Megacable Holdings, S. A. B. de C. V. (MEGACPO) Earnings Call Transcript & Summary

Good morning. My name is Nikki, and I will be your conference operator. At this time, I would like to welcome everyone to the Megacable's Earnings Conference Call. [Operator Instructions] Thank you. I will now turn the call over to Kenia Vargas of i-advize Corporate Communications for opening remarks.

Thank you, Nikki. Good morning, and welcome to Megacable's First Quarter 2020 Conference Call. At this time, I will introduce Cable's management and today's presenters: Mr. Enrique Yamuni Robles, Chief Executive Officer; Mr. Raymundo Fernández, Deputy Chief Executive Officer; and Mr. Luis Zetter, Chief Financial and Administrative Officer. The gentlemen will be discussing the quarterly results prior to moving on to the quarter-and-answer session. It's important to mention that certain comments made today may constitute forward-looking statements, which do not account for future economic circumstances, the company's performance or financial results. These are subject to various conditions and could materially change throughout the year. Please review the complete disclaimer presented in the financial earnings report that was issued yesterday. You may contact us at (212) 406-3691 if you did not receive the quarterly report or if you require any assistance. At this point, I will turn the call over to Mr. Enrique Yamuni to begin his presentation. Please go ahead, Mr. Yamuni.

Thank you, Kenia. Good morning, and thank you all for joining us as we review the results for the first quarter of 2020. As you are all aware, the first quarter of the year has been quite challenging for all of us. The health crisis generated by the COVID-19 virus and all the economic repercussions that have resulted have not only affected our everyday lives and our economics but also promised to impact the plans that we had set for this year and maybe change our way of life. Regarding results, the company has been able to deliver even in this situation, achieving growth, both personally and financially, mainly due to our operational strength together with our capacity to adapt. During the quarter, we have reached subscriber growth across the 3 major segments of the services as well as in the number of unique subscribers. ARPU continues its solid growth trend partly due to the added services, which effectively generate the value differentiations to our subscribers. Financially, we reached EBITDA growth that surpassed revenue growth, which means a significant margin increase. It was due to our diligent focus on cost efficiencies and responsive investment given the challenging conditions. On the Corporate segment, however, we saw the cancellation of some projects, and in others, we saw delays in the implementation, which were not a surprise given the circumstances. We're working towards raising our current revenue base to turn back this situation. However, there is a lot of uncertainty about how this segment will evolve in the coming months for a substantial drop in terms of government channel is expected and the recovery of SMB segment is in jeopardy. So the situation of the segment in the short term remains unclear. About COVID-19, Megacable has aggressively implemented the necessary measures and protocols to face this pandemic in the best way we can to ensure customers' and employees' safety as well as the business continuity. All staff eligible to do some -- to do home office are doing so, including our call centers where over 1,000 people continue to work without interruptions. On the other hand, approximately 75% of all our employees continue operating in the site and in the field. With the highest security measures, none of our services has been affected or will be affected by this situation. The company adequately planned in anticipation to the market and the contingency phases announced by the government, the capacity increases required for the higher bandwidth consumption that users have registered to ensure the continuity and quality of its service. The telco sector is very resilient and even more for this crisis, in particular, due to the request to the population to stay at home. In order to face the change in our everyday life, our services have become critical. Both the residential segment, SMEs and all businesses and professional services needing connectivity to distance learning -- for distance learning or for home office purposes. Not to mention recreation, which has been enhanced by the new clients in data consumption like streaming and gaming. In the same line, having access to news or other sources of information is most essential. Looking to the coming months, the repercussions on the economy are still uncertain. There is a decrease in GDP, as expected, and is expected to continue for at least the second quarter before starting a recovery; as well as a decrease in the income of families. However, our industry has already demonstrated its resilience in previous economic crisis created for different reasons, which, together with the need of people to remain in their homes, allows us to think that we will be one of the companies that will be less affected and should be considered not only resilient but candidate for steady growth. With a lot of projects, we are carrying out the GPON or video evolution migration. It's interrupted, so -- it's uninterrupted, I'm sorry. That is designing stages are underway and the execution will continue as planned. We will move on as we see the evolution of market conditions. And aside from a possible delay of a monthly -- of a month or 2 as a result of restrictions in traveling and mobility of persons due to the sanitary emergency, the project is expected to be carried out as according in the plan. On the submarine cable, we have concluded its construction phase, and now it's fully operational. We are excited about the benefits that this infrastructure will bring to the company in terms of cost savings and better service offer as well as for the Baja region by significantly improving their connectivity capabilities. Finally, I am pleased to announce that at the General Ordinary Shareholders' Meeting, shareholders approved a dividend payment for MXN 1.5 billion, representing 15% of 2019 consolidated EBITDA, in line with our dividend policy. The payment will be carried out in one installment in May 27. Thank you for your attention. And I now pass the word over to Raymundo. Raymundo, please go ahead.

