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

Good morning, and welcome to Cablevision Holdings Conference Call. My name is Chris, and I will be your conference operator today. [Operator Instructions] Today, we will discuss Cablevision Holdings' First Half and Second Quarter 2022 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 have questions, please contact FIG Corporate Communications following the call. I will now introduce our speakers, Mrs. Samantha Olivieri, Head of Investor Relations. Additionally, Mr. Sebastian Bardengo, Executive Director and Chairman, will also be available for today's Q&A session. The team will be discussing the results as per the earnings release distributed last Wednesday, August 10. 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 54 (11) 4309-3417. CVH has also posted the webcast presentation that can be found at www.cablevisionholding.comm/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 general 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 call over to Mrs. Samantha Olivieri. Please go ahead.

Thank you, Chris. Good morning, everyone, and thank you for joining us. Today's call will begin with a brief macro overview and continue with a review of the company's income statements and operating results, followed by a review of the financial position. Please move to Slide 4. Argentina's economy closes its first half of the year with the most favorable trade terms in its history and Brazil growing above forecast, with the exports growing, mainly the effect of higher prices, at double digits for the second year in a row, which are expected to account for $90 billion, $35 billion above the 2020 figure. These God gifts are still shadowed by a warring inflationary acceleration and some lack of credibility regarding the fiscal monetary and foreign exchange ordering committed before the IMF. To this, let's be added, the recent change in economic authorities whose first policy segments failed to meet expectations, even though they have reaffirmed their commitment to the target of 2.5% primary deficit agreed with the IMF for the current year and the upward adjustment of interest rates carried out by both the Central Bank and the Treasury. Going into the numbers. July inflation rose to 7.4%, the highest registered this year end of the last 20 years and accumulates 46.2%, reaching 71% year-over-year. Because of this worsened dynamic, estimates for 2022 are being revised upwards and are in the range of 90% to 95% according to the Central Bank expectation survey. It is worth mentioning that unlike previous years, this price acceleration isn't the result of jumps in the official exchange rate or utility price adjustments. Although moving forward as part of the effort to tackle fiscal imbalances, the government has announced a cutback of utility prices subsidies, adding pressure to the inflation expectations. The Central Bank hasn't been able to accumulate reserves during 2022, even with the favorable trade setting mentioned before. In fact, the stock of gross reserves is currently around $37 billion, $2.7 billion below the $39.7 billion figure of the end of 2021. It is worth mentioning that during the last 45 days, the Central Bank has lost just over $5.5 billion. This decrease places the net reserves at a critical level and a priority for the new economic team. In addition to finance fiscal deficit, the government has been continuously issuing sovereign debt in local currency, which accounts for around 40% since the beginning of the year, with an increasing percentage of it being funded by the Central Bank. As of August 1, the monetary base had increased to ARS 4.4 trillion, and the liabilities of set entity had increased to ARS 6.7 trillion, 153% of the monetary base, resembling that of the months prior to 1989 hyperinflation. Since foreign exchange imbalance is always the reverse side of the monetary imbalance, this net emission is, under the current uncertainty state, the main reason for the worrying jump in the price of financial dollars. We will now continue with CVH key financials. Slide 6 shows the highlights for the first half of 2022. The company has reflected the effects of inflation adjustment adopted by Resolution 777/18 of the Commission Nationale de Valores, CNV, which establishes 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 half of 2022 includes the effects of the adoption of inflationary accounting in accordance with International Accounting Standard 29. For comparative purposes, the results restated by inflation corresponding to June 2021 contain the effect of year-over-year inflation as of June 2022, which amounted to 64%. In this presentation, we included some figures and historical value for the sake of clarity. CVH owns 39.08% stake in Telecom and is a controlling shareholder of Telecom Argentina. It consolidates 100% of its operations. In constant currency, revenues for first half of 2022 dropped 10.4% from ARS 295.2 billion to ARS 264.6 billion, mainly driven by lower service revenues. Increasingly high inflation is hard to fully pass through the prices of our services. EBITDA reached approximately ARS 80.6 billion in constant currency, a 19.5% decrease compared to first half '21, driven by lower revenues, partially offset by lower operating costs. EBITDA margin decreased from 33.9% to 30.5%. EBITDA in nominal pesos amounted to ARS 71.9 billion, 24% higher than