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

Good morning, and welcome to Cablevision Holdings Conference Call. My name is Chad, and I will be your conference operator today. [Operator Instructions] Today, we will discuss Cablevision Holdings 9 months and third 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 Big Corporate Communications following the call. I will now introduce our speaker, Ms. Samantha Olivieri, Head of Investor Relations. The team will be discussing the results as per the earnings release distributed last Thursday, November 10. If you have not received the report or need assistance during today's call, please contact Big Corporate Communications in New York at (917) 691-4047, or the company in Buenos Aires 54 (11) 4309-3417. CVH has also posted the webcast presentation that can be found at www.cablevisionholding.com/investors. Comments made by management may contain forward-looking statements about Cablevision Holding's future performance, plans, strategies and targets. Such statements are subject to uncertainties that could cause Cablevision Holding's actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effects of the impact and duration of Eastern Europe conflict, new or ongoing industry and economic regulations, possible changes in demand for Cablevision Holding's products and services and the effects of more general factors such as changes in general market, economic or in regulatory conditions. Please 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 Ms. Samantha Olivieri. Please go ahead.

Thank you, Chad. 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. As we've been describing in the past quarterly presentations, Argentina's economy continues to register acceleration in the inflation rate. In addition, the attempt to bring the interest rate and exchange rate closer to inflation result in an acceleration in the nominality of the economy, which if continues could challenge the Central Bank's ability to maintain the level of reserves. Going into numbers, September inflation rose to 6.2%, somewhat lower than the previous month, which registered a record high in July and accumulates 66.1%, reaching 83% year-over-year. Estimates for 2022 are being revised upwards and are entering the triple-digit terrain according to the Central Bank expectation survey. Current estimates for 2023, in the best case scenario, are of a non-GDP growth following a 4.5% growth expected for the current year and 100% inflation rate. Given the scenario, there seems to be some level of consensus between the governing party and the opposition about the need for a stabilization plan to anchor general prices. Any stabilization plan must initially correct relative prices, including official FX rate, while ensuring a quick closure of the fiscal deficit that puts an end to the direct monetary financing of the treasury, whether by Central Bank transfers or dividends or undirect through purchase of sovereign debt. This must come hand-in-hand with the prices and salaries agreement to bring an end to the indexation of salaries and pensions. The presentation in agreement with the IMF staff of a consistent monetary and fiscal road map for the years to come would contribute to anchor expectations about the future economic performance. We will now continue with CVH key financials. Slide 6 shows the highlights for the 9 months 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 peers ended as of, and including December 31, 2018. Accordingly, the reported figures corresponding to the 9 months 2022 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 September 2021 contain the effect of year-over-year inflation as of September 2022, which amounted to 83%. In this presentation, we included some figures and historical values for the sake of clarity. CVH owns 39.08 stake in [ TA ] and its controlling shareholder of Telecom Argentina. It consolidates 100% of its operations. In constant currency, revenues for 9 months '22 dropped 12.2% from ARS 536.2 million to ARS 471 billion, mainly driven by lower service revenues. Increasingly higher inflation is hard to fully pass through to prices for our services. EBITDA reached approximately ARS 14.7 million in constant currency, a 22.6% decrease compared to 9 months '21, driven by lower revenues, partially offset by lower operating costs. EBITDA margin decreased from 32.5% to 28.6%. EBITDA nominal pesos amounted to ARS 107.1 billion, 24% higher than nominal EBITDA for 9 months '21, while inflation for the same period was approximately 83%. Net income totaled negative ARS 131,999 million from ARS 2,548 million reported during 9 months '21. The decrease in net income is mainly the result of an impairment loss of the goodwill asset of ARS 174,558 million following a revision of the recoverable value estimation of the goodwill generated by the merger between Telecom and Cablevision in 2018 given the current macroeconomic and market environment, and lower EBITDA, partially offset by lower income tax as a result of the application of the deferred income tax method, which resulted in a gain versus a loss in 2021, and higher net financial results. 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 loss for the period amounted to ARS 80,988 million and is mainly the result of CVH's stake in Telecom and adjustments of the goodwill generated by the merger at the CVH level. Now let's continue on to Slide 7 for a discussion of the operating results in the third quarter '22. Revenues in third quarter '22 decreased by 15.9%. Abate price increases for our services, keeping up with high levels of inflation in the Argentine economy has experienced over the past 12 months has been a challenge. Revenues in nominal terms increased 49%, while inflation for the same period was approximately 83%. The main source of our revenues from fixed infrastructure broadband, Pay TV and fixed telecom and data services amounted to 51.7% of total, while mobile service participation stood at 40.9%. EBITDA increased by 24% year-on-year in nominal terms, representing an EBITDA margin of 25.3%, while EBITDA margin in real terms decreased to 24.5%. The net loss for the period attributable to the equity shareholders was ARS 95,256 million in constant basis, mainly as a result of CVH participation in Telecom's net income and adjustments of goodwill generated by the merger at CVH level. Now let's move on to Slide 8. Mobile revenues represent approximately 40.9% of our revenue and decreased 9.5% in real terms when comparing third quarter '22 versus third quarter '21. The Personal Argentina clients increased 2.4%, 20 million and postpaid clients amounted to 43% of total mobile clients. Mobile Internet usage increased, reaching an average of 5 gigabytes per user per month in the first 9 months of 2022. 