Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (OMAB) Earnings Call Transcript & Summary

Ladies and gentlemen, greetings and welcome to the Grupo Aeroportuario del Centro Norte, OMA, First Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Emmanuel Camacho, Investor Relations Officer. Please go ahead, sir.

Thank you, Sico. Hello, everyone. Welcome to OMA's First Quarter 2025 Earnings Conference Call. We're delighted to have you join us today as we discuss our company's performance and financial results for the past quarter. Joining us today are our CEO, Ricardo Duenas; and CFO, Ruffo Perez del. Please be reminded that certain statements made during the course of our discussion today may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our control. And now I'll turn the call over to Ricardo Duenas for his opening remarks.

Thank you, Emmanuel. Good morning, everyone. We appreciate your presence on this call today. This morning, Ruffo and I will review our quarterly operational financial results and then we will be pleased to answer your questions. In the first quarter of this year, OMA's passenger traffic totaled 6.4 million passengers, a 9.1% increase year-over-year. This increase was mainly attributable to an increase in seat capacity of 13.4% during the quarter. On the domestic front, passenger traffic grew by 8%, driven primarily by the Monterrey Airport, which saw increases on routes to Queretaro, the Metropolitan Area of Mexico City, including the Mexico City, AIFA and Toluca airports, Hermosillo, Ciudad Juarez, Guadalajara and Culiacan. These routes collectively added over 285,000 passengers during the quarter, representing 72% of the total domestic passenger growth. International passenger traffic increased 15.1%. This growth was also driven by the Monterrey Airport with passenger traffic increases on routes to San Antonio, Chicago, Los Angeles, Orlando, San Francisco, Oakland, Miami, Austin and Denver. These routes collectively added over 132,000 passengers during the quarter, accounting for 94% of the total international passenger increase in the first quarter. During the first quarter, we launched 16 new routes, 5 of which were international. In terms of airline participation, VivaAerobus represented 49% of our total traffic during the quarter with an 11% increase in terminal passenger numbers compared to the first quarter of '24, while Volaris, which accounted for 22% of our total traffic, recorded a 20% passenger increase during the quarter. Moving on to OMA's first quarter financial highlights. Aeronautical revenues increased 13.8%, with aeronautical revenue per passenger rising 4.3% in the quarter. Commercial revenues had a strong double digit growth with commercial revenue per passenger growing 13% to MXN 66 as compared to the first quarter of '24, driven by VIP lounges, restaurants and retail. VIP lounges benefit from higher access rates and a larger number of users as well as the effect of the previously opened lounges. The restaurant and retail line items benefited from the consolidation of new business units open across our airports during past quarters. Occupancy rate of commercial space stood at 96% at the end of the quarter. On the diversification front, revenues increased 22%. OMA Carga contributed most to this growth, mainly as a result of an increase in revenue related to air cargo operations in Monterrey. Revenue from Industrial Services increased 56.4% year-over-year, reaching MXN 42 million, primarily driven by a higher number of square meters leased in our industrial park. During the quarter, we completed construction of a warehouse measuring about 9,200 square meters as well as 2,400 square meter expansion of an existing facility. Additionally, we are currently building a 5,000 square meters warehouse which we expect to complete in the second quarter of this year. OMA's first quarter adjusted EBITDA increased by 16% to MXN 2.4 billion and an adjusted EBITDA margin of 74.9%. On the capital expenditure front, total investments in the quarter, including MDP investment, major maintenance and strategic investments were MXN 502 million. Lastly, I want to mention that last Friday, we held our 2025 Annual Shareholders Meeting, where shareholders voted on several matters, including the declaration and payment of a MXN 4.5 billion cash dividend. I would now like to turn the call over to Ruffo Perez del, who will discuss our financial highlights for the quarter.

