Grupo Traxión, S.A.B. de C.V. (TRAXIONA) Earnings Call Transcript & Summary

Greetings. Welcome to Traxion's 2Q '23 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Aby Lijtszain, Executive President at Traxion. You may begin.

Thank you. Good morning. Welcome, everyone. I am very pleased to share another record high quarter both in financial and operating terms. Traxion continues to come across robust demand in all 3 business segments, and our CapEx plan moved forward as expected. Consolidated revenue grew 21% and came at almost MXN 6 billion, which is the highest revenue figure in the history of the company. EBITDA came in for the first time above the MXN 1 billion mark, another record high figure. In terms of fleet, Traxion exceeded also for the first time, 10,000 units this quarter, mainly boosted by organic growth in the Mobility of people segment. Such expansion was driven by strong demand mainly from [ nearshoring ] related activities. Logistics and Technology division posted a 47% growth and continue gaining relevance in our operations. Moreover, the Mobility of people segment recovered a 20% growth, mainly driven by increased demand and very interesting opportunities in the north [ Bajio ] regions. In terms of cargo, Traxion moved forward with its field renovation program and continue to shift capacity to international and cross-border services, which has resulted in a higher revenue per kilometer. Shifting gears, speaking about M&A activity in June, we closed the acquisition of BBA Logistics, a door-to-door and cross-border cargo brokerage company in the United States. With 100% asset-light model, which mainly offers door-to-door service from Mexico to the United States and back. With this addition, we complement Traxporta with control of cargo operations into American destinations and a strong commercial leverage within Traxion's client base to whom we can now offer the complete service to the U.S.A. using Traxporta technological platform. This is a very relevant milestone as it marks our entrance to the United States market, a natural step to the company's international expansion. And yet an additional service to continue to size nearshoring opportunities. As you can see, we are very active working hard to capitalize the most profitable and strategic opportunities. Thanks for your attention. I will now hand over to Rodolfo, Wolf, Antonio for a more detailed discussion on financial and operating figures. Rodolfo?

Thank you, Aby. Good morning, everyone. There are many positive highlights to point out this quarter. First, we continue with our growth plan in the People Mobility segment. Perhaps the most important milestone is that we started operations with more than 300 units for new clients. This is especially relevant as it represents about 1/3 of our growth budget of the year in this division. As a result, we are operating an average of more than 1,000 buses in this segment compared to the same period of last year. We also concluded the setup of our first operational mobility of people in [indiscernible], which is also very important as the city has been capturing much growth from the nearshoring trend and is expected to continue to expand significantly. We are entering this market with great momentum, taking advantage of our operating capabilities, commercial muscle and IT platforms. We believe that Traxion is going to be able to expand and gain market share in such location in the following years. Finally, we launched an online app in this segment aimed to clients that require special treats and private charters. With this technology, we believe we will be able to provide as much better service as we maximize our fleet utilization. Moving on, our 3PL business continues to grow. Warehouse area under management expanded an average of more than 148,000 square meters compared to the same period of last year. 24.5% more area indeed a relevant figure that was driven by both the [ firm ] operations and a strong response to commercial activity in our typical 3PL business. In terms of Mobility of cargo, we continue with our renovation and fleet management program. The average fleet decreased more than 100 units. Kilometer volume decreased 12% as well. However, revenues showed a marginal increase of 2.8%. Despite of that, EBITDA came in more than 48% higher than the second quarter of last year, mainly driven by an increase of 18.8% in revenue per kilometer. This was achieved by increased activity in specialized cargo operations, which typically carry better economics with reduced distances, which basically means that we're becoming increasingly more efficient on a per unit basis. All of that resulted in an EBITDA margin of 21.2%, which is well within our long-term targets. We expect it to keep operating in this segment with such efficiency. As you can see, we continue to be very busy, and the prospects for last year are looking promising. Thank you for your attention. With this, I end my remarks. Please, Wolf, go ahead.

Thanks, Rodolfo. Hello, everyone. Welcome. There is a healthy double-digit growth in our business segments that was driven by both price and volume. The Logistics and Technology division posted an almost 50% growth in revenue and more than 20% in the mobility of People division. Consolidated margin expanded 200 basis points compared to the same period of last year. Most relevant is the 651 basis points expansion in the mobility of Cargo segment to reach 21.2%, a much normalized level compared to 2022 and was driven by increased efficiency in the fleet management that resulted in a healthy expansion in revenue per kilometer and a much better cost management. The margin expansion in mobility of people is also very noteworthy with 262 basis points compared to the same period of last year, driven also by the cost efficiencies as in Cargo. This is especially relevant as the segment continued to experience a tremendous growth rate. Speaking about net income came in at MXN 112 million which is a decrease of 18.2% mainly driven by the comprehensive financial result as the company recorded more gross debt than the last year and with a higher interest rate environment, which has basically doubled interest expense, since the second quarter of last year. This was the bulk of the impact in net income. In terms of debt, there is a 46.5% increase in total debt compared to the same period of last year, mainly due to a natural expansion of the business and the M&A activity in the second half of 2022 and in 2023. Finally, I want to remind that in the last 12 months, Traxion has conducted a significant amount of investment, including the CapEx running as planned according to our guidance. Having said that, these investments still needs to mature and contribute to the company's profitability. We expect to see those benefits in the next quarters. Thanks for your attention. I will now hand over to Antonio.

