Grupo Traxión, S.A.B. de C.V. ($TRAXIONA)

Greetings. Welcome to Grupo Traxión 1Q '26 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Aby Lijtszain, Executive President. Thank you. You may begin.

Thank you, and welcome, everyone. I will start with a high-level overview before handing it over to the team for further detail. we continue to experience cargo division, primarily driven by microeconomic and geopolitical uncertainty. The current tariff environment has resulted in a irregular demand patterns, reduced client activity and pressure on volumes. This in turn has intensified across the transportation industry. Looking ahead, we anticipate 2025 will remain a challenging year. We expect continued volatility in demand and operations, ongoing pressure on pricing and temporary increases in fuel costs. As you know, our contracts include fuel pass-through mechanisms, which serve as a natural hedge against oil price volatility. We will begin executing these clauses shortly. However, there is typically a lag before their full effect is reflected. Most important, we view the current fuel price movements as temporary and less severe than those experienced 4 years ago. In this context, we are taking a disciplined and proactive approach. We are implementing a series of measures designed to mitigate downside risk and protect our financial performance. These actions include a reduction of approximately MXN 500 million in CapEx, a comprehensive reorganization of our cargo division, a reduction in the asset base, potentially up to 25% of the fleet, a reconfiguration of our administrative operational and commercial back office functions. At the core of this plan, is the rationalization of underperforming assets. By cutting down the least profitable units, we will reduce associated costs and expenses, generating an immediate and sustained positive impact on margins. In parallel, we see an opportunity to migrate part of this demand towards export, our asset-light platform, enabling us to retain client relationships while improving capital efficiency. Ultimately, this strategy allows us to share from a capital-intensive model towards a more scalable, asset-light structure. We expect the transition to enhance efficiency, improve asset utilization and strengthen the resilience of our business. These initiatives will also drive higher productivity in our existing resources and new capacity generated this year, while supporting our objective of reducing leverage by year-end. At the same time, we will continue to reinforce our operational infrastructure and financial flexibility, positioning the company to respond effectively when market conditions improve. Thank you for your attention. I will now hand it over to Rodolfo.

Thanks, Aby. Welcome, everyone. Good morning. I would like to speak about the main disruptions that have affected our business, particularly the Cargo Mobility segment.that comes mainly from 3 fronts: demand, exchange rate and fuel price. In terms of demand, last year, during the weeks after the so-called Liberation Day, we started to experience erratic demand from clients of many industries, mainly automotive, electronics and industrials in general, which disrupted overall supply chains that in the end impacted our logistics operations. Such disorders in demand happened through most of 2025 and have continued during the beginning of 2026. Moving on to the exchange rate. As you know, we have several multinational clients that have strong footprints in Mexico and large export operations into the United States. With a stronger Mexican peso and a weaker American dollar, such clients face financial challenges as they get the same amount of dollars for the goods they export, but they receive less Mexican pesos with their cost and expense structures in local currency. That has diminished their operations, which has had an impact in traction as we experienced two phenomena. One is a reduction in operating volumes due to the decline in our client activity and the other is that we have a portion of revenues denominated in American dollars, which has the same negative monetary effect as with our clients. Finally, the recent military conflict in Middle East has caused volatility in oil prices, which altered our fuel cost in March. As you know, we have a [indiscernible] close and are currently working with clients to put such close into effect. However, we do not foresee this conflict going for much longer. Having said all of that, I think you can see what has happened more with our operations with more clarity. We are starting to see some clients returning to previous operational levels. There are others starting to make decisions they put on hold last year. We hope to see some signs of normalization in the next quarters. With that, I end my remarks. Thanks for your attention. I will now hand over to Wolf.

Thanks, Rodolfo. This was a complex quarter, and I'd like to focus on 3 key priorities: cash flow generation, disciplined capital allocation and operational efficiency. First, on CapEx. We are reducing our original plan by approximately MXN 500 million, bringing it down from MXN 2.4 billion. This adjustment is primarily driven by our Cargo division where we are actively divesting underperforming units and halting their renewal. As a result, we are structurally lowering both costs and capital intensity. If pricing conditions do not improve in the near term, given the current macro environment, we are prepared to further optimize our asset base, potentially reducing up to 25% of the cargo fleet. This will allow us to better align capacity with demand and operate with a leaner, more efficient structure. At the same time, we are reviewing our client portfolio to identify those where we are unable to achieve the necessary pricing adjustments. In such cases, we will evaluate migrating those clients to [indiscernible], allowing us to maintain service while improving flexibility and returns. On capital deployment, we remain highly selective. We are prioritizing investments only in opportunities backed by strong fundamentals, long-term visibility and clear growth potential. As a result of these actions, we expect to strengthen our balance sheet and reduce leverage to below 2.2x by the end of the year. Our focus is clear: improving profitability and restoring positive net income through disciplined execution. Turning to costs. Fuel prices had a temporary impact this quarter. While we continue to pass these increases through to our clients, there is a lag of up to 2 quarters before this is fully reflected in our results. Finally, on interest expense, we saw a slight reduction year-over-year despite the investments made in 2025 and the Solistica acquisition, reflecting early progress in our financial discipline. Overall, we are taking decisive actions to protect cash flow, optimize our asset base and position the company for more profitable and sustainable growth. Thank you. I will now hand it over to Tonio.

