Telecom Argentina S.A. (TECO2) Earnings Call Transcript & Summary

Good morning. On behalf of Telecom Argentina, I would like to thank everybody for participating in this conference call. The participants of today's conference call are Roberto Nobile, Chief Executive Officer; Federico Pra, Interim Chief Financial Officer; and myself, Luis Ubago, Head of Investor Relations. The purpose of this call is to share with you the results of the first quarter ended of March 31, 2026. If you have not received a press release or presentation, you can call our Investor Relations office to request the documents or download them from the Investor Relations section of our website located at inversores.telecom.com.ar. I would like to go over some safe harbor information and other details of the call. We would like to clarify that during the conference call and Q&A session, we could mention certain forward-looking statements about Telecom's future performance, plans, strategies and objectives. Such statements are subject to uncertainties that could cause Telecom's actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effects of ongoing industry and economic regulations, possible changes in the demand for Telecom's products and services, the effects of potential changes in general market and conditions and in legislation. Our press release dated May 11, 2026, a copy of which was included in our Form 6-K sent to the SEC, describes certain factors that may affect any forward-looking statements that could be mentioned during this call. The company has reflected the effects of inflation adjustment adopted by Resolution 777/18 of the Comisión Nacional de Valores or CNV, which establishes that the re-expression will be applied to the annual financial statements for interim and special periods ended as of and including December 31, 2018. Accordingly, the reported figures corresponding to the first quarter of '26 included the effects of the adoption of inflationary accounting in accordance with IAS 29. In this presentation, we will also include figures in historical values, which are easy to understand. Our press release is complemented by our earnings presentation. Please read the disclaimer contained on Slide 2 of the presentation. Today, we will go over our business and financial highlights and end the call with a Q&A. Now let me pass the call to Federico, our Interim CFO, who will start with the presentation.

Thank you, Luis. Good morning, and welcome to everyone. Slide 3 summarizes our highlights as of March 31, 2026. Before diving in the main variables and financial highlights, it is important to clarify that throughout these presentations, we are presenting consolidated financials, including Telefónica Móviles Argentina or TMA, acquired on February 24, 2025. As such, in this presentation, we will mention consolidated figures in first Q '26, including the full quarter impact 3 months of TMA contribution. Consolidated figures in the comparative period 1Q '25, including only 1 month of TMA contribution following the acquisition, figures for Telecom only, excluding TMA contribution and the stand-alone figures for TMA for the first quarter of 2025 and the first quarter of 2026. Having said that, our main financial achievements for the first quarter of 2026 were as follows: Telecom's consolidated revenues totaled over $1.7 billion, up 34% year-over-year in dollars, mainly driven by the incorporation of a full quarter of TMAresults in first Q '26 versus the only 1 month in first Q '25. On a consolidated basis, service revenues grew 34% year-over-year in constant pesos. Importantly, continuing the real service revenue growth trend we have previously highlighted, service revenue for Telecom stand-alone grew in real terms, posting almost 2% year-over-year increase in first Q '26. On our consolidated EBITDA margin reached 34.8% in first Q '26, expanding by over severance charges record, the consolidated margin would be 36%. At Telecom, excluding TMA, EBITDA margin reached over 38%, the highest level since the merger with Cablevisión in 2018 and would stand about 40% on an adjusted basis, excluding the impact of higher severance charges during the period. This huge improvement is partially explained by the deconsolidation of Microsistemas following the JV with Banco Macro, representing a positive 1.4 percentage points margin impact on Telecom ex TMA. At TMA, stand-alone EBITDA margin reached 28.7% and would exceed 30% on an adjusted basis, excluding the impact of higher severance charges of TMA. Consolidated CapEx amounted to approximately $0.3 billion for the first quarter ended in March 2026, reflecting an intensity of 18.4% over revenues for the period. Investments continue to prioritize the expansion of both fixed and mobile access networks, particularly the rollout of fiber-to-the-home network and 5G infrastructure. Our net debt-to-EBITDA leverage ratio stood at around 1.4x in first Q '26, significantly improving versus first Q '24 and '25, reflecting a solid debt management in a context of growing EBITDA generation. As detailed in the following slide, our fixed segment continues to deliver consistent growth, supported by FTTH expansion across personal and TMA in broadband and by strong commercial performance in personal flow in Pay TV. In mobile service revenues for telecom, excluding