Thank you, Wolf. Financials and operating metrics this quarter are better than both the second of 2022 and the first of this year. Indeed, the efforts that management put in place last year to offset the impact of fuel increase and the contract negotiations conducted to pass through the growth in operating costs have proven successful. It is very important to highlight that this quarter, general expenses recorded an increase of 52.3%. Please bear in mind that last year, due to the steep increase on fuel costs, management put in place an expense reduction program in an effort to offset the negative impact of fuel. Such reduction took place for the last quarter of 2022. We always said that it was not sustainable to run a company with such a reduced expense program. This quarter, however, the expense level has normalized, and it is similar as a percentage of revenue as in 2021. So please keep in mind that the increase in expenses has to do with the normalization of operations. Shifting gears, it is very important to mention that the nearshoring trend continues to present us with very interesting opportunities, especially in the Bajio and North markets. We are looking at expansions with current clients, together with new companies starting operation in several industries, especially in the automotive and electronics. Demand is very strong, even stronger than what we expected when we budgeted 2023. Moving on in terms of ESG. This quarter, Traxion concluded the climate change risks and opportunities analysis to appraise the different scenarios under the task force on climate-related financial disclosures framework. The results are going to be available on 2022 integrated report to be published later this month. Also, during the first half of 2023, we have been working to pave the way to develop a health and safety management system in line with the ISO 45001 norm based on an integrated strategy to better manage risks and preventive medicine. Finally, in the first page of highlights in the earnings release that we shared with you yesterday is a link to a materiality analysis survey. We kindly ask you to help us by completing such survey this week. It is very important for us. With this, I wrap up my remarks, I will now open the floor to Q&A. Thanks for your attention.

[Operator Instructions] And the first question today is coming from Luis Yance from Santander.

Two questions from my side. The first 1 is, given the stronger-than-expected growth that we've seen, especially on -- on the top line dynamics, as you mentioned, a very strong logistics in particular. How should we think about the second half of the year, especially related to your guidance? You seem to be way above your guidance. Just an update on that one would be very helpful. And then the second question is -- has to do with the margins. It looks like we -- we've got a very, very nice inflection point on the margin side, mainly on logistics, which have been the one -- kind of suffered in the past couple of quarters. It looks like sequentially, we saw an improvement. So you could comment a little bit on the sources or the drivers of that improvement and whether that sort of improvement we should continue to expect as we move forward. Those will be my questions.

This is Antonio. Thanks for your questions. First, let me answer your first question in terms of guidance. We are doing good, as you saw. We do not see any relevant difference as of today to change our guidance. But of course, if something changes or if we see something else or something more relevant, we will communicate immediately. But so far, we are comfortable with the figures of guidance. And as to your second question, yes, indeed, margins have evolved and have recovered from levels of 2022, and that had to do mainly because many of the investments and the initiatives and projects that we invested on in 2022 and 2023 have started to mature. And if nothing else happens and if current conditions prevail, we should see quarterly margins around 19%.

The next question is coming from Lucila Gomez from Compass Group.

Congratulations on your pretty good results. And my question would be more to do with the leveraging -- now I understand that you have been doing great on M&A and internal growth. I just want to know, moving forward, what are your plans on that? Are you planning to maybe continue looking for possible M&As? Or do you think you're going to start seeing gradual leverage reduction?

This is Wolf. Thanks for your question. Regarding the leverage of the company, as you may know, the company has an internal policy to the below 2.5 net debt to EBITDA. So we will be below that ratio, and we will continue to grow but with that limit -- internal limit. So will not be above that limit. So we will continue with that policy in the company.

And the next question is coming from Pablo Monsivais from Barclays.

I just wondering about your CapEx plan for the medium term, especially on the personal transportation, demand seems very strong. So what are your medium-term expectations on the amount of money that you will need to cover that demand?

Pablo, good morning. As you may notice also in this report and also in the history in the company, the growth in that segment is very stable with a double-digit growth. So we will continue growing in that line, we continue to see a heavy demand on that side of the services. So we will continue even though with that grow, we will be very careful and disciplined with the 2.5 net debt to EBITDA. So as much as we can grow, we'll be limiting to that internal policy.

[Operator Instructions] The next question is coming from Martín Lara from Miranda Global Research.

Congratulations for these results. I have one question. How do you see the sales growth in the next few quarters in mobility of Cargo?

Martin, this is Antonio. Thanks for your question. As we have said, our short-term goal for the mobility of Cargo segment is to grow in the high single digits or low teens. However, this quarter, you saw a softer growth in revenues. However, if you also see further, you're going to see that our gross profit for that segment grew almost [ 80% ] with less fleet. So the plans are not to grow the fleet, but to capture -- continue to capture organic growth of Cargo via Traxporta and to shift our capacity towards more international cross-border and specialized cargo, which usually carry better economics in a per kilometer basis, and that's going to translate into high single digits, low teens moving forward in this segment.

The next question is coming from Jay Singh from Citi.

This is Jay Singh from [ Steve Trent's ] team. Any high-level view on the logic behind the reduction in the kilometers truck and the lower average fleet for the Cargo Logistics segment? Or was it purely efficiency-related?