Hello, everyone, and thank you for joining us. I will now cover the key operating highlights for the quarter. Starting with our Mobility of People segment. Growth was primarily driven by expansions with existing clients. More importantly, we delivered a meaningful improvement in asset utilization, in line with our client optimization strategy. As a result, revenue per kilometer increased by more than 10% year-over-year. On the cost side, we experienced some pressure during the quarter, mainly driven by higher fuel prices in March, which had a temporary impact on overall costs within the division. In parallel, we have launched a dedicated upgrade facility to refurbish older underutilized buses. This initiative is expected to enhance fleet availability, reduce our rational bottlenecks and optimize capital allocation going forward. We also continue to advance our digital capabilities, including the deployment of artificial intelligence tools to strengthen fleet maintenance and further enhance the customer experience. Turning to the Cargo Mobility division. While revenues declined year-over-year, there are some good news worth mentioning. We expanded our exposure to the pharmaceutical sector, which demands higher service standards and offers more attractive margins. In addition, we reallocated part of our fleet toward technology-related clients. Both segments have demonstrated greater resilience and lower volatility in the current environment. Notably, one of our cargo subsidiaries in the Bajío region was recognized as Logistics Supplier of the Year by Walmart, one of our key clients and a leading company in both Mexico and the United States. In our Logistics and Technologies segment, we are implementing targeted pricing adjustments as conditions in the contract logistics market begin to improve. At the same time, we have increased cross-border capacity to better serve our e-commerce clients with both volumes and pricing trends showing steady improvement. Finally, within our brokerage business, we are strengthening our operating and technological capabilities, which we expect will enhance our commercial execution, particularly following the full integration of the Solistica platform with [indiscernible]. Thanks for your attention today. With that, I will conclude our prepared remarks and open the line for questions.

[Operator Instructions] Our first questions come from the line of Alejandro Demichelis with Jefferies.

A couple of questions, if I may. On this reorganization of the cargo business, how should we think about the cost and the benefits that this could bring to the company? That's the first question. . And then the second question is, I think, Wolf, you mentioned that kind of with the pass-through of fuels, usually take kind of a couple of quarters and so on. So the question is, should we expect lower margins in the second quarter than what we have seen in the first quarter?

Alejandro, it's Wolf. So I'm going to start with your first question regarding the organization in the cargo business. Basically, what we mentioned during this quarter, it's -- we are putting in place all the, let's say, program in the price increase considering the actual FX rate and obviously, the fuel cost impact the rates in the market of our clients. So we're analyzing how we can migrate even though if we're not going to be able to rise all the prices to all of our clients that we have right now with this impact to migrate them to the asset-light business and operate them through Traxporta. So that will be basically where we're trying to achieve this second quarter. And that will, at the end, if we need to stop that unit and sell them, we will operate through the other one. So basically, bottom line, we will be gaining money instead of just being basically aligned cost and revenues on that side. Basically, we are expecting something that we can achieve in the price increase. But if we have some portion that we cannot, we will migrate to Traxporta. That will be the first one. And regarding the second one, basically, I will say that this particular pass-through, as you mentioned, if we go back to 2022, it was a hard impact even though harder than we get in this particular season, and it took us basically 2 quarters. We are expecting something basically below that time frame. As you can see, the prices are going down already. So I think the impact will be shortly, and we will be ready to make the [indiscernible] faster than that. But if we replicate the same that we did almost 4 years ago, it will take us basically 2 quarters.

Our next questions come from the line of [indiscernible] with Miranda Global Research.

Perfect. I have a following question. Do you think that the EBITDA margin guidance for this year is achievable? Could you please explain the 10% increase in average revenue per tamer in [ modelo ] personnel? And if you expect that trend to continue over the year? And finally, can we expect in terms of gasoline costs going forward?

This is Tonio. Can you repeat your second question? It was not clear for us.

Yes, sure. Could you please explain the 10% increase in average revenue per kilometer in mobility of [indiscernible] if you expect that trend to continue over the year?

I'm going to answer the second one first. This is the result of the price increase strategy that that we started last year, and that's starting to take effect into the P&L. And in terms of the second, you talked about the margin, right, the overall margin of the guidance?

Yes, if you expect to be -- this to be achievable.

So regarding the guidance, as we mentioned, we have different effects considering the macro environment plus this reorganization. So I think at the top line, we have different opportunities to consolidate even though during this year, not just in the cargo, obviously, in the rest of the other divisions in the business in Traxión . So we have different opportunities that we can think that maybe we can achieve obviously the guidance for the revenues. We're working, let's say, more in the other side. to obviously combine all of these opportunities to, at some point, benefit the company considering the organization that we're planning also in the cargo with the benefit in the other businesses. As of now and considering the fuel impact and all of that, we want to at least put in place this organization, to answer you, maybe over the next call to understand if this goes in the good path that we are expecting. And obviously, the field has also go down as maybe we all are expecting or we can put in place all the price increase at the right time. So we need to wait a little bit more longer to answer you if we will be able to achieve all of the guidance that we make. But as of now, we have different opportunities, at least in the revenue side to consolidate that opportunity and get there

[Operator Instructions] Thank you. This now concludes the question-and-answer session. I would like to turn the call back over to Aby Lijtszain, Executive President, for any closing comments.

This is not the first time we have navigated a challenging environment. Traxión has consistently demonstrated resilience across cycles, and we are confident in our ability to successfully manage through the current conditions. We are already executing the initiatives I just outlined and expect to begin seeing that impact on the near term. Management is confident that these actions will materially reduce volatility by reinforcing our focus on core operations, improving asset utilization and progressively mitigating the impact on net income and free cash flow. Thank you for your attention today, and have an excellent week.

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