nominal EBITDA for the first half of 2021, while inflation for the same period was approximately 64%. Net income totaled ARS 31,361 million from negative ARS 3,088 million reported during the first half of '21. The increase in net income is mainly the result of the application of the deferred income tax method, which resulted in a gain versus a loss in 2021, which had included at that time the effect of the increase in tax rate according to the law, ARS 27,630 million released on June 16, 2021, which replaced the previous tax rate of 25% and established a tax rate scale from 25% to 35%, depending on the taxpayers' taxable income and higher net financial results, partially offset by lower EBITDA. The FX lag prevented the impact of losses and results due to the revaluation of debt in dollars, as has been occurring in previous quarters. The equity shareholders' net income for the period amounted to were ARS 11,698 million and is mainly the result of CVH's stake in Telecom. CVH's own operating costs and negative financial results from holding of the bonds received as dividend at CVH level and negative foreign exchange results under IAS 29 on CVH cash and cash equivalents in foreign currency. Now let's continue on Slide 7 for a discussion of the operating results for the second quarter of 2022. Revenues in second quarter '22 decreased by 12.5%, albeit price increases for our services keeping up with the high level of inflation the Argentine economy has experienced over the past 12 months, has been a challenge. Revenues in nominal terms increased 41%, while inflation for the same period was approximately 64%. The main source of our revenues is our fixed infrastructure, Broadband, Pay TV and fixed telephony and data services amounted to 53.3% of the total, while mobile services participation stood at 39.8%. EBITDA increased by 15% year-on-year in nominal terms, representing an EBITDA margin of 26.9%, while EBITDA margin in real terms decreased to 26%. The net income for the period attributable to equity shareholders was ARS 911 million in constant, mainly as a result of CVH participation in Telecom's net income and negative financial results from holding of the bonds received as dividend at CVH level. Now let's move to Slide 8. Mobile revenues represented approximately 39.8% of our revenues and decreased 6.7% in real terms when comparing second quarter '22 versus second quarter '21. Personal Argentina clients increased 4.2% to 20.1 million, and postpaid clients amounted to 42% of the total Mobile clients. Mobile Internet usage increased, reaching an average of 5 gigabytes per user per month in the first half of the 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 9.5% to ARS 799.2 in the first half of '22, and monthly churn increased to 2.4% from 1.5% in first half '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, more than 50% of Telecom's broadband customers have a Mobile bundle. Since the rollout of the strategic CapEx plan and the converged offer, the company has turned around its trend of negative portability net addition in Argentina and has been increasing the number of subs over the last 4 years. Please turn to Slide 9. Revenues for fixed services, including Broadband cable TV and fixed telephony and data services, decreased by 14.1% in real terms, mainly driven by a decrease in fixed telephony and data services and Pay TV revenues. The Broadband business has performed well despite a tough macroeconomic environment. The number of subscribers remained stable at 4.2 million, while monthly churn was 1.5%, stable as compared to the same figure last year. ARPU in real terms decreased to approximately ARS 2,240. Price increases in September 21, January and April 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 the positive mobile portability. Around 77% of the 4.2 million broadband customers reached in second 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 decrease year-over-year. Furthermore, Flow unique customers achieved 1.2 million, up 18.6% increase from figures observed over a year ago. During the past months, Flow up version has continued to expand its penetration in areas where Personal has a great presence, mainly the Northern region of Argentina. This has allowed an increase in the capture of cable TV subscribers in regions in which the company reaches through its XDSL and FTTH network. For its content proposal, as a content aggregator, Flow includes not only linear TV series on-demand movies, documentaries and co-productions, but also music, gaming and exclusive events. Telecom began activating the ISDBT digitalization service solution to its analogical customers, which allows clients to connect to a digital service from the traditional cable connection without a decoder. This initiative will continue to expand during the second half of 2022. ARPU in real terms decreased by 13.9% to ARS 2,239.3 during first half '22, and monthly churn increased to 1.3%. Please turn to Slide 10. In August 2020, the Argentine government issued Decree 690/2020, which was 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 the regulatory agency in charge of enforcing the Decree and regulating the industry prices. Its legality has been challenged in court by the industry in general. In 2021, Telecom was granted a preliminary injunction suspending the effect of several sections of the Decree, which has been extended twice, last time