Sitios Latinoamérica, S.A.B. de C.V. (LASITE) Earnings Call Transcript & Summary

Good day. My name is Ellie, and I will be your conference operator today. At this time, I would like to welcome everyone to our earnings call of the second quarter 2024 of SITES LatAm. [Operator Instructions] Thank you. I'd now like to hand over the call to Héctor Macías, CFO. You may now begin the conference.

Thank you. Good morning, everyone. Thank you for joining us today to discuss our second quarter of 2024 operating and financial results. We have on the line Mr. Gerardo Kuri, CEO; myself, Héctor Macías, CFO; and Mr. Luis Díaz, COO. And Gerardo Kuri will begin with our presentation. Thank you.

Good morning, everyone. Before the Q&A questions, I'm going to make a summary of the results. At the end of the quarter, SITES reported a portfolio of 35,778 sites distributed across 16 Latin American countries. During the quarter, we built 398 new sites with an additional 215 in advanced stage of construction. Our portfolio expanded by 1,538 new sites year-on-year. Once again, the Andean Region continued to show an enormous growth potential and extraordinary operational efficiency and business development impetus, contributing with 905 new sites when compared with the same period of last year. This growth was driven by Peru, which added 608 new sites and Colombia with 216 new sites during the last 12 months of operations. Central America also demonstrated steady growth at a good rate, largely attributed to the development of the telecommunications industry in the region. During the past 12 months, SITES has contributed to the momentum by successfully building 369 new sites year-on-year, with focus on key markets such as El Salvador, Guatemala, Honduras, and Nicaragua. At the end of the quarter of 2024, SITES consolidated tenancy ratio stood at 1.21 tenants per tower, flat when compared to the last quarter and slightly above when compared with the same period of last year. The expansion of our tenancy ratio was affected by the loss of 78 individual site agreements, most of them in Brazil related to the network overlap following market consolidation after the acquisition of Oi. However, thanks to our commercial efforts, we successfully added 456 new individual site agreements and equivalent during the quarter, effectively neutralizing the loss. Over the past quarter, all regions have consistently increased their colocation rate. Central America concluded the period with 1.23 tenants per tower, surpassing the 1.16 reported in the previous year. The Andean Region achieved a colocation rate of 1.11, with the Caribbean closed at 1.16. AUP also shows sustained growth, increasing the occupancy rate to 1.23 clients per tower, all of them consistently improving their reported ratios in the previous year. At the end of the second quarter, total revenues amounted to MXN 3,670 million, 61.9% of which derived from tower lease revenues. Total revenues expanded 7.4% year-on-year, driven by the consolidation of our portfolios, a successful commercial strategy as well as our build-to-suit program gaining traction. Tower lease revenue saw significant growth across the board with Central America and AUP leading the way growing by 36.8% and 23.8%, respectively, year-on-year. The Andean Region expanded its tower lease revenues by 6.6%, while the Caribbean increased its tower lease revenues by 5.1% on a year basis, demonstrating constant revenue stream generation. Solid tower lease revenues growth led to a 15.5% year-on-year increase in the second quarter EBITDAaL totaling MXN 2,011 million. The EBITDAaL after leases margin for the period stood at 88.6% of revenue, expanding 4.8 percentage points compared to the previous year, demonstrating the continuity of our operational efficiencies and our successful implementation of cost control policies across all operations. EBITDAaL after lease margin across the region increased on a year-on-year basis. Brazil margin stood at 92.2%. This was an expansion of 2.2 percentage points. The Andean Region reached an 89.6% margin, expanding 4.8 percentage points, while Central America margin stood at 92.9%, expanding 7.6 percentage points. AUP recorded a margin of 84.3%, expanding 2.2% and the Caribbean reached 92.3%, 10.2% above higher in the same period last year. Trends show 5 quarters of sustained EBITDA after lease margin expansion, reflecting the efficiency in the use of resources as well as the strength and consistency of our revenue system. At the end of June, our debt [net] stood at MXN [54,075] million. It was equivalent to a net debt to EBITDA after leases ratio of 7.4x. Thank you. We can now begin with any questions you may have.

[Operator Instructions] Our first question comes from Alejandro Gallostra from BBVA.

Would it be possible for you to give us an update about the tower decommissioning that is taking place in Brazil as a result of the market consolidation. I believe there has been ³ individual site agreement cancellations year-to-date because of this tower decommissioning thing related to the market consolidation. And I believe you expect a little bit more than that. I don't know if this decommissioning is over or we should expect more towers -- more site agreement cancellations in the coming quarters?

Thank you, Alejandro. So we expect all the cancellations to keep the same pace. We initially expected them to be faster and to be done by this half of the year. We would think they will go all the way to the end of this year. And most probably this quarter will be the one with most site cancellation. As we have discussed previously, since the beginning of SITES LatAm, these sites of Oi revenues were always included in our math that they would be canceled, basically because of the overlapping of the networks and because the contracts were not long term. We expect it to reach 1,200 Oi cancellations by the end of the year. That includes all the past.

You expect a total number of 1,200 individual site agreement cancellations because of the market consolidation in Brazil, is that what you said, 1,200?

1,200, yes.

And so far, there's been only 263. So there should be an additional 100 tower cancellations -- site agreement cancellations.

[indiscernible]. So we're still missing about 400, 450 sites that should be lowering.

You expect an additional 400...

400 additional, yes.

And so for your -- okay. All right. So cancellation started before -- you're counting the 1,200 total individual site agreement cancellations, counting also those that took place in 2023, correct? All right.

Correct.

