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

[Audio Gap] The movement in freight markets in recent years, we continue to deliver solid results, generate strong cash flow and make meaningful strategic progress and [indiscernible] market, volatile fuel prices and heightened geopolitical uncertainty created a significant headwind for the transportation investment, particularly for asset-based businesses. That resilience comes from the diversification we have the years, while our Carper business continued to operate in a software [indiscernible] logistics division delivered healthy growth and the profit of people business remains stable. Together, these 3 business segments allowed us to perform well despite a very complex macroeconomic environment. Over the past several years, we have deliberately transforming [indiscernible] company into an integrated logistics [indiscernible] platform. That transformation is making our business more diversified and resilient. There are 3 reasons why we remain confident about Traxión's future. First, the integration of Solistica continues to exceed our expectations and is accelerating our transformation into Mexico's leading integrated logistics platform. Second, after an extended down, we are beginning to see the first encouraging signs of recovery in the freight market. Third, we are using this part of the cycle to fundamentally improve our efficiency, position in tax into [indiscernible] stronger when the market fully recovers. Starting with Solistica, the integration has progressed exceptionally well. Beyond the factor operational synergies, we have developed significant commercial opportunities by combining the strengths of both organizations. Together, our commercial teams have built a sales pipeline of approximately MXN 1 billion above our regional budget. We expect to execute over the next 12 months. During the quarter, our revenue mix continues to evolve. Logistics increased contribution to consolidated revenues, while cargo revenues declined, reflecting lower [indiscernible] rate rates, softer volumes and the migration of selected consumer volumes to our transporter platform, rather than waiting for the market to recover, we decided to launch a comprehensive reorganization program aimed at making the business more efficient and better deposition for the next phase of the cycle. This program includes optimal asset base selling our organizational structure, reduced the capital expenditures by approximately MXN 500 million and leveraging our Traxporta platform to improve capital efficiency. Once fully implemented, these initiatives are expected to generate monthly efficiencies and pricing adjustments that will help to reverse recent adverse effects. As of June, we have already achieved about half of that objective. As a result, when trade market conditions normalize, we expect to meet with a significantly stronger competitive position. On the trade market, after more than a year of difficult conditions, we are beginning to see encouraging times of normalization. Pricing equipment volumes have become more consistent and demand has strengthened towards the end of the quarter. We remain prudent. These early indicators reinforce our confidence that market conditions are gradually improving. Volatility in fuel prices continue to have an adverse effect on our asset-based business lines during the quarter. However, our contractual fuel pass-through mechanisms have already been triggered. As you can see, we have been very active. Rather than simply navigate market, we have used this period to transform the company, strengthen our operating platform and improve our long-term earnings potential. We believe the actions we are taking today with that allow from the cycle as a stronger company with a more efficient operating model, a broader logistics platform and enable it to value for shareholders. Thank you for your continued content [indiscernible] With that, let me turn the call over to Rodolfo, who will review our operating results in greater detail.

Thanks, Abi. Good morning, everyone, and thank you for joining us today. One of my key method is this morning is that we are seeing a much [indiscernible] environment. Revenue from our Logistics and Technology segment increased by more than 124% year-over-year. This performance was primarily driven by the integration of Solistica as well as a solid recovery across the business. Growth was supported our commercial pipeline that significantly exceeded our expectations, continued operational efficiencies and strong demand in both Contract Logistics and Traxporta. As a result, EBITDA nearly doubled, reaching a margin of 8.0%, which is above the level we anticipated when we completed the Holistic acquisition. Turning to our cargo division, revenue declined year-over-year, primarily due to a typical demand environment that continued to pressure pricing. In addition, part of the reduction reflects the strategic migration of certain operations from our assets business to Traxporta our asset-light platform. The corresponding revenues are now recognized within the Logistics and Technology segment following the organizational changes implemented during the [indiscernible]. That said, we are encouraged by the early signs of recovery across the cargo market. Over the first time in the last 4 quarters, we are beginning to see more favorable industry dynamics. June showed sequential improvement compared to both April and May. Pricing has started to recover in selected ligands, while volumes and customer demand are becoming increasingly consistent trends, we remain optimistic about improved upgrading and financial performance during the second half of the year. Finally, our Mobility of People division delivered 6% revenue growth, driven by targeted opportunities. During the quarter, we also advanced the refurbishment of approximately 400 buses, which we expect to deploy into operation during the second half of the year. Overall I believe our results by seeing our operations. We are also seeing encouraging signs from our customer base with some clients return to historical levels, while others are resuming investment and operational decisions that had been deferred over the past year. While we continue to navigate a challenging economic and political environment, we are encouraged by the gradual normalization taking place across our markets. Despite the continued headwinds affecting our cargo operations, we believe the company delivered a solid set of results this quarter. We are also well positioned for continued improvement with that. I will conclude my remarks. Thank you for your attention. I will now turn the call over to Wolf.