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 9.9% to ARS 936.5 in 9 months '22, and monthly churn increased to 2.5% from 1.6% in 9 months '21. The commercial strategy has been focused on achieving higher mobile portability through convergent offers and promoting the consumption of mobile Internet. Update, [ 52% ] of telecom's broadband customers have a mobile bundle. Since the rollout of the strategic CapEx plan and the convergent offer, the company has turned around its strength of negative portability net addition in Argentina, and has been increasing the number of subs over the last 4.5 years. Please turn to Slide 9. Revenues for fixed services, including broadband, cable TV and fixed telephone and data services decreased by 20% in real terms, mainly driven by the challenging inflationary dynamic. Broadband 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 2,642. Price increases in September 21, January, April and July '22, and higher Internet speeds sold to our customer base were not enough to offset 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 79% of our 4.2 million broadband customers returned third 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, [indiscernible] customers achieved 1.3 million an 18.3% increase from figures observed over a year ago. During the past months, flow, through its flow out 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 subscribers in region in which the company reaches through its XDSL and Fiber-to-the-Home network. Through its content proposal as a content aggregator, flow includes not only linear, serious, on-demand movies, documentaries and coproductions, but also music, gaming and exclusive events. In addition, as a step forward into the technological evolution of platform that on 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 rest of 2022. Furthermore, during this quarter, Telecom launched Flow Flex, a prepaid flexible pay TV service that enables clients to hire the service for a few days period. ARPU in real terms decreased by 18.1% to ARS 2,620.9 during 9 months '22 and monthly churn increased to 1.3%. Please turn to Slide 10. In August 2020, the Argentine government issued Decree 690/2020 later confirmed by Congress, declaring mobile, fixed voice [indiscernible] and pay TV as public essential services and freezing their prices until the end of 2020, while [indiscernible] ENACOM as a regulatory agency in charge of enforcing the degree and regulating the industry prices. It's legality has been challenged in court by the industry in general. In 2021, Telecom was granted a preliminary injunction suspending the effects of several sections of the Decree, which has been extended last time in October 2022. Although we feel that the final ruling regarding the underlying issue is imperative to guarantee the health of the industry, as a consequence of the conjunction Telecom can 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 churn is a challenge. Year-over-year inflation as of September 30, 2022, amounted to 83%, while inflation for the first 9 months of 2022 amounted to 66.1%. During January, April and July 2022, our subsidiary increased prices on all of its services and again in September and November '22, while for mobile services and October '22 for fixed services. Mobile prices were increased by 17% for postpaid and up to 20% for prepaid services. Broadband prices for xDSL services increased by 19% and prices for HFC and Fiber-to-the-Home services increased by up to 15%. Pay TV services were increased by up to 19% and premium services up to 15%. Prices of fixed voice basic services were increased by up to 19%. These price increases have resulted in higher ARPU in nominal terms across all services as shown in Exhibits 19 to 22. The nominal price increases were not enough to offset interannual freight inflation 83% year-over-year as of September, 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 cost structure before we discuss quarter-over-quarter EBITDA performance. Amongst the most significant operating cost and expenses are salaries, fee for service, maintenance materials and supply costs, taxes and fees for the regulatory authority and programming and content costs. On Slide 11, we show the performance of EBITDA and the behavior of 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 context. Operating costs, excluding cost of equipment and handsets decreased in real terms 9%. Most of the company's cost components decreased in real terms, reflecting efficiencies except for employee costs, which increased above inflation as a result of severance payments, which amounted to ARS 6.2 billion from ARS 3.8 billion in third quarter '21, and agreements reached with our unions. As a result, operating costs decreased 10% in real terms and driven by the reduction in revenues EBITDA decreased by 30% in real terms, while margin contracted to 24.5%. Margin before the effect of severance payment was 28.7% from 31.6% in third quarter '21. Next slide, please. In third quarter '22, CapEx as a percentage of revenues was 20.6% 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 third quarter '22, 34 new mobile sites were deployed and more than 500 existing sites were upgraded. The company has been focused on expanding its Fiber-to-the-Home network, performing an overlay with the Fiber-to-the-Home over the HFC network and increasing its upstream capacity. In addition, Telecom expanded its Fiber-to-the-Home network in the province of Mendoza over 550 new blocks. Telecom has also pioneered the 5G deployment in Argentina. As of September 2022, it deployed 109 5G DSS sites with connection speeds up to 15 gigabytes and expects to have a total of 170 sites working with the DSS technology by the end of the year. Argentina's government is working to auction 5G spectrum frequencies during 2023. The CapEx program will continue evolving according to Argentina's economic condition, network performance and customers' requirements. Going to the debt financial position as per Slide 15. As of September 2022, we have reported a total financial debt of ARS 400 billion and net debt of ARS 359.3 billion, equivalent to USD 2.4 billion. 100% of the debt is at the operating level in Telecom Argentina. As for total debt, 62.4% is dollar-denominated, 30.6% is in Argentine pesos, including dollar-linked local emissions, and the rest is in guatemalan and renminbi. Our U.S. dollar cost of debt is approximately 6.5%. From 2023 to 2026, debt maturities remain manageable within the range of $500 million to $600 million each year. And under the current Central Bank regulations, Telecom has access to the FX market to attend its maturities. The company expects to continue accessing the local capital market for any potential financing needs. Net debt to adjusted EBITDA coverage ratio as of the end of September 2022 was 2x. That concludes our comments. We are now ready to take your questions. Chad?

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

Thank you, Chad. I thank you all for your interest in CVH. Should you have any questions in the future, do not hesitate to contact our IR team. I look forward to speaking with you regarding the fourth quarter and annual results of 2022. Have a great day.

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