Thank you, Enrique, and good morning, everyone. It is great to be speaking with you, and I hope you all are staying healthy and safe. Let us review the operating results for the quarter where we saw solid growth mainly due to the strategies we have implemented on since the last quarter of last year, including, in the operating side, successful commercialization and a tight control of our quality additions. All the aforementioned, coupled with the effect of the current health crisis, which translates into people seeking entertainment and connectivity opportunities from their home. And Megacable is well positioned to absorb this additional demand due to all our work and investment in infrastructure in the past. Regarding financials, we have focused on those lines of costs in which we can be more efficient as well as to be more selective in terms of the smart investments that we do, reducing traditional CapEx and focusing in a strategic project like NGV Plus and network evolution. Moving on to the results. Unique subscribers grew 2% when compared to the first quarter of last year, while RGUs rose to more than 8.5 million, a 6% increase. This was mainly due to the subscriber increases that Enrique mentioned across the 3 segments of the massive market. In terms of Broadband, the company rose to more than 3.1 million subs at the end of the quarter, 193,000 net adds when compared to the same quarter 2019. On a sequential basis, we reached 49,000 net adds when compared to fourth quarter 2019. As I mentioned, Megacable is very well positioned to absorb the increase in bandwidth volume. We are carefully managing the demand that arise as a result of our higher traffic. However, we are satisfied with the performance of our infrastructure in the face of the crisis so far. The access, IP core and our backup capacity are well prepared to support this growth. We remain as committed as ever to invest in the right technology towards customer demand and satisfaction. Video subscribers increased by 1%, while Broadband grew 7% and telephony 15% compared to the same quarter of 2019, resulting in 2.34 RGUs per unit subscriber. The Video segment rose to more than 3.2 million subs at the end of the quarter, recording net adds of 37,000 when compared to the same quarter of 2019. On a sequential basis, 9,000 new subscribers were added. XView also achieved 47,000 net additions during the quarter to reach more than 874,000 subscribers. HD, high-definition service, rose to approximately 1.1 million users, which means 57,000 net adds during this period. Additional services continues to be a differentiator in our service over the competition, especially our Android platform whose new generation is underway, while also continuing to provide additional revenue that is reflected in the ARPU's growth that we provide. Moving on to the Telephony segment. We reached nearly 2.2 million subs during the quarter, recording 280,000 net adds on an annual basis and 56,000 net adds versus the previous quarter. Regarding the MVNO, during the quarter, it grew at a very good pace, and now we have more than 18,000 lines. We are confident that our disruptive offer, both in terms of content and rates, coupled with an excellent customer service, will help us gain in market position in the short term. As a result of the [indiscernible] strategy implemented at the end of last year, the level of gross addition decreased along with the churn rate. This generated a better acquisition and retention of subscribers, with the consequent savings often resulting from lower commissions paid. The selective and better quality sales strategy is paying off. Given that despite a lower number of gross adds we achieved this quarter, the net additions were even higher due to a better churn rate. ARPU per unique subscriber rose to MXN 416.9, a 7% increase compared to the same quarter 2019. This growth was mainly due to higher RGUs per unit subscriber, rates adjustment on existing clients and the contribution from add-on services. Regarding the ARPU per services, an increase was recorded across the 3 services. Video grew by 6%, while Broadband and Telephony increased by 2%, respectively, when compared to the same quarter of 2019. Now in the Corporate Telecom segment, revenue increases were below expectations. ho1a remained practically flat compared to the same quarter 2019 as a result of lower revenues from the government, which, as you recall, had a remarkable fourth quarter of last year. Thus, some of those contracts were advanced to fall within the budget and signed off last year. Excluding this effect, growth should have been recorded during the quarter, supported by the increase in connectivity and infrastructure revenues in the business and corporate channels. In the same line, Metrocarrier grew by 4% mainly due to the cancellation of the Mexico Conectado project, which until last year was still active. Nevertheless, during the period, the company recorded net additions to continue growing in its connectivity and managed security solutions, while the off-net series continues to gain traction and increasing its contribution. To conclude, NGV Plus and the GPON project continues to develop according to plan. For the company, these are key projects that will greatly extend our ability to compete in the coming years. And therefore, it is important that they continue its execution. We have made sure to negotiate the best conditions in terms of financing and development to make its own. Thank you for your attention. Luis will now review the financial highlights. Luis?

Thank you, Raymundo, and good morning, everyone. I will now give you more details regarding financial results before taking your questions. Consolidated revenues for the first quarter rose to MXN 5.5 billion, a 7% increase when compared to the same quarter of the previous year. This was mainly due to revenue increase across the 3 services in the massive segment. During the quarter, massive segment revenue grew by 8% when compared to the first quarter of 2019, with Broadband increasing 8%, Video 7% and Telephony by 18% as a consequence of a larger subscriber base and a higher ARPU. Regarding the Corporate Telecom segment, revenues increased by 2% when compared to the first quarter of 2019, mainly affected by government projects. As Raymundo mentioned, Metrocarrier grew 4% on the cancellation of Mexico Conectado's SCT project. Excluding these effects, the growth would have been around 16%. ho1a and MCM remain in line with previous year, but it's important to consider that ho1a recorded historic revenue numbers in Q4 '19 by accelerating execution, thus, recognition of several projects, impacting somehow on the figures for this quarter. In terms of the revenue breakdown, the massive market accounted for 82% of the total revenue, while corporate continues to represent 18%. Both cost of services and operating expenses grew only by 6% compared to first quarter of 2019. This is below revenue growth. Sales commissions decreased due to a lower sales volume when compared to previous quarters. As well, it's a more efficient transport network, which reduced the cost of link as a result of previous year investments. All the above resulted in our consolidated EBITDA of almost MXN 2.8 billion, representing an 8% increase when compared to the first quarter of 2019, and a consolidated margin of 50.1%. On the other hand, EBITDA for cable operations accounted for approximately MXN 2.6 billion, increasing 9% when compared to the same period of the previous year for a 51.7% margin. Net profit for the quarter reached MXN 1.3 billion, representing a 12% increase when compared to the first quarter of last year. The higher growth than EBITDA levels was mainly due to FX net profit due to the revaluation of our positive USD or U.S. dollar position. The company's net debt reached MXN 3.7 million -- MXN 3.7 billion at the end of the quarter, a decrease when compared to the end of 2019 due to the cash generation. On annual basis, the net debt increase was due to results of net debt refinancing during the third quarter of last year. During the quarter, additional debt in the amount of MXN 1.3 billion was contracted to support the company's liquidity position. All the above resulting in a net debt-to-EBITDA ratio of 0.36x, while interest coverage ratio reached 24x, still at a very healthy level. In terms of the CapEx, during the first quarter, the company invested MXN 1.2 billion, representing 22.6% of the previous revenues. The lower level of investment was mainly due to the migration of the traditional CapEx to the project, GPON and network evolution, which is still in the design phase and such is not yet reflected in CapEx. Given the current FX situation, we will be more selective regarding investments. However, the main projects that we are carrying out are still in process. Finally, regarding the guidance we set out for this year. At this point, the company believes that there is no sufficient information uncertainty to enable us to accurately measure the impact of the pandemic for the coming months. And we have always been conservative. At this point, the guidance we provided in January is no longer valued given the circumstances. Thank you for your attention. At this moment, we will now move to the Q&A session. Operator, please go ahead.

