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

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

Hello, everyone. Welcome. I will start with the acquisition of Solistica. This is one of the most important integrations in the logistics industry in Mexico and a great opportunity for us to expand and penetrate our footprint, both in the country and into the cross-border market, which is a very relevant opportunity for Traxión to exploit because it sizes profitability and our market position. This acquisition is transformational for us and tremendously strategic for our business plan. Solistica has a series of competitive advantages. Among the most relevant, are best practices, processes, management footprint and client base, just to name a few. We are working to blend them with our current advantages, and we'll take up the absolute best. Synergies are significant as well. We are looking at many efficiencies across the board, with a special focus on commercial and operating improvements, together with the usual financial advantages of merging such a successful company. You will be able to see them during the second half of this year. With all that, Traxión has become the absolute leader in Mexican logistics with a strong operating and commercial leverage in line with our long-term strategy to become increasingly asset-lighter in Mexico and pave the way towards an eventual expansion into the United States. We are very excited about the opportunity and believe that the benefits of the transaction will add a tremendous amount of value over time. Shifting gears, this was a difficult and complex quarter, both financially and operationally. We experienced a temporary disruption in volumes, both in logistics and in cargo. Such disruptions are short term and were mainly caused by the uncertainty of the tariff environment, which drove many of our clients to temporarily reconfigure their shipments, which affected their normal volumes, which translated into unstable activity into the United States and back. Today, we are looking at a better environment in logistics, and there have been some signals of normalization. However, we have taken action and have been approaching new clients to have an even stronger base and help mitigate any future impact. Moreover, the efficiencies plan we implemented last year helped tremendously to soften the negative impact of such disruptions. Having said that, and with Solistica already kicking into our platform, we are looking at revised figures for our guidance for 2025. We expect revenue growth to range from 14% to 16%, with an EBITDA margin between 16% and 17%. The CapEx figure is approximately MXN 2.4 billion for organic growth and fleet renovations. Please be advised that we expect to close 2025 with a leverage level very similar to what we reported previously acquisition, which basically means that the transaction will become even more accretive and profitable. Thanks for your attention. With this, I conclude my remarks. I will now hand over to Rodolfo, Wolf, Antonio for a deeper dive into operations and financials.

Thank you, Aby. Welcome, everyone. As Aby mentioned, this was a particularly challenging quarter marked by a high level of complexity driven by uncertainty, especially surrounding tariff-related developments between the United States and Mexico. I would like to share a few key operational highlights to help put things into context. First, as you have noticed, there were significant adjustments in the Logistics and Technology division, where we saw volume declines across nearly all our business lines. This was primarily driven by external factors, most notably tariff uncertainty, which led several clients to shift their shipping schedules, both for exports and imports. This resulted in temporary disruptions in some segments of the supply chain. Consequently, we experienced lower throughput across our 3PL facilities, including e-commerce and the short-term drop in volume processed through Traxporta. Fortunately, this trend was short-lived, and we are already seeing early signs of recovery. Additionally, the Logistics and Technology division no longer includes revenue from the B2C business line, which was largely phased out last year. This explains a portion of the year-over-year decline in revenue, although it also contributed to improved margins compared to the same period in 2024. In our Cargo Mobility division, we experienced both operational and volume-related adjustments, reflecting the close interdependence between logistics and freight. Despite these shifts and even considering the effect of currency fluctuations, we achieved a notable 12% increase in revenue per kilometer, highlighting the strength of our pricing and commercial strategy. At the same time, we saw a 9.5% decrease in total kilometers, a 3.2% reduction in fleet and an increase in cost per kilometer, mainly driven by the combined effect of lower volumes and FX adjustments. As fixed costs are allocated over fewer kilometers, this naturally results in a temporary rise in unit costs. However, we expect these costs to normalize as volume levels recover, helping to restore efficiency in the cost structure. In our People Mobility business, we also observed a slight decrease in kilometer volume mainly due to deliberate strategic actions, including pricing adjustments and the redeployment of fleet toward higher-value client segments. That said, we are beginning to see solid results from these initiatives as revenue is growing at a faster pace than costs, which is helping to push margins in the right direction. Despite a mild growth of revenues, both operating income and EBITDA increased more than 10% and a margin expansion of 128 basis points. These are the key highlights I wanted to share for this quarter. Thank you for your attention. I'll now turn it over to Wolf.

