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

Good morning, and welcome to Cablevisión Holding's Conference Call. Today, the team will discuss 9 months and third quarter 2024 results as per the earnings release distributed last Thursday, November 7. My name is Drew, and I will be your conference operator today. 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. Comments made by the company may contain forward-looking statements about Cablevisión Holding's future performance, plans, strategies and targets. Such statements are subject to uncertainties that could cause Cablevisión Holding's actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effects of the impact of new or ongoing industry and economic regulations, possible changes in demand for Cablevisión 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. 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 Aries at (5411) 4309-3417. CVH has also posted the webcast presentation that can be found at www.cablevisionholding.com/investors. [Operator Instructions] I will now introduce our speaker, Mrs. Samantha Olivieri, Head of Investor Relations; and Julian Brescia, senior analyst. For the Q&A session, they will be joined by Mr. Ignacio Driollet, CVH's Executive Director and Chairman. It is now my pleasure to turn the call over to Mrs. Samantha Olivieri. Please go ahead.

Thank you, Drew. 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. As we mentioned in the previous call, in the first months in office, the government implemented a stabilization program based on 3 key anchors: a fiscal anchor, and exchange rate anchor and a monetary anchor. For the first time in over a decade, a fiscal surplus was achieved. On the exchange rate front, the government stabilized the currency through a crawling peg policy set around 2% monthly adjustment within the framework of currency controls. Additionally, monetary issuance was stopped. The government also advanced in adjusting relative prices, in particular, for regulated services. Regarding inflation, there was a progress in slowing down the speed of price increases. The rate of deceleration was more pronounced during the initial months. However, in recent months, this deceleration has moderated aligning more closely with the 2% monthly crawling peg. The Central Bank has focused on improving its balance sheet by eliminating remunerated liabilities and gradually rebuilding gross international reserves. In addition, the recent tax amnesty program leads to an increase in private sector USD deposits of nearly $16 billion, 86% in just 2.5 months. This inflow of foreign currency, along with substantial agriculture sector exports and increasing corporate loan issuance boosted the Central Bank's gross reserves to over $30 billion. Market confidence in economic program has shown signs of improvement. Since the change in government, the country's risk index has dropped by 62% and fallen below 900 points, the lowest level in the last 5 years. This is an encouraging indicator given the need to reaccess international debt markets. The stabilization program is having a negative impact on activity and consumption. It is estimated that the economy will contract by 3.5% this year, but will grow by 5% in 2025. The decline is concentrated in the early months of the year, after which a floor was reached and gradual signs of improvement begin to merge. The monthly economic activity estimator has increased for the second consecutive month, but is still showing a 3.8% year-on-year decline compared to August 2023. The best-performing sector this year are agriculture and energy, while the sector still lagging are industry, construction and retail. Looking forward, despite the progress made, the current administration will face several challenges. The legislative election next year, which will retest approval levels during the stabilization program, lifting currency controls and return to international debt market. Now I will pass the call back to Samantha. Thank you.

Thank you, Julian. We will now continue with CVH key financials. Slide 6 shows the key financials for the 9 months 2024. The company has reflected the effects of inflation adjustment adopted by Resolution 777/18 of the Comisión Nacional 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 9 months of 2024 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 2023 contain the effect of year-over-year inflation as of September 2024, which amounted to 209%. In this presentation, we included some figures in historical values for the sake of clarity. CVH owns 39.08% stake in TEO and is controlling shareholder of Telecom Argentina, it consolidates 100% of its operations. Revenues in nominal terms increased 220%. In constant currency, revenues for the 9 months 2024 dropped 10.4% from ARS 3,185.1 to ARS 2,852.3 billion, mainly driven by lower service revenues. The increasingly higher inflation during 2023 was challenging to fully pass through to prices for our services. EBITDA reached approximately ARS 820.5 billion in constant currency, a 10.4% decrease compared to 9 months '23 driven by lower revenues, partially offset by lower operating costs. EBITDA margin reached 28.8%, similar to the level for the same period of the previous year. It is worth mentioning that as part of its efforts to gain efficiency and thanks to the digitalization of processes, Telecom has accelerated the rightsizing of its structure, particularly in third quarter '24. EBITDA margin for 9 months '24, excluding the effect of severance payments would have been 31.7% versus 30% for the same period of previous years. EBITDA in nominal pesos amounted to ARS 733.5 billion, 239% higher than nominal EBITDA for the 9 months of '23, while average inflation for the same period was approximately 258.9% and the end of period year-over-year inflation amounted to 219%. The net income resulted in a profit of ARS 947.3 billion from ARS 266.3 billion reported during 9 months '23. This increase in net income is mainly explained by