TMA, increased by 9% year-over-year. Fintech and regional operations also continued to show solid trends. From Slide 4 onwards, we will take a closer look at the performance of the business, highlighting operational trends, commercial evolution and the impact of the recent acquisition on key indicators. Slide 5 highlights the positive evolution in real terms of service revenues and ARPU trends, both for Telecom and the ones provided by our subsidiary, TMA. On a consolidated basis, total revenues as of 1Q '26 amounted to over ARS 2.3 trillion, increasing 31% in real terms versus 1Q '25, showing a 72% nominal increase. Service revenues have reached over $1.6 billion, increasing 34% year-over-year in constant pesos. Excluding the contribution from TMA, total service revenues grew almost 2% year-over-year in real terms, reflecting a solid commercial execution. Furthermore, mobile, broadband and Pay TV service revenues has been growing in real terms at a weighted average growth rate of almost 5%. It is worth noting that the year-over-year comparison is impacted by the fact that 1Q '25 included only 1 month of TMA's contributions, while 1Q '26 reflects a full quarter of consolidated results. TMA on a stand-alone basis reported separate service of over $0.6 billion in 1Q '26, remaining broadly stable in real terms compared to the previous year. It is important to clarify that telecom does not determine TMA's pricing strategy. TMA continues to define and implement its own commercial strategy independently, in line with its specific market positioning and operational priorities. In U.S. dollar terms, ARPU performed well across segments. Mobile ARPU delivered a solid growth, while the broadband and Pay TV ARPU showed a more moderate evolution. Overall, these trends are consistent with our continued focus on value management across the portfolio. Slide 6 shows the evolution of our products, where we continue to observe growth in more segments of our subscriber base. For personal -- in the mobile segment, during the first quarter of 2026, we continue to observe the effects of our updated disconnection criteria for new prepaid adds in Personal mobile. This change shortened the period of inactivity required to deactivate a dominant prepaid line, mainly explain the 12.2% reductions year-over-year in prepaid, reaching over 11.5 million accesses in 1Q '26. Postpaid decreased 3.7% year-over-year, reaching almost 8 million accesses. It is important to highlight that in prepaid, the decrease is mainly explained due to the disconnections of lines with no significant traffic, thus not generating an impact on our mobile service revenues. The participation of postpaid subscribers over the total mobile subscriber is currently 41% of our total mobile base, up to 39% that we have in first Q '25. Despite the mentioned reductions in the customer base, the mobile segment continued to deliver solid top line performance with mobile revenues at telecom, excluding TMA, growing approximately 9% year-on-year. In broadband, we have observed growth driven mainly by higher FTTH adoption. Our subscriber base has registered an increase of 3.3% year-over-year, reaching almost 4.2 million accesses in 1Q '26. FTTH now represents 33% of personal broadband base with almost 1.4 million accesses, supported by the acceleration of our fiber rollout. In Pay TV, our Flow platform continued with a good performance as personal flow Pay TV accesses have grown year-over-year. Personal flow subscriber base in Argentina has grown 4.7% year-over-year, reaching almost 3.3 million accesses, reflecting an improvement in terms of net adds, mostly due to the strong performance of our Flow Flex platform. During 1Q '26, Personal Flow's unique customers reached 1.8 million, increasing by over 250,000 total clients or 17% when compared to the same period in 1Q '25. TMA provided figures have shown solid results across its core segments, particularly mobile and broadband. In mobile, we have seen strong growth in postpaid customers with an increase of 2.9% year-over-year, reaching almost 9.5 million postpaid accesses. Postpaid customers represent 49% of TMA total mobile base. These figures include machine-to-machine connections for more than 2.9 million accesses, increasing by 10% versus 1Q 2025. In broadband, TMA continues to demonstrate a solid expansion. Broadband accesses grew by 48% year-over-year, reaching more than 1.6 million accesses. Approximately 96% of broadband customer base is on FTTH technology. In Pay TV, TMA has seen a modest decline in the year-over-year comparison, but grew in the same quarter-over-quarter. The subscriber base decreased by 1.8% year-over-year with a net loss of approximately 7,000 customers, bringing the total to 410,000. When combining the evolution of both telecom and TMA subscriber bases, we observed overall growth across fixed segments, which is a positive achievement. Broadband shows a combined growth of 3.7% and Pay TV 3.9%, confirming the recovery trends in fixed services, while mobile subscriber shows a decrease, mainly driven by the reason mentioned above, particularly within the prepaid segment. Moving to Slide 7, we will review the performance of our regional operations. Our operation in Paraguay continued with a very good strong performance. Revenue has grown almost 25% year-over-year