[Operator Instructions] And our first question comes from Rodrigo Villanueva with Bank of America.

I have a couple of questions. The first one is related to, I mean, the savings that you achieved in the first quarter related to costs and expenses. I was wondering if you could elaborate on the measures that you have been taking and if you think this is sustainable over the coming quarters. And then the second question is if you could please remind us the exposure of the Corporate segment to the government and also if you think it's likely to see more government projects being canceled or delayed.

Sure, Rodrigo. This is Raymundo. Nice talking to you, and thank you for the questions. The first one regarding the saving costs and expenses that we have, let me tell you how this works in our company and why we have that effect. As you recall, and I said in my speech during the last call, we straightened our strategies towards higher quality of sales and looking for a reduction in churn. During this first quarter, we did have a reduction in gross adds and a reduction in the churn. Finally, we increased subscribers in the 3 segments. How could this happen if we have less gross adds because we have less churn? Having said that, we have totally less operations on the field. We have less commissions. We have less growth. We have less expenses in gasoline, all the travel expenses that we haven't used. So a lot of these savings come from that, what we call internally a snowball of the growth. So we proved to be very efficient during this quarter because of the strengthening of our credit measures when we provide new sales on that part. That is part of our cost and expenses savings that we have. Also, as you know, we continue to invest in our network, for example. So in terms of broadband, more and more traffic is staying in our passive system. More and more traffic is traveling within our own network. So we have a better proportion of broadband expenses in that part. So I can continue to go on and on, but those are part of the cost and expense efficiencies that we experienced. Whether those are sustainable or not, it's part of our company. We continue to be efficient. And also, when you have, for example, less calls coming in the future for gross adds, we should have a phase-in in terms of the employee commission and drop cost that we do. So that's our view internally, and I don't know if Luis and Enrique wants to say something else regarding the cost and OpEx savings. Something I'm missing on that?

No. I think you have a very clear picture of what's been happening here, but we expect to continue. But I would like to talk about that -- the second question you had, Rodrigo, about government's telecom services that they have paused on the -- or canceled in the first quarter. I think that this pandemic has changed everything. I mean, in Mexico, we have over 2,000 cables where you could [indiscernible]. And all those guys, all those presidentes municipales, they want to travel to Mexico City as much as they want. And the money they spend in every trip to Mexico City, because they don't go alone, is humongous. It's a lot of money spent in that. And everyone has the idea that it was much better to do their meetings in person, so they would do a trip to Mexico City for a 15-minute meeting with some further office, and they will spend the next 2 to 3 days. That was extremely expensive because all the people that travel and all the meals and all the drinking and everything was expensive. Now we demonstrated that it's very inexpensive to do video conferencing. And it's as efficient as doing a face-to-face meeting. So I would think that the telecom services in municipalities and the federal government is going to be much more critical and much more needed. And most of the meetings and reunions and all the gathering that the government have to do to coordinate and come to agreements, now they understand and they know that it can be done through a telecom conference. That's on one side. The other is that the Mexican government canceled that last year. For instance, they asked us to finish the school year or the school cycle in the summer, the last spring, to sustain services without charges because they need to have budget for that, and they would look for budgets for the new school year that was supposed to start in September last year. They didn't find a budget. They didn't know anything. They canceled the Internet at schools. They canceled Mexico Conectado. So now the pupils can't do remote learning. Now they are doing TV classes online, which is technology of 19th century. I hope they understand that telecom is really important for schools, and it's really important for pupils, for students, and it's really important for people in their homes. They have implemented a lot of subsidizing for all different things but not one for telecom at the homes and students and teachers and schools. And that's much more needed than some of the programs that they have in place. So we think that it will change. It should change. It must change. And that will help us. That will help all the telecom companies.

