Grupo Traxión, S.A.B. de C.V. (TRAXIONA) Q4 FY2025 Earnings Call Transcript & Summary

Greetings, and welcome to Grupo Traxión Fourth Quarter '25 and 2025 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Aby Lijtszain, Executive President and Co-Founder. Thank you. You may begin.

Thank you. Welcome, everyone. There are many positive matters to discuss. Despite the challenging and complex year that ended, perhaps the most important milestone of the year is the acquisition of Solistica. This is a tremendously accretive transaction that has transformed the asset-light profile of the company and is also remarkably strategic as we set even higher the barriers of entry to the logistics and transportation sector in Mexico, and Traxión further emphasizes its leadership in the industry. The integration was fully completed within 2025 and synergies started to become apparent in operations, finance and most importantly, in the commercial front. Moreover, as you know, we took debt to pay for the acquisition, which has proven to be effective as our leverage ratio ended the year exactly at the same level it was just before the transaction took place. This means that we were able to create additional value as we integrated such a successful company into our platform. Just to put some context, this is exactly the level at which we invest for organic growth below 4x EBITDA. In summary, we bought a large successful company, which has proven to be a perfect fit, perhaps the best in our history. Moving on, we achieved our guidance figures and did so taking care of operating cash flows, while maintaining a healthy leverage ratio well within our comfort zone. As usual, we released our guidance for 2026, which considers a growth of approximately 10% in both revenue and EBITDA with a CapEx of around MXN 2.4 billion. This basically means 2 things. First, there is a small margin expansion implicit in those figures, which could lead to lower leverage. And second, while the absolute number of CapEx might seem high, it is not when we look at it as a percentage of revenue. which is a significantly lower figure compared to other years, especially 2023 and 2024. We are starting to see stabilization in our business. and many investment and expansion decisions that were on standby are materializing. We definitely see a better outlook this year compared to 2025. Nonetheless, we will be conservative and proceed with caution this year, reducing CapEx and preserving cash flows. Finally, please be advised that since the asset-light component will become increasingly more relevant in 2026, accounting for a majority portion of revenues, EBITDA margin should be around 16% moving forward. This is the new standard for our margin from now on. Even though this new level is lower compared to past years, there are also significantly lower CapEx requirements to grow with a higher contribution to profitability. With that, I end my remarks today. I will now hand over to the others for a deeper dive in operating and financial matters.

Thank you, Aby. Good morning, everyone. I will now walk you through the most relevant operating details. The Cargo division continued with disruptions in some circuits. Such phenomenon has been caused mainly by instability in the demand driven by peaks and valleys in both cross-border and regular services. This resulted in a 7.9% decrease in kilometer volume and 7.5% in revenue per kilometer. In the period, however, for 2025, we experienced an overall increase in revenue per kilometer with 8.2% less volume with some efficiency in costs. Moving on to mobility of people, we posted a smaller growth rate that was planned like that. As you know, for 2025, we decided to be more conservative towards expansion in this division. We carried out a plan to increase our clients' profitability. And for the first time, there is a fleet renewal program in place in this segment. This basically means that we are increasing the asset utilization rate to reduce CapEx requirements. All that resulted in a marginal growth in the average fleet, a reduction in kilometer volume and a mid moderate single-digit growth in virtually all relevant metrics despite the challenges and complexities we experienced throughout the year. Moreover, such efforts have started to pay off, and we will see results as soon as the first quarter of this year. We continue to implement and upgrade our proprietary technologies, increased the utilization of artificial intelligence and broadened several best practices, guidelines that have resulted in a stronger commercial and human capital backbone. Finally, in the Logistics and Technology division, we experienced greater-than-usual revenue this quarter. Traxión participated in large vaccine distribution business in November and December, which generated more than MXN 2 billion of revenue in the period. Despite having a lower-than-usual margin, it was a profitable business because of its 0 CapEx nature and is proof of the company's large operating capabilities and highly specialized service. As you can see, even though there were disruptions and challenges this year, Traxión was able to deliver once again. Having said that, I will now hand over to Wolf.

