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

Good morning, and welcome to the Cablevision Holdings Conference Call. My name is Dave, and I will be your conference operator today. [Operator Instructions] Today, we will discuss Cablevision Holdings 9 months and Third Quarter 2023 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 a question, please contact the FIG Corporation Communications following the call. I will now introduce our speakers, Ms. Samantha Olivieri Head of Investor Relations; and [ Julian Pais ], Senior Analyst. Additionally, Mr. Ignacio Driollet, 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 Friday, November 10, if you have not received the report or need assistance during today's call, please contact the FIG Corporate Communications in New York at (917) 691-4047 or the company in Buenos Aires at (5411) 43-093417. 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 Holdings' future performance, plans, strategies and targets. Such statements are subject to uncertainties and that could cause Cablevision Holdings' actual results and operations to differ materially. Such uncertainties and 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 Holdings', 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, Dave. 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. Having gone through the agenda for today's webcast, I will now pass the call to Julian for the macro-overview.

Thank you, Samantha. Please move to Slide 4. Argentina's economic performance during the third quarter of 2023 remain conditioned primarily by the effects of the severe drought in the first half of the year and the uncertainty around the presidential elections, which had an unexpected result and will be defined in [indiscernible] on November 18. In the first 9 months of the year, the inflection -- the inflation index continued to rise reaching 138.3% year-over-year in September, while the number for the year-over-year inflation of September 2022 was 83%. As we have said in previous presentations, we believe the root of the problem lays with the Central Bank's balance sheet, which presents negative net reserves and a higher excess of pesos in the economy. The Central Bank's reserve position is being challenged by the effects of the severe drought affecting agricultural exports. The unprecedented drought as well as the stronger pressure on the demand of dollars hinders the Central Bank's ability to maintain the exchange rate parity, while also affects the capacity of generating net reserves, making it impossible to comply with the goal set by the IMF. The first day after the primary presidential election, Paso -- the government devaluated the Argentinian peso approximately 20%, which in turn caused the parallel exchange rate to rise further increasing the gap between them to almost 200%. The policies by enacting government are focused not only on the stability of the exchange rates but also on the level of cap to the financial exchange rate. However, the constant need of intervention to sustain safe parity pushes against the rising vulnerability in the net reserves and the schedule of debt services of the sovereign debt. The Central Bank's gross reserves are at $22,000 million, reaching a minimal level in the last 17 years and present a decrease of over $20,000 million since the beginning of the year. While the net reserves are close to negative $11,000 million. It's important to note that the exports are the main factor altering the gross reserves under interannual decrease of 24% to $16,000 million is the main driver of the negative net reserves. The isolated peso devaluation made after the primary election results, along with a series of electoral oriented policies aimed at sustaining the voters purchasing power, although could result in a lower decrease in GDP and private consumption than expected for the year, aggravate the economic imbalances. In this sense, sorting the public accounts and relative prices must be a primary focus for the next administration. Now I will pass the call back to Samantha.