the financial net result as a variation of the parity between the official exchange rate and the U.S. dollar was lower than the inflation for the period, resulting in positive foreign exchange results, partially offset by income tax. The equity shareholders' net income for the period amounted to ARS 362.2 billion and is mainly the result of CVH's stake in Telecom. Now let's continue on Slide 7 for a discussion of the operating results for the third quarter. Revenues in third quarter '24 decreased by 4.6%, albeit price increases for our services, keeping up with the high level of inflation, the Argentine economy experienced over the past 12 months has been a challenge. In addition, commercial discounts are granted according to customer retention policy for some of our services. Revenues in nominal terms increased 220% lower than the average inflation rate for the period, resulting in lower revenues when measured in constant pesos. The main source of our revenues is our fixed infrastructure, broadband, pay TV and fixed telephony and data services amounted to 51.6% of the total. Mobile service participation increased slightly, reaching 40.8% from 40.6% in 9 months '23 driven by the decrease in share of pay TV revenues over total revenues. EBITDA increased by 202% year-on-year in nominal terms, representing an EBITDA margin of 28.7%, while EBITDA in real terms decreased 13.1% and margin decreased to 27.1%, lower than the 29.8% margin of third quarter '23. As we mentioned, Telecom has accelerated the rightsizing of its structure, particularly in this quarter. EBITDA margin, excluding the effect of severance payments, was 31.2% in third quarter '24 versus 31.1% for the same period of the previous year. The net loss for the period attributable to the equity shareholders was ARS 7,427 million in constant pesos, mainly as a result of CVH's participation in Telecom's net income. The decrease in net income is mainly explained by a negative income tax charge versus a positive charge in third quarter 2023, lower EBITDA and lower positive net financial results, partially offset by lower depreciation and amortization. Now let's move on to Slide 8. Mobile revenues represented approximately 40.8% of our revenues and decreased 4.3% in real terms when comparing third quarter '24 versus third quarter '23, mainly explained by lower ARPU in a highly competitive environment and a change in the prepaid and postpaid mix, partially offset by an increase in subs. Personal Argentina clients increased 3.2% to 21.4 million, of which postpaid clients amounted to 38%. Mobile Internet usage increased reaching an average of 6.5 gigabytes per user per month in 9 months '24. In Argentina, in a highly competitive environment and influenced by an increase in prepaid clients, which have lower ARPU. ARPU restated in constant currency decreased by 14.3% to ARS 5,458.9 in 9 months '24 and monthly churn decreased to 1.5% from 1.8% in 9 months '23. Since the rollout of the strategic CapEx plan and the convergent offer, the company has turned around its trend of negative portability net additions in Argentina and has been increasing the number of subs over the last 6 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 from Ookla at the 2024 Mobile World Congress in Barcelona for the fifth year in a row. Please turn to Slide 9. Revenues for fixed services, including broadband cable TV and telephony and data services decreased by 3.7% in real terms, mainly driven by the challenging inflationary dynamic affecting pay TV and a reduction in fixed telephony clients. Legacy copper fixed voice service continues experiencing a reduction in accesses partially offset by an increase in IP telephony lines. Data services offset the decrease in legacy telephony revenues. On the B2B services, Telecom's strategy is to position itself as an integrated service provider for large customers by offering convergent ICT solutions, including fixed and mobile voice, data, Internet, multimedia, data center and application services through sales, consulting, management and specialized and targeted post-sale customer services. Internet services revenues increased 14.5% year-over-year in real terms. Broadband subscriber increased 1.1% to 4 million, while monthly churn increased to 1.9% in 9 months '24 from 1.7% in 9 months '23. Nonetheless, there is growth in the fiber-to-the-home segment, resulting in an increase in average speeds. 87% of our customers have accesses with speed 100 megabytes or higher versus 84% in 9 months '23. ARPU in real terms increased to approximately ARS 18,657.7. Thanks to the effective pricing policy implemented since 2023, price increases during 2023 and 2024 and higher Internet speeds sold to our customer base allowed Telecom to increase broadband ARPU in real terms for the third quarter in a row. Moving to the cable TV subscribers. The customer base increased to 3.4 million, mainly explained by the success of Flow Flex, which is 100% digital with no decoder or installation needed. Flow unique customers achieved 1.5 million and 8.8% increase from figures observed over a year ago. Through its proposal as content aggregator, Flow includes not only linear TV, series, on-demand movies, documentaries and co-productions, but also music, gaming and exclusive events. ARPU in real terms decreased by 30.1% to ARS 12,698.6 during 9 months '24, mainly due to the challenge presented by the high inflation and commercial discounts granted according to customer retention policy. Monthly churn increased to 2.1%. So please turn to Slide 9. The company has been trying to offset the impact of inflation on revenues and costs, but with the increasingly high inflation dynamic over the last few years and the stress price increases generated on the subscriber base recovering terrain has been a challenge. Nonetheless, it is worth mentioning that the deceleration of inflation and the effective pricing policy the company has implemented has allowed it to increase prices above inflation over the past months, resulting in higher revenues in real terms quarter-over-quarter. Year-over-year inflation as of September 30, 2024, amounted to 209%, while inflation average for the same period is 258.9%. During 2023, given the increase in inflation, our subsidiary Telecom increased prices of its services with greater frequency and has continued with this policy during 2024. In response to the increasingly complex inflationary dynamic, it began increasing prices monthly, which has allowed it to close the gap between inflation and ARPUs. In parallel, it has undertaken retention actions, mainly granting discounts to its clients. 