Thank you. On the financial side, there are several financial metrics worth elaborating. First, one of the most relevant figures this period is operating cash flow. It more than doubled during the quarter, mainly because of much better working capital management. For the year, such metric posted a 33.2% growth compared to 2024. Then we posted a 2.2x leverage ratio, which as Aby just mentioned, is especially relevant since it is basically the same ratio we reported just before acquiring Solistica, which translates into a very accretive transaction as we typically deploy organic CapEx at such levels. Since we took debt to pay for a great portion of Solistica, it is important to bear in mind that such amount was fully reflected in the balance and in the cash flow of the company with the caveat that Solistica only reflected 6 months of results in 2025. So cash flow should look better if we look at the pro forma with 12-month basis. Moving on, I want to comment on net income as the annual figure came down more than 24% than in 2024 and was mainly driven by higher interest expense due to investments executed during the year that will reflect the full benefit in 2026, together with the negative effect of foreign exchange and tariff uncertainty, resulting in fluctuation in customer demand and volumes, both in cross-border circuits and regular services, which led to less kilometers driven and lower prices, mainly impacting temporarily our mobility of cargo and logistics businesses. Despite this, both our gross profit and operating income remained virtually unchanged, which is good news. In terms of CapEx, our guidance for this year is MXN 2.4 billion, with approximately 60% allocated to fleet renovations in both cargo and mobility, 25% for organic growth and the rest is for technology and innovation. Please bear in mind that this absolute figure is significantly lower than in other years as a percentage of revenue. Also, we expect EBITDA margin for 2026 to be around 16%, which will be mainly driven by a higher contribution of the asset-light business lines to consolidated revenues. All that is part of our strategy to proceed with caution this year, privilege cash flows and organic growth mainly through our asset-light business and take more care of leverage as we have some initiatives this year to improve company profitability. Thanks for your attention. I will now hand over to Tonio.

Thank you, Wolf. I will now walk you through some relevant ESG milestones and other tech-related developments. For the second year in a row, Traxión was included in the Global Sustainability Yearbook of S&P, which is one of the most prestigious and comprehensive rankings in terms of sustainability. This achievement represents the most compelling proof of the company's commitment to best ESG practices and of the transparency of our communications and disclosure. This inclusion gains a special relevance if we consider that there are more than 9,200 companies from 59 industries assessed globally and only 848 were selected as part of this year's addition, which positions Traxión as 1 of only 2 Mexican companies of the transportation and infrastructure sectors to be included. Moving on. During the fourth quarter, Traxión received its corporate sustainability assessment ranking for 2025, which came in 8 points higher compared to 2024 and places Traxión within the top 4 percentile and in the 11th place of best ranked companies in the industry globally and #1 in Mexico in the sector. This assessment allows an accurate comparison of the performance of all companies within a broad range of ESG-related criteria is available to an ever growing universe of investors and represents the most renowned sustainability database within global indices. Finally, another important sustainability milestone is that this period, we incorporated data regarding renewable electricity generation from solar panels installed in our facilities. This is indeed very good news and a tremendous step in terms of emissions reduction and energy efficiency as we continue to expand our logistics footprint and presence. Thanks for your attention. With this, we conclude management remarks and open the floor to Q&A.

[Operator Instructions] Your first question comes from Pablo Monsivais with Barclays.

I have 2 questions. The first one is if you can provide more detail on the increase in revenues in the logistics sector. We saw that you won a project in the pharma sector, but would love to have more visibility on that. And my second question is on your guidance. If we account from the contribution of Solistica for 2026 and we compare your guidance for 2025, it seems that implicitly cargo revenues are still are negative or that cargo will have a tough year in 2026. What's going on in that business? If you could provide more color, it would be very helpful.

Pablo, this is Tonio. Can you repeat the first question? It wasn't very clear. We didn't catch it well.

On the increase in revenues in the logistics sector and the project that you have on the pharma side.

Pablo, thank you. It was a vaccine distribution operation. We were able to participate mainly because of the large operating infrastructure that we have and the high-quality service in the pharma division. It was a first time for us. It was a particular event, and we believe that we delivered a better-than-expected service, and we feel very confident that there is a high chance of repeating it this year. However, that business, in particular, is not included in the guidance.

Pablo, and regarding your second question, in terms of the guidance, basically, as Tonio just mentioned, we didn't include in the guidance to repeat this particular project, even though we think that, that could be repeated by the end of maybe 2026. So if you consider that, let's say, without putting in the base of 2025, basically, the growth that we are projecting for 2026 in terms of revenue, it will be close to 17%. So that's what basically moved the company back to the margins and back to the regular track that we had in the previous years.

Your next question comes from Martín Lara with Miranda Global Research.