Thank you, Julian. We will now continue with CVH key financials. Slide 6 shows the highlights for the 9 months of 2023. The company has reflected the effects of the inflation adjustment adopted by Resolution 777/18 of the Comisión Nacional de Valores, CNV, which establishes the reexpression 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 9 months of 2023 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 September 2022 contain the effect of the year-over-year inflation as of September 2023, which amounted to 138.3%. In this presentation, we included some figures in historical values for the sake of clarity. CVH owns 39.08% stake in TA and as controlling shareholder of Telecom Argentina, it consolidates 100% of its operations. In constant currency, revenues for the 9 months of 2023 dropped 8.1% from ARS 1,122.2 million to ARS 1,030.8 billion, mainly driven by lower services revenues. Increasingly higher inflation is challenging to fully pass through to prices for our services. EBITDA reached approximately ARS 296.5 billion in constant currency, a 7.6% decrease compared to 9 months '22, driven by lower revenues, partially offset by lower operating costs. EBITDA margin increased from 28.6% to 28.8%. EBITDA in nominal pesos amounted to ARS 216.3 billion, 102% higher than nominal EBITDA for 9 months '22, while inflation for the same period was, as mentioned, approximately 138.3%. Net income totaled ARS 86,196 million from negative ARS 314,530 million reported during 2022. The increase in net income is mainly because of the impairment of goodwill registered in 2022, a positive income tax charge, including the effect of applying the deferred income tax method versus a negative figure for the same period of the previous year and lower depreciation and amortization, partially offset by lower positive net financial results and lower EBITDA. Although FX still lagged vis-a-vis inflation in this quarter, preventing the impact of losses and results due to the revaluation of the debt in dollars, as has been occurring in previous quarters, the variation of FX rate came closer to the variation of the CPI index for the period, resulting in lower positive net financial results. The equity shareholders' net income for the period amounted to ARS 31,722 million and is mainly the result of CVH stake in Telecom. Now let's continue on Slide 7 for a discussion of the operating results for the first quarter. Revenues in the third quarter decreased by 5.6%, albeit price increases for our services, keeping up with a high level of inflation, the Argentine economy has experienced over the past 12 months has been a challenge. Revenues in nominal terms increased 113%. The main source of our revenues is our fixed infrastructure, broadband, pay TV and fixed telephony and data services amounted to 51.2% of the total, while mobile service participation increased reaching 40.7% from 39.7% in 9 months 2022, driven by the increase in mobile subs. EBITDA increased by 156% year-over-year in nominal terms, representing an EBITDA margin of 30.4%, while EBITDA margin in real terms increased to 29.8%. the net income for the period attributable to equity shareholders was ARS 11,392 million in constant pesos, mainly as a result of CVH participation in Telecom's net income. Now let's move on to Slide 8. Mobile revenues represented approximately 40.7% of our revenues and decreased 6.1% in real terms when comparing third quarter '23 versus third quarter '22, mainly explained by lower ARPU, partially offset by an increase in subs. Personal Argentina clients increased 3.8% to $20.8 million, of which postpaid clients amounted to 39%. Mobile Internet usage increased, reaching an average of 5.6 gigabytes per user per month in third quarter '23. 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 7.7% to ARS 2,060.5 in 9 months '23 and monthly churn decreased to 1.8% from 2.4% in 9 months '22. The commercial strategy has been focused on achieving higher mobile portability through convergent offers and promoting the consumption of mobile Internet. Currently, 46% 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 trend of negative affordability in net addition in Argentina and has been increasing the number of subs over the last 5 years, even in a highly competitive market. Telecom's CapEx deployment has also allowed it to obtain the award for the fastest 4G network in Argentina for Ookla at the 2023 Mobile World Congress in Barcelona. Please turn to Slide 9. Revenues for fixed services, including broadband, cable TV and fixed telephony and data services decreased by 6.6% in real terms, mainly driven by the challenging inflationary dynamic. Legacy copper fixed voice service continues experiencing a reduction in accesses, partially offset by an increase in IP telephony lines. Broadband subscribers decreased 3% to 4.1 million, while monthly churn increased to 1.7% in 9 months '23 from 1.5% in 9 months '22. Nonetheless, there is growth in the fiber-to-the-home segment, resulting in an increase of average speed. 84% of our customers have access with speeds of 100 megabytes or higher versus 46% in 2021. ARPU in real terms decreased to approximately ARS 5,697.3. Price increases during 2022 and 2023 and higher Internet speeds sold to our customer base were not enough to fully 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 the positive mobile portability. Moving to the cable TV subscribers. The customer base decreased to 3.4 million, while Flow unique customers achieved 1.4 million, an 8.6% increase from figures observed over a year ago. Through its proposal as a content aggregator, Flow includes not only linear TV series, on-demand movies, documentaries and coproductions but also music, gaming and exclusive events. In addition, Telecom continued activating the ISDB-T digitalization service solution to its analogical customers, which allows clients to connect to a digital service from the traditional cable connection without a decoder. ARPU in real terms decreased by 5.9% to ARS 5,876.5 basis during 9 months 2023, monthly churn increased to 1.8%. Please turn to Slide 10. In August 2020, the Argentine government issued 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. 