in April 2022. Although we feel that a final ruling regarding the underlying issue is imperative to guarantee the health of the industry, as a consequence of such injunction Telecom, may manage the pricing policy of its services as before the Decree 690/2020. The company has been trying to offset the inflation impact on revenues and costs but with price increases suspended in 2020 and the increasingly high inflation, [ recovering to rain ] is a challenge. Year-over-year inflation as of June 30 of 2022 amounted to 64%, while inflation for the first half of 2022 amounted to 36.2%. During January and April 2022, our subsidiary, Telecom, increased prices on all of its services and again in July 2020. Broadband prices of XDSL services increased by 13%, and prices of HFC and FTTH services increased by 10%. Mobile prices were increased by 13% for postpaid and 7% for prepaid services. Pay TV prices, including premium services, were increased by 12%. Prices of fixed voice basic services were increased by 13%. These price increases have resulted in higher ARPU in nominal terms across all services, as shown on Exhibits 19 to 22. The nominal price increases were not enough to offset the interannual inflation of 64% year-over-year, 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 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, our salaries, fees for services, maintenance, materials and supplies costs, taxes and fees was a regulatory authority and programming and content costs. On Slide 11, 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 the challenging economic contents. Operating costs, excluding cost of equipment and handsets, decreased in real terms, 3.1%. Most of the company's cost components decreased in real terms reflecting efficiencies, except for salaries and other operating costs, which increased above inflation as a result of the agreements reached with different units in the first case and reopening of such agreements and mainly charges regarding settlement of some contingencies on the other operating costs. It is worth mentioning that the company has been able to reduce bad debt as a percentage of revenue from 2.7% in first quarter '22 to 2.1 -- in first quarter '21, I'm sorry, to 2.1% in second quarter '22. As a result, operating costs decreased 5.5% in real terms and driven by the reduction in revenues, EBITDA decreased by 27.7% in real terms, while margin contracted to 26%. Next slide, please. In second quarter '22, CapEx as a percentage of revenues was 18.2% lower than the same period of the previous year. Technical CapEx was mainly allocated to network and technology and customer premise equipment, or CPE. The balance was allocated to our international operations in Paraguay and Uruguay. During the second quarter '22, 7 new Mobile sites were deployed and more than 180 existing sites were upgraded. The company has been focused on expanding its FTTH network, performing an overlay with the fiber-to-the-home over the HFC network and increasing its upstream capacity. In addition, Telecom announced new regional investments, mainly in the province of Mendoza, where it will expand FTTH network in that location to almost 100,000 homes and build 58 new mobile sites to increase mobile coverage. The CapEx program will continue evolving according to Argentina's economic conditions network performance and customers' requirements. Going to the debt financial position as per Slide 15. As of June 2022, we have reported a total financial debt of ARS 338.4 billion and net debt of ARS 298.9 billion, equivalent to approximately USD 2.4 billion. 100% of the debt is at the operating level in Telecom Argentina. Of the total debt, 63.6% is dollar-denominated; approximately 30% is in Argentine pesos, including dollar-linked local emissions; and the rest is in [ Guatemanese ] and renminbi. Our U.S. dollar cost of debt is approximately 6.5%. For the rest of 2022, maturities are manageable and very low. During July, Telecom received a disbursement from the IFC for $184.5 million and canceled the total amount of the principal remaining under the term loan due 2022 for $140 million. From 2023 to 2026, debt maturities remain manageable within the range of $500 million to $600 million each year. The company expects to continue accessing the local capital markets for any potential financing needs. Net debt to adjusted EBITDA coverage ratio as of the end of June 2022 was 1.9x. During second quarter '22, our subsidiary, Telecom, paid dividends in kind for a total market value of ARS 31.6 billion or approximately $150 million, of which CVH through its direct and indirect interest received 160.7 million 2030 global bonds and 40.6 million 2035 global bonds. In turn, shareholders approved to pay a dividend in kind for the total received from Telecom and VLG Argentina SAU. The payment was executed on July 15 in the local market for a gross market value of approximately ARS 64.23 per share. That concludes our comments. We are now ready for your questions. Operator?

[Operator Instructions] At this time, it appears that we have no questions, and I would like to turn the program back over to Samantha Olivieri for any closing remarks.

Thank you, Chris. Thank you all for attending our conference call today. If you have any questions, do not hesitate to contact our IR team. Have a great day and a nice weekend.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.