in U.S. dollars. EBITDA has grown 34% year-over-year, reaching an equivalent of USD 36 million equivalent, while also showing a strong EBITDA margin of over 50%. Our operation continues mostly unlevered with a net debt ratio of 0.1x. Regarding customer bases, in Paraguay, we reached 2.6 million mobile customers and growing 1% year-over-year. Our fixed broadband and pay TV offering in that country also continues to show good results, where customer bases have amounted to 357,000 and 110,000 subscribers, respectively. Personal Pay onboarded clients in Paraguay amounted to almost 1 million. In Uruguay, we count with 94,000 Pay TV customers and approximately 3,200 broadband customers as of March 2026. Personal Pay has reached almost 5 million onboarded clients in Argentina, reflecting a 28% annual growth. The platform achieved 1.2x increases in total payment volumes, TPV during 1Q '26. Additionally, our lending businesses continue to gain traction with loan originations, excluding [ ExtraPe ], reaching ARS 11.2 billion in first Q '26, up 25% year-over-year and accelerating more than 60% versus 4Q '25, driven by the strategic partnership with Banco Macro and the ramp-up of our Micro lending product. In Slide 8, we provide an overview of our EBITDA margin evolution. During the first quarter of 2026, EBITDA reached approximately ARS 820 billion, representing a 37% year-over-year increase in real terms. This was driven by a 31% increase in revenues, while operating costs grew at a lower pace, up to 28% year-over-year, leading to an expansion in profitability. As previously mentioned, the year-over-year comparison reflects the fact that the first Q '25 included only 1 month of TMA contribution, while first Q '26 incorporates a full quarter of consolidated results. As a result, the EBITDA margin improved to 34.8% in first Q '26 compared to the 33.2% in first Q, showing a strong year-over-year expansion. Additionally, excluding the increase of consolidated severance charges, the EBITDA margin would have reached 36%, further highlighting the underlying strength of our business. Slide 9 shows the evolution of EBITDA year-over-year and the impact of the different components of revenues and costs. In real terms, EBITDA increased by ARS 220 billion or 37% year-over-year, reflecting both the positive contribution from TMA and our ongoing efficiency efforts. The lines that contribute the most to this margin expansion were fees for service, maintenance and materials, mainly due to the lower cost of maintenance materials and supplies and process automation call centers. Commissions and advertising costs variation was impacted by lower media advertising revenues and to a smaller extent by reduced commissions for a lower postpaid portability activity. Finally, handset costs. and mainly reflecting our continued efforts to reduce labor costs associated with the rightsizing of our operations that aims to increase productivity, efficiency and profitability. It is important to highlight that if we exclude the effect of the increase in the run rate of severance charges during first Q '26, the consolidated margin would have reached 36%, thus registering an expansion of 280 basis points versus 1Q '25. Now let me pass the call to Luis, who will continue the presentation. Thank you.

Thank you, Federico. Slide 10 shows the company's consolidated net results and EBIT. Our consolidated EBIT increased in the first quarter of '26 as we registered an expansion of EBITDA in real terms. we recorded an operating income for the first Q of '26 of ARS 296 billion. The operating margin during the first Q of '26 was 12.5% of consolidated revenues in real terms and in historical figures, the same margin was almost 27%. During the first quarter of '26, the company recorded a consolidated net income of approximately ARS 643 billion compared to a net income of almost ARS 124 billion in the first Q of '25. The results in both first quarter of '25 and first quarter of '26 were largely driven by financial effects. In both periods, the real appreciation of the peso generated net financial income, mainly related to the impact of our foreign currency denominated financial debt. This dynamic resulted in positive exchange differences in real terms, which, together with the EBIT expansion, explained the growth of net income in the first Q of '26. Slide 11 displays a summary of the company's consolidated CapEx in PP&E and intangible assets during the first quarter of 2026, which amounted to almost ARS 434 billion or an equivalent of over $0.3 billion at the official FX rate. This represents a consolidated intensity over revenues of 18.4%. This amount is 85% higher when compared to the previous year in constant pesos with a strong focus on FTTH expansion and 5G deployment. It is worth noting that the first Q '25 figure included only 1 month of TMA's contribution, while the first quarter of '26 reflects a full quarter of consolidated CapEx, including TMA, which partially explains the significant year-over-year increase. Technical CapEx includes mainly investments in our access network and technology, representing 60% of the CapEx during the first Q of '26. Over the course of the first Q '26, nearly 780 existing sites were upgraded. We also added over 210 new 5G sites operating in the 3.5 gigahertz band during the quarter. And