What can we expect in terms of EBITDA margins in mobility of cargo and mobility of personnel this year? And could you please provide the CapEx breakdown between maintenance and growth? And how do you see the fleet performing in cargo and personnel?

Martín, regarding your first question, considering the margins in the cargo and mobility of people divisions, I would say, basically, we are looking for something similar. As you can see, usually in the Mobility of Personnel division, we are something close to the 26% margins. And regarding the Cargo division, it was at the end, something between 18% and 19%. So we are expecting something close to that considering the FX rate as of now. And even though it could be better maybe in the second half of this year in particular. And regarding the details of the CapEx for 2026, it is basically the renewal CapEx will be almost 50% of the CapEx that we are expecting. We are going to be growing a little bit on the mobility of people division basically and renewal CapEx only for the rest of the asset-heavy divisions.

Okay. And what can we expect in terms of free cash flow generation?

Considering, in particular, this guidance, and as you can see also in 2025, we're privileging more the cash flow generation. As you can see, in particular for 2025, the operating cash flow, it will bump up over 30% for the previous year. So this is part of the strategy of the company to privilege the cash flows and even though to get a free cash flow in an organic way for 2026.

Your next question comes from Enrique Cantu with GBM.

Congrats on the results. So as part of your evaluation of potential M&A opportunities in the U.S. Could you elaborate on the type of assets you are currently assessing? And additionally, how should we think about the expected timing for a potential transaction?

Enrique, thank you for your question. What we're looking at for M&A in the U.S. is we want to participate in the cross-border business, which we believe is a very attractive market currently. And that's where we are focusing our efforts.

Okay. Perfect. And then do you have an expected timing for this transaction?

No, we don't have anything defined yet. We have some targets. We've been working analyzing, but we don't have anything definite as of today.

[Operator Instructions] Your next question comes from [ Arturo Leal ] with [ Imberco ] Asset Management.

My first question relates to shareholder value creation. While we recognize the company has been executing on its growth strategy, remains focused on M&A, the stock price has declined by nearly 70%, which appears to reflect meaningful investor concern. Could you elaborate on what you attribute the decline to? And more importantly, what concrete actions have been taken or planned to enhance shareholder value? At what point do you expect balance acquisition-driven growth with a clear and more measurable return framework for investors? And secondly, regarding foreign exchange dynamics with the peso strengthening relatively to the U.S. dollar, how does that impact the company, positively or negatively?

[ Arturo ], this is Tonio. Thanks for your question. I'm going to answer your second question first. The foreign exchange has 2 effects basically in the company. The first one is that a portion of the trucking revenues are denominated in U.S. dollars, basically the portion that we do in cross-border services. That has an impact and has had an impact historically when -- with a stronger peso. What we are looking at this year to offset that negative effect is that we are adjusting the prices to reflect a more accurate exchange rate, which is on the 17.2% range. And the second effect of foreign exchange in the company is that we hold a position in U.S. dollars. And when we do the mark-to-market, we do -- we record either a profit or a loss depending on what's happening on the markets. And regarding your first question, we are very worried about the share price as well as you. And that's a matter that is of utmost important for the company. One of the things that we are doing to reverse that situation first is obviously improve the results of the company for 2026. In 2025, we faced a very challenging year, but we were able to protect the balance to privilege cash flows. If you see, for example, operating cash flow in the quarter, in the quarter, it went up more than 100% and in the year, more than 33%. That's a very, very, very meaningful milestone for the company. 2026, we're going to reduce CapEx. We're going to be more conservative towards investments in growth. And that naturally privileges cash flows and protects the balance. We are expecting a normalization, stabilization and then a recovery this year. And then we are always striving to be close to our investors, to our research analysts to be able to respond quickly to their concerns and so that they have information to make their decisions. So those are the actions that we're taking towards more value creation for our shareholders.

Just a follow-up, if I could. Do you guys expect to do any share buybacks at this price considering the price and the value of the company or maybe distributing some dividends to investors? Or the sole focus is to continue growing the company and maybe paying back some debt?

Thank you, [ Arturo ]. Yes, we have been doing some buybacks at this level. We think it's a very strong message to the market that they see us participating at this level. We think it's ridiculously cheap, the valuation right now. And in terms of dividends, we are not looking at that right now. The company is in a growth mode, and we are using all the cash that we generate to grow and to be able to maintain the operations of the company.

Your next question comes from Daniel Rojas with Bank of America.