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 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 in mobile, pay TV and fixed telephony thus resulting in lower revenues when measured in constant pesos versus the 9 months '23, while ARPU for broadband services increased internally for the second quarter in a row. 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 to Slide 11 for a discussion of the cost structure before we discuss quarter-over-quarter EBITDA performance. Among the most significant operating costs and expenses are salaries, fees for services, maintenance, materials and supplies 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 revenues and costs. The company continues with its cost management efforts and has shown positive results despite a challenging economic context. Operating costs, excluding cost of equipment and handsets decreased in real terms, 0.6%. Most of the company's cost components, except for severance payments and other operating income and expense decreased in real terms, reflecting efficiencies achieved by the company management in terms of costs. As we mentioned before, Telecom is accelerating its rightsizing. As a consequence, severance payments increased significantly during this quarter and represented 4.1% over revenues from 1.3% in third quarter '23. Salaries before the effect of severance payments decreased 10% in real terms. Total operating costs, including severance payments, decreased 1% in real terms, lower than the reduction in revenues, thus, EBITDA decreased by 13.1% in real terms and margin reached 27.1%. Next slide, please. It is worth mentioning that even in the challenging macro environment, this is the second quarter in a row sequential revenue growth since fourth quarter '22 and the third quarter with EBITDA before severance payments, sequential growth, reflecting the efficiencies achieved in terms of costs and the pricing policy executed to tackle increasing inflation. Slide 14, please. In third quarter '24, investments as a percentage of revenues was 18.8% or 12.3% before rights of use from leases. Lower than the same period of the previous year. Investments decreased 22.2% year-over-year. The CapEx plan is flexible, and the company has been investing above global average ratio of CapEx-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 premise equipment, or CPE. The balance was allocated to our international operations in Paraguay and Uruguay. During the last quarter, the company continued with the deployment and upgrading of existing sites and expansion of the fiber to the home network, including overlay over the HFC network. Following the frequency auction in 2023, it has over 100 5G sites working on the newly acquired 3.5 gigahertz band and plans to reach 200 sites by the end of the year. The CapEx program will continue evolving according to Argentina's economic condition, network performance and the customers' requirements. Going to the debt financial position as per Slide 16. As of September 2024, we have reported a total financial debt of ARS 2,663.4 billion, and net debt of ARS 2,310.4 billion, equivalent to USD 2.4 billion. The year-over-year increase of total debt measured in constant pesos is mainly explained by the effect of the inflation being higher than the jump in FX rate for the same period, resulting in lower debt when measured in constant pesos, partially offset by an increase in debt for the acquisition of Spectrum, additional debt to subscribed BOPREAL bonds in order to settle commercial debt generated by the restrictions in access to the FX market with the past administration, net of maturities canceled during the same period. 100% of the debt is at the operating level in Telecom Argentina. Of the total debt, 48% is cross-border dollar-denominated; 45% is in Argentine pesos, including dollar-linked to local emissions and the rest is in guaranis and renminbi. During the past year, Telecom has been accessing the local market for its financing needs, tackling the increase in interest rates and reducing cross-border risk. As per current Central Bank regulations, Telecom has access to the official FX market for all its financial debt maturities. In addition, during July and August this year, Telecom access the international markets conducting liability management transactions that have allowed it to significantly improve the maturities over 2029, 2030 and 2031. Furthermore, in October, Telecom reopened its international 2031 bond, raising an additional USD 200 million, which will be applied to improve the profile of its debt. From 2024 to 2026, debt maturities remain manageable. Please note that the debt profile graph does not include aforementioned transaction as it is dated as of September 30. Net debt-to-adjusted EBITDA coverage ratio as of the end of September 2024 was 2.2x, a significant improvement versus the December 2023 figure, a testament of the company's resilience to changing macroeconomic conditions. That concludes our comments. We are now ready to take your questions. Drew?

[Operator Instructions] Excuse me, there appears to be an issue with the line. Just one moment, please. [Technical Difficulty] 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, Drew. Thank you all for attending the conference call today. Should you have any questions in the future or 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.