our 5G network footprint reached more than 1,300 sites as of March 31, 2026. In our fixed access network, we performed overlay of almost 11,400 blocks of FTTH network. Approximately 25% of our CapEx of the first quarter of '26 was allocated to installations and customer premise equipment, or CPE, which are installations and equipment in the homes of our clients and 9% to our international operations. Slide 12 describes our consolidated cash flow generation during the first quarter of '26 compared with the same period of 2025. Our cash flow generation remains robust. Free cash flow before dividends and interest payments during the first quarter of '26 was equivalent to USD 216 million compared to the free cash flow obtained as of the first quarter of '25, we generated an expansion of more than USD 130 million, mainly related to the expansion of the EBITDA was equivalent in U.S. dollars. Slide 13 shows our key figures for the last 12 months of the first quarter of '26 compared to the fiscal year of '25. The conversion to U.S. dollars is obtained by dividing the figures in constant pesos at the end of each period and using the end of period spot FX rate. Consolidated EBITDA on a last 12-month basis reached almost $2.2 billion as of March of 2026. Our gross debt amounted to almost $4 billion as of March of 2026, while the company holds cash and equivalents for almost $0.9 billion, resulting in a net debt of $3.1 billion, decreasing in dollar terms versus the fiscal year 2025. The company's cash position includes proceeds from the Class 27 international notes due 2036, already received and to be applied to cover $109 million equivalents of local loans and the $82 million equivalents of local dollar-linked notes Class 20, which are shown in the debt maturity profile outstanding as of March 31, 2026. Consequently, our net debt-to-EBITDA leverage ratio improved significantly to 1.4x in the last 12 months of the first Q of 2026, down from the 1.7x in the last 12 months as of the fiscal year 2025, reflecting stronger cash generation, a higher consolidated EBITDA base and a solid balance sheet. Slide 14 shows the breakdown of our debt maturity profile. As previously mentioned, the company's cash position includes proceeds from the Class 27 international notes due to 2036 already received and to be applied to cover the $109 million equivalent of local notes and the $82 million equivalent of local dollar-linked notes plus 20, which are shown in this maturity profile, and this will be repaid with these funds. As a result of these liability management actions, we extended the average life of our debt to almost 5 years, reinforcing a more balanced maturity profile and ultimately reducing refinancing risk. Our maturity profile for the upcoming years is highly concentrated and manageable, and we will continue with our liability management strategy aiming to reduce cost and expand tenors. Additionally, we also maintained a very good relationship with the multilateral and export credit agencies and have availability of financing from local banks. So let me conclude in Slide 15 with some takeaways from this period. Profitability continued to strengthen. During the quarter, we achieved a consolidated EBITDA margin of 34.8%. [ Copart] , Telecom stand-alone reported its highest EBITDA margin since the merger with Cablevisión in 2018, reaching over 38% and exceeding 40% on an adjusted basis, excluding the increase in the run rate of severance charges, reflecting a strong recovery in profitability. Additionally, TMA also showed a meaningful improvement, exceeding 30% on an adjusted basis, excluding the increase in severance charges. At the same time, we continued executing our 5G and FTTH deployment strategy with CapEx over revenues reaching 18.4% for Telecom Argentina on a consolidated basis. These investments are key to strengthening network quality, supporting data consumption growth and reinforcing our long-term competitive positioning. Telecom and TMA's customer base expanded in pay TV and broadband even in a very competitive market. And at the same time, the company continued to deliver real growth in service revenues. On a consolidated basis, service revenue grew 34% year-over-year in real terms, mainly driven by the incorporation of TMA. Excluding TMA, service revenues increased by almost 2% year-on-year in real terms during the quarter, continuing a positive trend we began to see during 2025. In addition, mobile service revenues for Telecom, excluding TMA increased by 9% year-over-year. Cash generation remains solid. We delivered continued growth in free cash flow while maintaining a strong cash position, mostly held in U.S. dollar-denominated instruments, providing liquidity, resilience and flexibility. And finally, we further strengthened our liability profile. Supported by a strong improvement in the leverage, net debt-to-EBITDA decreased from 1.9x in the first Q of 2025 to 1.4x in the first Q of 2026. At the same time, we extended the average life of our debt to almost 5 years and achieved a smooth maturity profile, supported by ample liquidity and our diversified funding sources. These actions position us well to sustain long-term growth. With this, now we are more than pleased to answer any questions you may have. Q&A session will be open immediately. Thank you very much.