Rodrigo, and this is Raymundo again. Let me add what Enrique is telling you regarding -- because some of you and the majority are asking regarding the Corporate segment. Let me address that both Metrocarrier and ho1a and -- mostly Metrocarrier. Metrocarrier is a company that has a very steady customer base. It's very similar in a sense to what we have in the massive market, meaning whoever has the connectivity in the high end needs the connectivity, okay? Regardless the government exposure or not, we provide a 4% growth in Metrocarrier compared to last year. Regardless Mexico Conectado, if we put Mexico Conectado to stop, our growth, we're going to be higher still. So even though we have some exposure to government, also an exposure to the crisis, Metrocarrier will continue to provide good results because we already have a customer base. It might affect the growth, okay, but the company is still -- we have a very steady subscriber base in Metrocarrier. ho1a has a double effect, too. ho1a has a steady customer base that provides recurring revenue but not as high as Metrocarrier because it has more projects, like Enrique said, more cloud infrastructure and managed services projects, okay? And it's not the nature of infrastructure of Metrocarrier to have a long, long term contracts on that part, but still, we have a steady customer base within Metrocarrier. Metrocarrier, if we recall, fourth quarter last year, we provide, I can recall, MXN 430 million on -- ho1a -- sorry, ho1a. Thank you. ho1a provides MXN a 430 million fourth quarter revenue on that because not only government but companies did invest what they didn't invest in the third quarter or they provide what they won't invest in the first quarter, they did it on that one. So it's not that much that this government exposure would be more [indiscernible] cloud. We expect, regardless of COVID, on that part, we are confident that we will have a good second quarter without giving me a majority control because of the risk volume. We are not in a condition to provide and to sustain and to maintain a guidance. It is -- no company has done that in this unsteady market. But we can tell you that still ho1a continues to move with good projects, at least second part on that one, and it does not have that high exposure, only to government. We have good products coming from the private enterprises. Like Enrique said, cloud is increasing substantially. The only thing is that still in ho1a, the percentage of cloud services -- and so it grew by a tremendous percentage. It is still not the high amount of revenue provided in our company. We still depend on security, which is really good, which is growing, and some infrastructure services. All around that, we have a very good Corporate segment regardless of pandemic and government in that part is for all that we are saying. We are growing in the open cities where we are -- we have been there for 3 or 4 years on some of the cities and most of Mexico and overseas that we have. And our sales force continues to learn and to provide a better branding. So if -- there are particular things that benefit our Corporate segment, and that's why during the quarter, we still provide a 2% increase regardless of PCTV and 4% in Metrocarrier. So I wanted to be clear what's our view on the organization of our Corporate segment because it is, we think, the best in terms of everybody being asked as regard that, Rodrigo. So I don't know if I went too far, but I wanted to be very clear on Corporate in that part.

And our next question comes from Marcelo Santos with JPMorgan.

I know you already talked a lot about the Corporate. I just wanted to ask a follow-up on that one. How much of your Corporate revenues actually come from like SMEs or smaller companies? Or -- and what -- wouldn't this be more at risk -- a big crisis like this? This would be the first question. And second question is regarding the decline in churn. How much can you attribute that to the COVID and how much to your strategy of like lower gross adds and lower churn? I mean, I believe you have a much more clear view on that because maybe at the end of March, trends started to change because of COVID. So can you help us to separate the effects?

Sure, Marcelo. Regarding corporate revenue that you said there, of course, we have some exposure to the medium-size and some small. The massive market where you see our massive results, that's where we have the micro businesses is in the market, not in Metrocarrier alone, okay, where you account for our 3.6 million unique subscribers or 8.5 million, 8.6 million RGUs. Those ones include micro businesses, these sharp ones that have the high effects of the cloud. Those are the nonessential businesses that are closing some of our markets. Those are the restaurants -- small restaurants. Those guys have an ARPU -- for as ridiculous as it might sound, the ARPU is very similar than the one that we have in residential. 4, 5 years ago, we are selling that product for the micro at MXN 400 or MXN 500, tax included. So you can consider the effect that we might have in those micro businesses within the massive market, and we have several ways to deal and to work with them. We have some pandemic special emergency packages for them because if they are [indiscernible]. But still, it's part of our massive market that we have a very clear view of them is not, of course, the majority of the market. No. It's a portion of that market where it is. So you cannot take the effect for the Corporate revenue that has Metrocarrier alone. Those are higher price. Still are effective? Yes, yes. But in a way, way less measures than what we have for the micro businesses in the massive market. Now related to the COVID effect that you said, what we have and what Enrique said, we are an essential service. We passed from the disposable income to the basic expense of this business, meaning they need to have electricity, gas, water and product. It might not be entertainment, but they also need entertainment for a secure part. So what we felt at the end of the quarter, as I said, we have several effects, positive effects in our massive results. One, as I said, is the strategies that we provide towards the end of last year that reduces our gross adds and our churn. But other one, of course, is the COVID result of home office and students have come and secure working on these terms. That one makes people come, pay on time and get lower churn because they need the service. What we have experienced is that every time we disconnect a service, more and more people come in the next 2 or 3 hours to pay and reconnect, whereas before, they were taking longer to do it because they were not at home. We experienced also an increase in costs because of the dependency of those kind of services. So going into the future, going into the rest of the pandemic, we have brought out that our service is of a first need, way higher, of course, than other ones that are over there, but higher. They need it. What we will see in the future, the economic effect of the decline of the gross value of the cost. That one is our part. We have all different emergency packages for them. And we have looked into our company and how we will look. And as I said, we have a very steady subscriber base. Some of them might be affected. That part that is affected will provide into the future also savings for the company in terms of less gross adds, less commissions, less employees on the field. We experienced that already, and we know that's going to happen. We will provide that packages during May and June. And that effect will come back as soon as we pass that. For that few people that cannot pay for our services, we will let them go. We will keep them providing a package, small service call emergency during the summer. That practice will continue to provide the least amount of connectivity needed to make calls but not to put them with our business, and that package also will return the subscribers to the original package as soon as we finish and schedule this part. All -- having said all that, still the future for Megacable with the COVID doesn't look bad. That's all we want to say. We cannot tell you all the details because it's not right to do it because we don't have -- it's not right, it's not right. It's not the thing which we do. But we can tell you that what we see going into the future is that we are not another one. We are not a hotel. We are an essential company that turned 25 years ago from an entertainment cable pay TV into a full -- not full, but the first telecommunication company for the community to serve people. Know that people on the field and the communities are depending on us, and we are ready, like Enrique said, and what I'd like to say, we are providing business continuity, okay? And business continuity means we're going to collect money. We're going to provide these services. People know they are receiving that with a protective company to do all the collection of those services we provide to go on the street. So we are well prepared, and also, we start doing that. When we did the home office and all that was way before the government announced the secureness of the pandemic. So that's why you see good results and people working and no problem with increase on bandwidth. So it's looking okay for the effect, Marcelo, that we have, even though it is a price which is not the same, no. We don't want to be arrogant. We want to be realistic, but it doesn't look that [indiscernible].