Thank you, Ricardo, and good morning, everyone. I will briefly walk you through our financial results of the quarter and then we'll open the call for your questions. Aeronautical revenues increased 13.8% relative to the first quarter of '24, driven primarily by higher aeronautical yields as well as increase in both domestic and international passenger traffic. Non-aero revenues increased by 20.9%. Commercial revenues increased 22.8% and the line items with the highest growth were VIP lounges, restaurants and retail. VIP lounges rose 80%, mainly due to an increasing rates and higher number of users as well as the opening and the consolidation of the Zihuatanejo Lounge, which started operations last year. Restaurants increased 32.8%, driven by greater customer penetration and the opening or replacement of outlets in previous quarters in airports such as Monterrey, Ciudad Juarez and [indiscernible]. Retail increased 50.9% as a result of the contribution of new spaces opened or replacements of existing spaces in previous quarters as well as a higher penetration, primarily in airports like Juarez, Monterrey, Torreon and Culiacan. Diversification activities increased 22%, mainly due to higher revenues from OMA Carga and the Industrial Park. Total aeronautical and non-aeronautical revenues grew 15.6% to MXN 3.1 billion in the quarter. Construction revenues amounted to MXN 403 million in the first quarter, a decrease of 60% as a result of lower MDP investment execution. The cost of services and G&A expense increased 10.2% year-over-year, primarily due to a 42% rise in other costs and expenses. Payroll increased by 9.9%, while contracted services grew 8.8%, mainly due to higher costs for security and cleaning services following contract renewals in prior quarters. Concession tax increased 16% to MXN 259 million, in line with the increase in revenues. Major maintenance provision was MXN 53.4 million as compared to MXN 71.3 million in the first quarter of '24. As Ricardo mentioned, OMA's first quarter adjusted EBITDA was MXN 2.4 billion and adjusted EBITDA margin reached 74.9%. Our financing expense reached MXN 312 million, an increase of 13%, mainly due to a lower interest income as a result of lower average cash balance during the quarter as compared to the same period of the last year. Consolidated net income reached MXN 1.3 billion, which showed an increase of 19.7% versus the first quarter of '24. Turning to our cash position. Cash generated from operating activities in the first quarter amounted to MXN 1.9 billion and cash at the end of the quarter stood at MXN 2.3 billion. At the end of the quarter, total debt amounted to MXN 11.3 billion. We maintained a strong balance sheet ending the quarter with a net debt to adjusted EBITDA ratio of 1x. This concludes our prepared remarks. Sico, please open the call for questions.

[Operator Instructions] The first question comes from Alan Macias with Bank of America.

Just a question on your expectations for traffic. Traffic in Monterrey has continued to be very strong. I understand there's more capacity, but how are you looking at demand? And how was April so far?

Thank you for your question. Yes, first quarter traffic was looking good numbers. April -- remember, April, we're going to have the holidays, the holy week on April. We didn't have that one last year. So on a month-to-month, the numbers are going to be good. We're still looking at the same expectation as we mentioned on the previous call, somewhere around the mid-single digits. We are cautious for the rest of the year as we're monitoring the macro landscape and the international news coming there.

The next question comes from the line of Pablo Monsivais with Barclays.

This is just a more broad question. But in case that your MDP has low CapEx requirements and you don't have major investment opportunities abroad, what do you think the right strategy for dividends will be for OMA going forward?

So over the past few years, we have tried to distribute as much cash as possible to shareholders in the form of dividends. That strategy, I don't think it's going to change in the foreseeable future. So as we are able to generate higher free cash flow, that should be translated into higher dividend distributions.

The next question comes from Jens Spiess with Morgan Stanley.

Yes. Congrats on the results. I have 2 questions. The first one is on capital allocation. CCR is, as you probably know, selling their assets -- some of their assets in Brazil. Would you be interested in those assets or part of those assets or all of them? It would be much appreciated if you could give any perspective on that. And my second question is on like the traffic guidance. And we're seeing that like the low-cost carriers have retrenched some of their capacity, Volaris, Viva. But still, things are pointing to quite good capacity increases for you guys for the rest of the year, maybe double digits. So your guidance does surprise me a bit. Maybe it's -- could you elaborate how conservative you're being? And even if things kind of collapse in the second half of the year due to the macro environment, wouldn't that like set the stage better for you guys compared to the other airport operators because it would lower the base of, like, your traffic that you will be settling or negotiating in your next MDP?