Thank you, Rodo. There are many topics I would like to discuss in greater detail. However, the key message I want to leave you is that traction delivered a solid set of financial results despite a challenging operating environment. As a highlights are the significant improvement in operating cash flow and the disciplined reduction in capital expenditures. These results reflect management's proactive and defensive approach to navigating the current macroeconomic and industry conditions while preserving financial flexibility. As shown in our results Net operating cash flow reached MXN 1.9 billion, driven by the actions we implemented throughout the quarter. CapEx totaled MXN 246 million allowing the company to generate a record level of free cash flow, fully aligned with our financial goals for the year. Despite the headwinds, we maintained stable leverage compared with previous quarters. In addition, interest expense remained essentially flat year-over-year, even considering that the debt incurred to finance the holistic acquisition was not yet in the comparable period. [indiscernible] by the end of the first quarter and have remained highly volatile since then. This volatility has made the fuel pass-through process more challenging as pricing discussions with customers have become increasingly frequent, the rapid and unpredictable price movements. Regarding fleet maintenance, year-over-year costs increased for 2 primary reasons. First, we are executing a refurbishment program covering approximately 400 older buses, which will soon return to service with renewed operating capabilities. Second, we are providing maintenance services to third sematic fleets associated with the Solistic operation which also contributed to higher maintenance expenses. In summary, despite the performance in our cargo operations, higher fuel costs and a complex macroeconomic political backdrop, Traxión delivered resilient quarterly results while strengthening cash generation and maintaining financial discipline. We believe the results demonstrate the resilience of our business model and the effectiveness of our operational strategy. Thanks for your attention. With that, I will conclude my remarks and turn the call over to Tonio.

Thank you, Wolf. Good morning, everyone. I recognize that many of you may have low guidance. Let me begin by reiterating that we remain confident in our ability to achieve our 10% top line growth target. However, as reflected in our second quarter results, recent volatility in fuel prices has placed pressure on our margins. The last time we experienced a comparable impact was in 2022. Fuel pass-through clauses were activated promptly. We recorded approximately 200 basis points of negative impact on our EBITDA margin for the full year. We are currently facing a similar dynamic. Should oil price volatility persist -- our margins could experience an impact out for on consolidated margin through year-end. This is not necessarily a negative development. It reflected a lower margin, but a higher contribution to profitability. In summary, we are maintaining our current guidance at this stage as we do not yet have sufficient information to warrant to and we'll provide an update of our outlook changes materially. I would now like to turn to several important milestones in our sustainability strategy. For the first time, we published our sustainability report in accordance with IFRS, S1 and S2 providing disclosure on the climate-related risks and opportunities that could affect the company's operations and long-term prospects. In addition, traction retained its inclusion in the Dow Jones best-in-class. Media Pacific Alliance Index, remaining 1 of only 4 companies across Chile, Colombia, Mexico and Peru included in the select group. We also achieved committed enterprise status under the EcoVadis assessment. EcoVadis applies its methodology to more than 90,000 companies globally and evaluate performance across environmental ethics, sustainable procurement. Human rights, we remain firmly committed to advancing our with long-term objectives and strengthening our ESG strategy. With Europe just in the region and that across selected metrics, our performance compares favorably with leading companies globally. Thank you for your attention. This concludes our prepared remarks, and we will now open the call for questions and answers.

[Operator Instructions] And your first question comes from Anton Mortenkotter with JPM.

I have 2 questions. One, first, if you could refresh us on how much impact on your P&L does the peso appreciation have across your 3 segments? And also another one. I was looking at the ESG reported metrics. And when I'm looking at the fuel economy or the fuel efficiency metric. It's one of the lowest in the last couple of years. I was just wondering if this metric has anything to do with the restructuring that you are curing ongoing on your flavor or if it anything else?

This is Tonio. Thanks for your question. I want to answer your second question first. Yes, indeed, if we in the measure that we are able to be more efficient in the size of our fleet, of our cargo fees, we we posted around 40 to 50 in are less trucks in the fleet this quarter. And if we continue to modernize our fleet, that metric should be lower progressively. It is not something that is going to change in 1 year, sadly. And that has to do because of the development of new engines. But yes, that's a metric that should be lowering as time goes by.

This is Wolf. And regarding your first question, basically, around 16% of our revenues are nominated in the U.S. dollar. So basically, if we compare that to the previous you are having a personal mixicanpeso 1% to 13%. So that was basically the impact that we had in our revenues and obviously over to the bottom line.

Your next question comes from [indiscernible] Global Research.

[indiscernible] following the launch of personal realtime -- what are the key milestones in the execution time line that we should be monitoring? And regarding the growth reducing balance sheet leverage at year-end which labor support it and how do you see trajectory playing out in the second half?

Felix, this is Tonio again. I think you're having a bad connection. We did not hear you clearly. Can you please repeat your questions?

Sure.

Just feel you're breaking up quite a bit. Are you on the speaker phone? Or could you try another connection. Okay. I think we cut a couple of details of your questions. I one of your question was about the leverage target for the year.

Yes. That was my question.

We expect to be levered around between 2.2x and 2.3x much in line as you saw the closing of 2025. That's the target.

Okay. Congratulations on the results.