The question was actually how much it helped your churn reduction? So not that it hurt, but like my question was I thought it helped you because people wanted more internet. So maybe how much it helped? Was it a...

Yes. So I told you a lot of things going into the future already and actually how much it helped. But if you can see if what was our trend in terms of churn on that part. Okay, we were already at 2.3% churn for the fourth quarter 2019. And now, we're at 2%. So some of that came from COVID, okay, at the end of the quarter. But it was not in the rest of the quarter, it was not in January and February. Some of that came at the end of the quarter. So all I can tell you that it is between the 2.3% and 2%, but we have a positive trend coming from our effect. So it is not all of that decline that you see on that part. Thank you, Marcelo. Sorry for giving you all that explanation. We didn't answer the...

It's all right. I like the explanation.

Just in case nobody understand -- asked that, we wanted to say that.

Our next question comes from Luis Yance from Compass.

Just some follow-up questions. I mean on your U.S. dollar exposure, the way I understand that is about 20% of your OpEx is U.S. dollar and 85% of your CapEx is U.S. dollars. I was wondering, given the sharp depreciation, especially on the CapEx side, how much were you able to secure perhaps a lower Mexican peso? And how much of your cash is actually in dollars that could help you offset that? And what does that mean in terms of the -- because you mentioned that you're being more selective on the CapEx, but some of the main key components will keep going. So just to get a sense, in Mexican pesos, what sort of CapEx should we expect for this year? That's the first question on the CapEx. And then on the OpEx side, that 20% by the U.S. dollar, could you offset it with some of the initiatives you mentioned you're doing on the OpEx side? And -- or should we expect, in terms of margins, we saw a margin expansion year-over-year in the first quarter. Should that continue? Or should that flatten now going forward or perhaps even some sort of margin compression? If you could comment on that, that would be helpful.

Sure. Sure. Thanks for the question. And to start with the position we have in cash in U.S. dollars. Basically, as a treasury policy company, we have a -- we always keeping cash in hand, an important amount in U.S. dollars to be conservative and to be ready for our obligations and our duties. And that's the main reason why you saw an improvement in our FX. And basically, we keep 1 or 2 months of operations for -- or obligations in U.S. dollars. And in terms of our OpEx, we certainly are aggressively talking to our vendors and looking for best way of getting out of this and looking for the better solution for both. And this will help us a little bit. Yes, of course, it's not going to erode the depreciation of Mexican pesos. But basically, we are talking to our vendors and positively getting some responses. So yes, that will help. Not sure it will completely net the impact of dollar, that's almost impossible. In terms of CapEx, we will -- 85% of that is in U.S. dollars. As we said, basically, labor and some other topics are on Mexican pesos, but the rest is in U.S. dollars. So the exposure there, yes, will continue. But again, that's something that we will to build or we will look very close, and we will find out what is the best outcome for that as the evolution of this crisis and economic crisis will hit. We want to be sure that we continue with our strategic projects, the network evolution and the NGV. So we are certain that this industry is based on technology, and we will not want to delay the technology banks. And the rest, there could be a couple of projects that could be delayed or could be set for next year or whatever. So we are taking care of that. And if we can reduce CapEx to the levels that are affordable, we will do it. And also, the last thing that you have to take into consideration is that the network evolution project was arranged or was negotiated with vendors. And we have commercial credit for -- 25% of the project is in 6 months and 75% of the project will be 12 months of credit, meaning that we still have time to find out where the exchange rate will set off after this crisis period. The -- we think that in both cases, we are in good treasury position to afford the following months.

In addition, also the part that we are exposed of the OpEx somewhat of that is capped and we are already negotiating. We have negotiated with our vendors that cut those caps, the devaluation of the currency. What I can tell you is that whether it's [ policies ], whether it's maintenance. We even shut policies coming in dollars from the international vendors. All of them, we are not taking the full amount. All of them, we have negotiated and get discounts, and some of them, we have cap for the others. In terms of the CapEx, we are going to do the same. We squeeze any margin that suppliers may have. Of course, we have done that, and we're doing that as part of our work. But CapEx is in dollars, like this, as you said, the majority of that. What we can have is, going into the future, some of the non-priority projects might be delayed a little bit, might be reduced because of the lower amount of new adds and subscribers and things that are coming into the future. But the 2 main projects that we have, which is the evolution of our video platform and the evolution of our network, those ones will continue to be. And what we see as management, and we have the Board's support on that part that we're a technology company, that we need to be ahead of everybody else on that part, and we are well positioned in our balance sheet to do it. And maybe the part that we have another competitive advantage is to our competitors. We can do that, but we won't stop on that part. As we said, it might be a little bit delayed. Speaking of that, on that -- those will get but effective to the CapEx of those delays, but they are not interrupted, like Enrique said. Those projects are not interrupted, they will continue to be. So we expect lower CapEx on that part in terms of dollars, but we maintain our 2 main products because those will provide short and long-term advantages for our company by far. So those are our view here.