I'll take the first -- the first one, yes, we took a look at the CCR assets, but we -- at the moment, we decided not to participate on that process. And for the second part, Ruffo?

Yes. The seat capacity situation is somewhat volatile. There were some announcements made last week and some capacity cuts are being reflected starting May and June by some of the low-cost carriers. Remember also that in the fourth quarter of '24, several routes were open. So there will be a much higher base of comparison in the fourth quarter as well. So yes, it might be a bit conservative, but there are some uncertainties and we don't want to be overoptimistic on capacity growth at this time. And regarding your -- the second half of your question on if this is going to benefit us in -- at MDP negotiation that will occur towards the second half of the year, remember that the current formula looks at the tariff -- sorry, the traffic for the first 5 years and actually through 2040 in our case. So any minor changes in capacity in a certain year wouldn't move that much the needle when you are looking at the next 15-year traffic forecast. So I don't think it's going to be necessarily a huge positive to have a lower traffic expectation this year.

Okay. Perfect. So it probably helps in the negotiations, but only marginally. Perfect. Appreciate the clarity.

The next question comes from Alberto Valerio with UBS.

My question is on non-aeronautical revenues per PAX was strong this quarter, a jump from fourth quarter last year and also year-over-year from the first quarter. I'm wondering if you can see another jump for the following quarters? Or it will be something more stable in the inflation index for looking forward for that line?

Yes. I think that the results in [ extra-aero ] reflects the strategy that we have been implementing over the last couple of years, especially since VINCI acquisition. For the next quarters in terms of commercial revenue per PAX, we expect a similar outcome as to the first quarter. And most likely in 2026, we'll see a higher yield as the new spaces in Monterrey starts to be opened.

Perfect. Those space will be opened before World Cup, isn't it?

Yes, correct.

The next question comes from Pablo Ricalde with Itau.

Congratulations on the results. I have 2 questions. The first one is on the routes. I remember when your new partner came in, VINCI, who had all these plans of adding new routes like long-haul routes. Is that still on the table or given all these macro concerns, that's on hold for now? And my second question is on the investment part.

Can you start again?

Sorry to interrupt you, Mr. Pablo. May we request you to use your handset, please?

I don't know if you can hear me now.

Yes, we can hear you.

Yes, sir. Please go ahead.

So my first question is on the new routes. I remember when VINCI came in, there was like all these plans of adding new routes like long-haul routes. Is that still on the table or that's on hold for now?

In terms of new routes opened, it's -- we have a constant dialogue with airlines. We are focusing both in building our international connectivity and the increase that you saw in the last few quarters, particularly for Monterrey Airport, points towards that strategy of building good connectivity out of Monterrey. But we also have very 2 strong players in the local market. And therefore, we also focus on building greater regional connectivity.

The next question comes from the line of Jay Singh with Citibank.

Jay dialing on for Stephen Trent. First thing I want to ask is, do you see any regulators pushing to adjust the TUA at Mexico City [ import ]? And to the extent that you could talk about it, maybe could this have any tariff implications for OMA?

Sorry, the question again, the regulator pushing TUA again?

To adjust the airport use fees at Mexico City Airport?

Well, the TUA for Mexico City Airport is set in dollars and it increases by U.S. CPI inflation. We have not heard that process or mechanics of adjustment is going to change. So I believe that's adjusted at the beginning of every year. So probably the adjustment already took place in January and we wouldn't expect increase to us in the Mexico City Airport for the rest of the year.

Okay. Got it. And my second question is, how much do you interact with VINCI on strategic matters, such as the MDP or any potential foreign investments?

We have a very close communication with them. They're involved in the MDP, of course. In non-aero, they have been very active in CapEx execution as well. So it's a very close communication with them.

As there are no further questions, I would now like to hand the conference over to Ricardo Duenas, CEO, for closing comments.

We would like to thank everyone for participating in today's call. We appreciate your insightful questions, engagement and continued support. Ruffo, Emmanuel and I are always available should you have any further questions or require additional information. Thank you once again and have a great day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.