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 several times and is currently in effect. 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 has managed 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 dynamic over the last 2 years, recovering terrain is a challenge. Year-over-year inflation as of September 30, 2023, amounted to 138.3%, while inflation for the first 9 months of 2023 amounted to 103.2%. During 2022, given the increase in inflation, our subsidiary Telecom increased prices of its services with greater frequency, 5x for mobile and 4x for fixed services and continues with this policy during 2023 increasing prices on a monthly basis, which has allowed it to close the gap between inflation and ARPU. These price increases have resulted in higher ARPU in nominal terms across all services as shown on Slides 19 to 22. The nominal price increases, coupled with certain discounts and promotions to retain customers following these rises in a strong competitive environment were not enough to offset the interannual inflation thus resulting in lower revenues when measured in constant pesos versus the 9 months of 2022. Although third quarter '23 registered the lowest interannual decrease in revenues measured in constant pesos since the fourth quarter of 2021, while interannual inflation increased 14 basis points quarter-over-quarter. The company will continue to monitor its cost structure, competitive environment, 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 Slide 11 for a discussion of cost structure before we discuss quarter-over-quarter EBITDA performance. Among the most significant operating costs and expenses are salaries fee for services, maintenance, materials and supply costs, and taxes and fees with the regulatory authority. On Slide 12, we show the performance of EBITDA and the behavior of different components of costs and revenues. The company continues with its efforts to expand efficiencies and has shown some positive results despite a challenging economic context. Operating costs, excluding cost of equipment and handsets decreased in real terms 13.4%. All of the company's cost components decreased in real terms, reflecting efficiencies achieved by the company's management in terms of costs. It should be noted that the third quarter of 2022 had higher severance payments. Total operating costs decreased 12.2% in real terms higher than the reduction in revenues, thus, EBITDA increased by 14.5% in real terms, while margin increased from 24.5% to 29.8%. Next slide, please. It is worth mentioning that this is the second quarter with a margin expansion in real terms since second quarter 2020, reflecting the efficiencies achieved in terms of costs and pricing policy executed to tackle the increasing inflation. Now on to Slide 14. In the third quarter of 2023, investment as a percentage of revenues was 23% or 19.3% before rights of use from leases. Telecom's investment level was influenced by tighter import restrictions in third quarter '23. Its CapEx plan is flexible, and the company has been investing above the global average CapEx ratio to revenues during previous years in order to achieve its goals in terms of network performance and coverage, which is currently strong. Technical CapEx was mainly allocated to network and technology and customer premises equipment or CPE. The balance was allocated to our international operations in Paraguay and Uruguay. Telecom has also pioneered the 5G deployment in Argentina. It currently has 240 5G sites, most under the DSS technology. During August, the ENACOM approved the 5G spectrum auction in Argentina. On October 24, Telecom acquired a 100-megahertz spectrum [ lot ] in the 3.5 gigahertz spend for USD 350 million payable in pesos at the official FX rate. Telecom completed the scheduled payments last Friday. This is a crucial first step to -- for the deployment of the 5G technology, which brings exciting opportunities for various economic sectors, including agricultural and oil and gas, both important sectors in Argentina's economy. During the fourth quarter of 2023, the company will continue with the deployment and upgrading of existing sites and expansion of the fiber-to-the-home network, including the overlay over the HFC network. The CapEx program will continue evolving according to Argentina's economic conditions, network performance and customers' requirements. According to the debt financial decision as per Slide 16, as of December 30 of December 30, 2023, we have reported a total financial debt of ARS 927.1 billion and net debt -- sorry net debt of ARS 787 billion, equivalent to USD 2.2 billion. 100% of the debt is at the operating level in Telecom Argentina. Of the total debt, 53.8% is cross-border dollar-denominated, 37.5% is in Argentine peso, including dollar-linked local emission and the rest is in guaraní and renminbi. Telecom has been accessing the local markets for financing need, tackling the increase in interest rates and reducing across border risk. From 2023 to 2026, debt maturities remain manageable. Net debt to adjusted EBITDA coverage ratio as of the end of September 2023 was 2.1x. Finally, last Monday, November 6, the Board of Directors of CVH resolved to request the London Stock Exchange to cancel the company's admission for trading of its GDSs representing Class B shares. The company will continue to be listed both in the Buenos Air Exchange and in the U.S. in the OTC market. We're currently substantially all the international volume is traded. This will contribute to reduce existing costs and simplify processes. The delisting is expected to take effect on or about December 8, 2023. That concludes our comments for today. We are now ready for your questions. Dave?

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

Thank you, Dave. Thank you all for attending our conference today. Should you have any questions do not hesitate to contact our IR team. Have a great day.

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