Great. I mean just a follow-up on that. When we put all that together, that lower nonessential CapEx and the potential delays, what's a rough number you could think of for CapEx for this year relative to the MXN 400 million that we were thinking? Is it -- how much lower? Is it MXN 350 million, MXN 300 million, it's still unknown? And just to give us...

That's a very big and direct question. I'm not going to answer, again, in 4 to 5 minutes to tell you that. We are going to have a reduction of those -- that amount for these small projects that are not critical for the company. But at the same time, remember that in terms of pesos, we have an effect in pesos. So we don't want to tell a specific amount. We will reduce CapEx in dollars, okay, and we have an effects impact on that part. And we are negotiating all of that and looking into how it looks into the future. So we cannot tell you the exact amount on that. It's not fair on our part on this kind of conference. It was -- it is going to be reduced in dollar, and we have an effect on the exchange, and we want to spend the critical projects like video or network evolution.

Great. Fair enough. Just an unrelated question. I mean you mentioned that some of your micro businesses are accounted on the mass market. Could you give us a sense of, within your mass market, what percentage of that would be those micro businesses that could end up having a complicated time going forward? But even residential, if there's a portion like a lower-end residential that you feel it's more at risk? Just to get a sense of how resilient that mass market could be going forward.

Sure, Luis. It's around 7% of the massive market. It is what we have there. And as I said for what we saw there, a small portion of those are the ones that as of today is being approached with weak economic problems with the Megacable. So I think one and multiplied by the other one, and it's not going to be -- it is something we don't -- we are aware of. We have a special inside unit working with them to hold those at least for what I assume [indiscernible], having probably 7% of domestic market in the micro businesses and a small portion of those is having the effect. I would not run too many numbers -- too much numbers on our forecast.

Okay. Just to clarify, 7%, you said, of your micro businesses?

Yes. 7%.

Okay. Great. And then my last question is, I know it's very hard to give guidance at this point in time. And I understand you should be much more resilient than most other industries, even in a scenario of a sharp GDP decline. But if you could share what you've seen so far in this quarter, second quarter, have you seen sort of the same dynamics that you mentioned on the first quarter still continuing? Or have you started to see, perhaps, churn go up a bit and subscriber growth go down a bit? Anything you can comment, that would be helpful on what you're seeing so far in this quarter.

Without taking that, as you said as a guidance on anything, what we can tell you so far is that we are operating very positive. We have a good response on these people coming and paying and having the service. We still have a great demand for our service as of today because the people that had not broadband are coming to get the service. We cannot tell you whether that is going to be in May. May is going to be different than what we have today in April. So that's the reality of what we have out there so far.

Let me give you some analysis we did for this situation. In the last world crisis that we had was the Lehman Brothers going broke. We did -- it was 2008, 2009. The crisis was very big. Mexico dropped its growth in normal. It's 6%, around 6% in 2006 -- 2008, 2009. At that time, there was not a state on politics. All of us were in the streets. We weren't poor, but we're in the streets. We were working. And the telecom was as advanced. But as now, we had a much lower penetration of broadband. Broadband, that was not as popular back in 2008, 2009. We never -- would never dropped our EBITDA below the previous year. We raised our revenues. We grew in EBITDA. Margins declined because the dollar devaluation was big in 2008, the dollar devaluated by 30%, almost, at certain point, then it went back to better levels. But we consider this crisis is going to be harder, it's going to be bigger. Especially because the government -- Mexican government is not taking the right measures. We hope that they will reconsider and do better things. But this crisis affects less our company because telecom has become more crucial for families and our companies. So we are in a better position as a company. The economic -- the economy is going to be in the worse position because this is going to be larger, bigger. It's going to last longer, maybe. But considering what happened in 2008, 2009, we don't think we will be in a worse position than we were in those years. And that's the analysis we have made.

Our next question comes from Andres Coello from Scotiabank.

Enrique, I think you may have a fascinating comment regarding the efficiencies that are coming from the pandemic in terms of companies, organizations, government, suddenly realizing their normal savings that can be obtained by digital transformation, basically. And I was wondering, Enrique, we are hearing that some corporations and companies are actually thinking in subsidizing the broadband connection of employees at home, so that the employee pays, say, only half of the amount, and then the company pays the other half. And this is a way by which companies can ensure that employees stay well connected, and they have a safe, secure and fast connection. So I was wondering, Enrique, if Megacable was exploring some options where you can work with companies in order to provide connectivity for employees on a subsidized basis, if this is a trend that you are starting to see.

