable and very low. For 2022 to 2026, debt maturities remained within the range of $500 million each year. The company expects to continue accessing the local capital markets for any potential financing needs. During March, Telecom issued Class 12 and Class 13 notes in the local market for an amount of $22.7 million and $21.7 million, respectively. Net debt over adjusted EBITDA coverage ratio as of the end of March 2022 was 1.7x. That concludes our comments. We are now ready to take your questions. Operator?

[Operator Instructions] Ladies and gentlemen, it appears we have no questions at this time. I'd like to turn the program back over to Samantha Olivieri for any closing remarks.

Thank you, everyone. We would like to thank you for your interest in the company, and we are looking forward to see you again next quarter to discuss May through June results.

And ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.