Thank you, Rodo. Welcome, everyone. As usual, I will take you through the most relevant financial metrics. I think that one of the most important matters to talk about is that even though the downturn in our revenues this quarter, we were able to preserve our EBITDA since it decreased much less than top line. That also drove margin to post a 40 basis point expansion in the quarter, which I think is especially relevant given that our fixed structure is designed for a much larger volume of operations and is proof of the success of the efficiencies plan we implemented last year. Another relevant matter to discuss is operating cash flows, which grew 9.2% during the quarter and has been steady in the first half of the year, in line with our commitment to privilege such metric moving forward. Our CapEx plan advances according to our expectations and the cargo fleet renovation and modernization program is as scheduled. As Aby mentioned earlier, our CapEx guidance for 2025 is around MXN 2.4 billion. Moving on, there is a MXN 64 million FX loss in the financial result due to the strengthening of the Mexican peso. This has a direct impact on net income that compared with the second quarter of last year, there was a MXN 56 million benefit when our currency depreciated. Finally, in terms of debt, we expect to end this year with a leverage ratio similar to that of the first half of this year, which is around 2.2x, a very good news considering the acquisition of Solistica and further contributes to increase the transaction potential. Thanks for your attention. I will hand over to Antonio.

Thanks, Wolf. I will now dive deeper into some other relevant details. First, it is very important to bear in mind that Solistica's margins are not in the same range as the Logistics and Technology division. So please be advised that for the future, once we have Solistica operating for the full year, we expect our consolidated margin to be lower than what we have reported previously since the asset-light component will weigh significantly more in consolidated top line. This is not at all a negative situation. Solistica has very low CapEx requirements and even though margins are lower, the contribution to net income is pretty like the rest of the division. Moving on, I want all of you to remember that last year, we implemented an efficiencies plan that considered to almost entirely cease the B2C last mile operations, together with the head count reduction and an operational reorganization across the company. Well, such actions started to be visible in the first quarter of the year and during the second contributed to softening the negative impact of the volume reduction that Aby and Rodolfo discussed earlier in the call. Also, it is important to consider that the trade between Mexico and the United States will not stop. If there is a change in the tariff environment, things will adapt and the cycle will ultimately close. Both countries are tremendously intertwined and are quite dependent on each other in many sectors and industries. With that in mind, we expect to be stronger once things get back to normal. Finally, I just want to add that even though this was a difficult quarter, there are some metrics that are especially worth mentioning. For example, there has been a strict control of costs and expenses and net operating cash flow keeps improving. Thanks for your attention today. With this, I end my remarks, and we'll open the floor to Q&A.

[Operator Instructions] And our first question comes from Julia Orsi with JPMorgan.

So we have 2 questions on our side. The first one, as you already mentioned on the opening remarks, so results they were impacted by the uncertainty on the whole tariff discussion, which should be temporary. And I understand that there is still a lot of moving parts on this topic. But from what you're seeing so far, what is your expectation on this? Is it fair to assume that volumes will normalize throughout the year or will continue to be impacted by it? And the second, it's a follow-up on the EBITDA margin guidance. So can you provide more details on the EBITDA margin breakdown across each segment for this year, what you're expecting?

Julia, this is Wolf. Regarding your first question, we can see that we think that the tariff noise and intermittent that prevailed during the second quarter will not be as it was. Clients are getting back to more normal on track. So with a much better visibility in the import/export balance since the tariff issue has been more digested, we think that it will be more like the normal quarters [ better ] than the second one. So with this, we are expecting a much more stable second half of the year.

And our next question comes from Carlos Peyrelongue with Bank of America.