It sure happened. It would depend on whether how much or how -- what's the number of people that can do home office. In our organization, for instance, we have learned that we can do maybe 2,000, 2,500 people, about 10% to 15% of the total employee base, which -- that includes our call center employees, that includes some engineers and the corporate office, but that's about it. And they do need a very efficient broadband connection to do home office. And I think that there is going to be a lot of people that will realize that, and it's much cheaper to pay for broadband than to pay for a space -- a physical space at the company's office because then you have to pay air conditioning and you pay for a lot that's, obviously, power and other needs for -- of the employee [organizing]. So it's much cheaper to do home office. But that's not -- we don't think that's going to be a trend, but it's not going to happen immediately after the pandemic. I think that after the pandemic, people will return to -- a lot of them, a lot of people will return to their offices. And over time, they may be put in place plans to disperse their employees at least for certain days of the week, so they can share spaces to 1 space for 2 employees and some of them will work from home at some certain points or certain days. I think that will happen. I think that's one of the trends that will happen. And the other is the need for the government to subsidize broadband in those families that can't afford broadband because they need it for school. Teachers need broadband. And I think that's what should happen first before our home office, it's going to be school -- conference school. I don't think that it's going to be a good idea for schools to reopen this school cycle. Because the pandemic, the peak is going to be in 2 weeks. And they want to return students by the 1st of June. I don't think that's realistic. I don't think that's something that's going to happen. And if you consider that in a lot of homes in this country, grandparents live with grandchildren. They live in the same home, a lot of them, because the children never -- their children got married, they never left home or because the children moved their parents to their home to live. Also it happens here a lot more than it happens in countries like United States or Europe. Grandparents live in the same homes with grandchildren. So they can't isolate the grandparents. So it's going to be -- every country has different solutions and different problematics, and I think that we will have to take different measures than any -- than other countries like Europe or developed countries. But I'm pretty sure that telecom -- telecommunication services is going to be much more needed. And it will be the government like ours have to realize and will realize that they will have to subsidize the telecom services. And on the other hand, pay television and streaming is one of the cheapest and unexpensive entertainment, and the television is going to be a valuable out there. It's much cheaper to stay at home and watch a VOD movie or -- that it's only $2 or $3 for the whole family, they go out to a movie and paying $5 or $3 per ticket per every member of the family, plus buying popcorn and [indiscernible] and chocolates, whatever. I think we are the utmost unexpensive and most -- more efficient way of entertainment, and as well as the most needed services for this new way of life.

A very good answer. And I have just one follow-up question. And then if you can just explain to us in the press release, you mentioned that you passed almost 9 million homes, right? But I was wondering if that number actually includes small and medium-sized companies? Or if we should think of 9 million plus SMEs passed?

Sure, Andres. What I said is that we have 8.6 million RGUs at that time, I was meaning. And that was answering the question that I think Luis was asking regarding the makeup businesses on that part. What I said that out of our unique subscribers, which are 3.6 million unique subscribers, we have 7% micro businesses. That's what I referred to, okay? In terms of home passed, it's a little bit more than that. It's 8.8 million home passed. I don't know if that's clear, Andres.

No, no. Actually, it's clear. But actually, I mean that to know if the homes passed that you published on Page 1 of your report, which is nearly 9 million, right, 9 million homes passed. Is that number includes small and medium-sized companies that you pass with your network?

Yes, it does.

And our next question comes from Juan Pablo Alba from Crédit Suisse.

My first question is regarding collection. If you could please tell a little bit more from what you've seen in April, specifically, a higher data for collection. I think that's my first question. And my second question is, going from the past crisis that you said, 2008 crisis. I know it's too early to tell but if you -- in order to -- if you could tell a little bit more on how you think of 2021 in terms of the corporate sector. How could you go back to growth levels across the pandemic? Do you also actually the growth levels or could it be more gradual?

I got the first question. Okay. Okay. Okay. It was a little difficult to understand your question. I'll try to rephrase that and tell us if I'm right. So tell me if I'm right. The first one was collection. That one, I got it. And if we had troubles or how was the behavior of that. And the second one was on our corporate business and how we see it for 2021 or the remainder of 2020.

That's right. Yes. Just how fast could that recovery be in 2021 in the corporate business? Yes.

In 2021 in the corporate business.

Okay. I heard that.

Okay. You want to go?

No.

All right. Collection is -- in our massive markets, so far, we have no problem with collection, as I said. Some of the micro businesses are experiencing problems, which it can translate into some of the churn. But collection for our company reported on this churn, you can see that we have a decline in the churn, so we don't have any problem on collection. Regarding the corporate business, it's a little bit different. We have some segments of the market like hospitality that we will be taking care of on that part.

Hotels.

Hotels -- meaning hotels on that part, that we are working with it. It's still a smaller portion of our collection. And so far, we don't have any problems with them as of late that we could translate. And the second one is the corporate...

The behavior for 2021, we think, again, that we have the 2 different businesses. In Metrocarrier, we don't think is going to -- impact is very stable. The growth will come back. And in ho1a, we depend on the project, and that will depend, basically, on the evolution of the economy in the following months. So we are not certain if the economy is going to be impacted on the second half of the year, how deep it will go or it will be only Q3. So that's difficult to see for now. I'm -- what we're saying overall is that we are a very resilient company. We are in a very unique industry. So we think we will -- for 2021, we will certainly be there and we will be back.

And Juan Pablo, like I said before, if I understand the question and the concern. Metrocarrier, which is aimed at connectivity and infrastructure, it has a very steady customer base and revenue generated that more than ever requires more money. So that one is very clear that even for some projects might be delayed. The spending of our customer base will secure that business unit even with little growth. ho1a, it is a company aimed at solution and infrastructure and cloud and connectivity and managed services. It does also have a customer base because all the contracts at 36 months are going to be future, we don't expect to take the full amount of the prices on that part. Of course, it has a higher delaying project than what we had with Metrocarrier. So if we have more going into the future concern, let's call it that way, it has to be ho1a. The good part about ho1a is that we are every day more into the cloud services and collaboration, like Enrique was saying. All those video conference and all those security that we provide to the network are coming from ho1a, okay? So a big portion of ho1a is secured to the existing customer base. And even so we will forecast and we will see and pretend that some projects into the future might be delayed, we are still looking at a good, as I said, a good second quarter, and we will see what we will have into the third and fourth quarter.