Okay. Got it. And then second, I don't know if you could clarify the following numbers in Brazil. You built 82 new towers in Q2. And you also mentioned that there was 71 individual site agreement cancellations related to market consolidation. However, during the quarter, you experienced 44 individual site agreements less quarter-on-quarter. So I'm just wondering if you're losing clients in Brazil that are not related to the tower decommissioning.

So no, everything we have been losing in Brazil is completely Oi.

So how come you increased the number of towers by 82? You lost 71 individual site agreement cancellations. And at the end, the total number of individual site agreements is, it's still less than the previous quarter?

So cancellations are bigger in Brazil than the number of new sites. Cancellations in Brazil are also bigger than the number of colocations in Brazil. So what we have is a lot of colocations outside of Brazil, not only...

But the 82 new towers that you built in Brazil come with paying tenant already in Q2 or not yet?

Sorry, I didn't get your question, Alejandro.

You built 82 new towers in Brazil this quarter. These new towers come with a new tenant, at least one tenant that is already paying...

All new towers come with one tenant.

Then I just don't get how you ended the quarter with less individual site agreements quarter-on-quarter. But okay, maybe we can go over the numbers after the call, but...

Are you talking in money or in colocations?

In individual site agreements and equivalents. Okay. Maybe we can discuss the numbers in greater detail after the call.

I think what misunderstood is the 456 new individual site agreements were not added in Brazil. They are in Brazil and other places. Maybe we'll disclose that to you. You have a lot in Central America, you have a lot in different places.

Well, the report says, this number only for Brazil. But well, again, maybe we can go over these numbers after the call and then...

Because I don't think we disclosed exactly how many new tenants, new individual sites agreements we got in Brazil. So actually, we are deploying that our tenancy ratio came to 1.21, which is way less than we had. So 1.21, I think we're misunderstanding that we're taking Brazil in the first part. But we will give you the exact information...

Next question comes from Eduardo Nieto from JPMorgan.

I actually have 2. So first on cash flow, I wanted to have a better idea of what that's going to look like this year. You said in the past that taxes have been a big burden. So if you can maybe give us some guidance on what you expect total taxes to be this year. And you've made some efforts to move debt or that's the plan at least to move debt to the Opcos to try to save some cash in taxes. So if you can maybe give us the amount that you think you can save by completing these efforts of moving the debt to the OpCo. So that's the first question. And the second question is on hedging. We've seen some volatility on BRL and MXN. So just wanted to get a reminder of what the hedging policy is and if there is any plans to move debt into Brazil as well.

So on the second question, we don't have any hedging as of today. We -- our incomes are 45% U.S. dollar denominator related contracts. And our debt is most in U.S. dollars, and we have a Mexican peso, [MXN 21 billion] tranche. In case of devaluation of the peso for our payment of debt that puts us in a better situation. So that's not something we are concerned about. What we are concerned is trying as time permitted to put the 45% to 45% U.S. linked and then trying to do something like we did in Peru, where all the debt in Peru is completely linked to local currency. So we are working on that. Brazil market is coming to lower rates. And once it gets to some where it makes sense, we will make our efforts to lower that debt. We do not have one policy on how to make it. It's more in a committe-by-committee basis of what we should do. But as most organic as we can have it, that's better for us. In the term of the taxes, as of today, taxes will keep in the same rate. We have been working on lowering and doing some things with the debt and some strategies, but we think they will be starting to pay off maybe last quarter, but most probably next year.

Got it. Is there any number that you can give us around how much you expect to pay this year in taxes in total?

It's complex, especially since we report in pesos, it's quite complex. So I think the best way to do it is to keep the percentage in taxes paid at the same level.

Okay. Got it. And maybe if I can add one more. In terms of CapEx, I think you've lowered the expectations for towers that you expect to build. Can you remind us what you expect for this year in terms of tower -- new towers or a dollar number for CapEx?

Absolutely changed. Situation that have changed the CapEx that Chile changed. So different control in Chile, have changed with the relations with the client. So -- our guidance still is in the 1,200 to 1,500 towers this year, maybe 1,200 is something we will achieve more charged to the Andean Region and something in Central America. But we still CapEx to be in those numbers and around still $95,000 to $100,000 per tower. In free cash flow, just some additional comment. We are also glad to say that we have finalized and started moving money from Argentina since January this year. So we are quite happy and stable with that movement.

Our next question comes from Andres Coello from Scotiabank.

I'm just wondering about your leverage levels. Leverage went up in the quarter to 7.43 from [7.1] last quarter. So I'm just wondering, if you have any targets for leverage in the short term or in the middle term, just to see what you're expecting or how fast you're expecting to delever the balance sheet?

So again, getting the money, revaluations out of the way, we think the company still has to pursue their objectives that no less than 3 years. It used to be 4 years, 3 years now, we should be keeping the 4.5 to [4 point] times net debt to EBITDA. This is in organic growth and additional sites. We think we have been doing a good job. In the margin, we already managed to accomplish our objectives. We will sustain those. And now what we want to do is to increase more tenants. We think there is some 5G coming that gives extra income to our towers from extra equipment from the owners and from the operators. So we think this will come to help a lot. So we still think the 1.4 to 1.45 in 3 years is more than manageable.

Okay. Just to see if I heard correctly, 4 to 4.5x net debt to EBITDA in the long term?

Yes, that's how it is, in the midterm, that's our objective.

[Operator Instructions] There are no further questions at this time. Mr. Gerardo Kuri, I turn the call back over to you.

So thank you all very much, and we're very open for any follow-ups you may have. Have a good day.

Thank you so much for attending today's conference call. You may now disconnect. Have a [wonderful day].