The first one is on your costs. Thank you for breaking down the items in your press release. I was seeing that you had an increase of around 124% to 125% due to facility services and utilities. I was hoping you could give us additional comment on that and drill down on what's happening there and if that will normalize going forward? And on your other cost items, what we should expect going forward? And my second question is regarding the Cargo division. You gave us guidance for that, but I was hoping to get some color on what you expect as we move into the second half of the year and maybe we get a resolution of the USMCA. Are you seeing your clients getting prepared for that? Or is it too early? I'm trying to think of 2027 and it should be a recovery year? Or should the Cargo division numbers be more normalized to what we see in 2026?

Daniel, this is Wolf. So regarding the cost level, basically, it was, let's say, affected by 2 particular things. First one was the particular project that Tonio already mentioned about the pharma vertical. So basically, that's one of them. And the other -- and the rest of that in terms of the facilities, basically, it's the inclusion of Solistica into the numbers of Traxión. And obviously, all of that related cost to the third-party units that we use basically in the brokerage business. So that's basically the 2 main things that kick up the cost. So one as of now was a particular event in the fourth quarter that could be, again, repeated by the end of 2026. It's something that it comes with a seasonality of that business. And the rest is basically the growth considering more in the asset-light business and the expansion of the brokerage business. And regarding the second question, considering on the cargo side, basically, we're looking at better economics for, let's say, for the second half of 2026. We're starting to see some clients that basically in 2025, postponed their investment decisions in several industries considering the tariff environment. And the [ talks ] that we have with them, it's basically that they're taking some of that decisions currently. So we expect a stabilization in that demand. And obviously, with that, we can stabilize also the prices into that particular division. So regarding that question, we're seeing a much better second half of the year in the Cargo division.

Your next question comes from Andres Radin with The Rohatyn Group.

Regarding the pharma project, could you repeat if it's a onetime thing? Can we expect it for the next year? And also, if you could repeat if you made any adjustments in the guidance regarding this project?

Andres, this particular project is -- it comes with a seasonality of that particular need. So we operate for the first time of the company in the fourth quarter of 2025, and we are not projecting in our guidance for 2026, even though we think that with the work that we did in that particular project and it was successful, I think maybe we could be doing it again by the end of 2026, even though we didn't consider in this guidance.

Your next question comes from Federico Galassi with The Rohatyn Group.

Two questions. The first one is a follow-up of Andres' question. If I do the math for this particular project in pharma, the dimension of this business was almost flat, almost zero, it is okay? And if you can give you some more information about that. This is the first question.

Federico, so as Tonio mentioned, in particular, and Rodo, this project, it was the first time that we executed in Traxión. The margin of this business was less than 5% with 0 CapEx. So it was basically all ready for the company, even though we experienced the first time executing this kind of project, basically, based on the infrastructure of the company. So if we are able, obviously, to repeat that by the end of 2026, hopefully, we can get much better economics on that project.

Okay. Okay. It's a project that can give you more revenues in the future. And the second one, and you're reducing part of the net debt to EBITDA after Solistica, et cetera. But the interest payments continue to be a big portion of the EBIT and you -- how's your view for that for this year, in particular in the leverage side?

So regarding the interest expense for 2026, there's 2 different things that will be important to mention. The first one, it's obviously that the rates come down during the last 12 months. So that will be basically affecting positive, let's say, the expenses in terms of interest. And the second one, as we mentioned also, we are putting less CapEx for this year. So with that, we are deleveraging the company more than it was on average on 2025. So with those 2 things, we're experiencing less, let's say, interest expense for 2026. And that's basically what we are projecting. As also -- maybe you know last week, we issued a new bond also in the market. So we'll continue looking for different strategies to make more efficiencies also in the debt side.

You continue after Solistica with your net debt target for the year? How is your...

We're looking at -- more close to 2x.

Thank you. This now concludes our question-and-answer session. I would like to turn the floor back over to Aby Lijtszain, Executive President and Co-Founder, for closing comments.

We are looking to a double-digit growth in the low teens for this year with much less CapEx while privileging cash flow generation and preserving the balance. The market is starting to stabilize. There are many clients across different sectors that put off their investment or expansion decisions in 2025 that are currently making such decisions, and Mexico is still a very competitive destination for many industries. We are confident that 2026 will be a normalization and recovery year. Thanks for your attention, and have an excellent weekend.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.