And our next question comes from Carlos Legarreta from GBM.

I have two, if I may, please. The first one is, what are your thoughts on being more active on the share buyback front? And the second one, could you provide us more color as to how the cost of content evolving? Given the growing number of ex-subscribers, it seems pleasantly surprising to us that you have been able to continue growing the margin on the cable segment.

Okay. Second question was how can we manage to recover our cable business or video business?

How is the cost of content evolving?

Okay. Sorry, Carlos on the question. And the first one was on the buyback of stock. Okay. Let me answer the second one, okay? And then I'd let Luis or Enrique answer the other. Regarding the cost of content, like I said, a small portion or some portion of that one is denominated in U.S. dollars. It is not the full exposure to that. By far, we have a lot of our contracts secured impacts to majority there. And we want the $5, we have some tax and negotiations. So what we can tell you, Carlos, is that you cannot assume that the cost of programming will be fully affected by U.S. dollars by far. It is not affected strongly by the U.S. dollars. So we are very secure that we have good negotiations, good caps in the majority of our content. There is not to be too much worry about that part either. Even though it's going to have an impact, it is not going to be strongly affected by the U.S. dollar on this part. And Luis or Enrique?

We were -- yes, regarding the buyback program, we have thought about it. We have not made the decisions about it. We will have to evaluate the economic situation. We think that the stock is very, very cheap now, very low, and it should come back. But we have not made a decision. It makes sense. I mean we have a very underleveraged balance sheet. But we will just have to see -- wait and see what happens with the exchange rate and how the economy evolves. I think that the stock is going to come back. It should come back. I mean the company is very resilient, and we think, as most of the market thinks, that our stock is undervalued at this moment -- this point. But we have not made a decision. We have a buyback program that -- liquidity fund that is about $30 million or something like that, but we almost never exercised it. We did very little with that. But it's not a bad idea, but we have not made a decision. That's something that we have to discuss with the Board. Thank you.

And our next question comes from Alejandro Gallostra from BBVA.

Couple of follow-up questions. It seems that you'd be providing subscribers with the opportunity doing a temporary downgrade into their services for a couple of months during May and June. I was wondering if -- what are your thoughts on this. What do you think would be -- could be gaining part in the ARPUs in the second quarter? Because you mentioned that approximately half of your smaller companies have approached you already sharing financial difficulties. But what do you expect from the rest of the mass market customer base? What do you think will be the impact of this measure? How many customers do you think will take advantage of this opportunity? And if it's possible that these measures could be extended into the third quarter as well?

Sure, Alejandro. As I've said, we have all the attention of the company towards collection and customer retention and customer satisfaction. We don't expect to have a huge amount of subscribers going into emergency package. We see some of them having to do downgrades during the May and June period. As you know, we have all different rates and packages, but we have the smaller asset in the industry, so our reduction is not going to be significant. And those subscribers that we might move there, we don't expect to be that many because the package that we have, it has some conditions that they need to be met by the service that we provide to subscriber lines, not able to watch video, for example, over the broadband. That's something that we are providing with the government, too, in order to support the business continuity. This means that if you get to Whatsapp or you get to Facebook, they won't be able to watch a video. They won't be able to be connected. So that's secure that we will always receive payments on that part. We expect some downgrades, but not that many because of the nature of the business that we provide and because it's been very essential for us on that one. So don't worry about that. I don't see that being that much impact. The worst time of the year is going to be May and June. But as we said, it's very essential of the service. And no, we don't expect to continue to have those packages after the May and June condition. We made very clear that any retention package, it will be over May and June. So that is a small portion of customers that might not even keep the low ARPU packages that we have. Regarding the micro businesses, like I said, 7% of our subscriber -- unique subscriber base on that part goes to micro businesses. And as of today, what we experienced is a small portion of them having to close or coming to us asking us for a suspension of this service during those months. And as a micro business that is closed, we cannot retain them even pay MXN 300 or MXN 400 because the business is closed. What we saw is a small portion of those ones in the areas where we are that are asking for that retention package. So we, as of today, see some more positive effects in collection and bandwidth use and the necessity of our service than any problem with collection. And that's part of our churn, which is at the lowest part than we ever been before. So hopefully, we'll navigate on this COVID pandemic in good health our organization ahead.

There appear to be no further questions at this time. I would like to turn the floor back over to Mr. Yamuni for any closing remarks.

Thank you very much. As always, it's a pleasure to discuss our results with you. We hope that you all remain healthy and safe, and we look forward to catching up with you really soon under more positive circumstances. Please have a wonderful weekend and afternoon. Raymundo?

Thank you all. And like Enrique said, our mind is on the continuity in the health of our employees and providing the great service to all of them. It's good that it's been a good quarter. But the more important thing is for all of you to be healthy and for all of us, too. We're happy to be here talking to you on any comments on a one-to-one basis that you want to do into the future. We are up to discuss anything that you may have. Thank you all.

Keep safe and take care of your pajamas.

Thank you, everybody.

This does conclude today's conference. You may disconnect your line at any time, and have a wonderful day.

Thank you. Bye-bye.