Earnings Call Transcript - AMX Q1 2025

Operator, Operator

Good morning. My name is Nadia, and I'll be your conference operator today. At this time, I would like to welcome everyone to the América Móvil First Quarter 2025 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Now, I will turn the call over to Mr. Daniela Lecuona, Head of Investor Relations.

Daniela Lecuona, Head of Investor Relations

Thank you. Good morning, everyone. Thank you for joining us today to discuss our first quarter 2025 financial and operating results. We have on the line Mr. Daniel Hajj, CEO; Mr. Carlos Garcia Moreno, CFO; Mr. Oscar Von Hauske, COO.

Daniel Hajj, CEO

Thank you, Daniela. Welcome, everyone, to the first quarter of 2025 financial and operating report. Carlos is going to make a summary of the results. Thank you.

Carlos Garcia Moreno, CFO

Thank you, Daniel. Good morning, everyone. For the first quarter of the year, we began going to surge ahead, continuing the trend from early December as the markets grew increasingly concerned with inflation and signs of a much stronger economy than had been expected. However, as inflation numbers came in within expectations and new payroll figures weakened, 10-year treasury yields came down by a remarkable 50 basis points from mid-January during the quarter at 4.20%. In the period, most currencies in our region of operations appreciated versus the U.S. dollar, but not the Mexican peso, which remained almost flat over the quarter due to uncertainty over potential new tariffs from the U.S. In the quarter, the U.S. dollar lost 7.3% versus the Brazilian real, 4.9% versus the Colombian peso, 4.4% versus the Chilean peso, and 4.2% versus the euro. Now, the Mexican economy has been slowing down since April of last year, with the index of economic activity reaching 0% in February of this year. Private consumption, as you can see in the slide that we are showing, has plummeted and is now declining 1% year-on-year on the back of uncertainty around the Mexican elections and then the U.S. elections, increasing real interest rates, and the decline of economic activity worsened by a significant tightening of public expenditures. So, as you can see, there's been really a vertical drop in private consumption in Mexico over the last several months to the point that it is now negative. Now, in the first quarter, we added 2.4 million postpaid subscribers, with Brazil leading the way with 987,000 clients, followed by Colombia with 163,000 and Mexico with 133,000. In the prepaid segment, we posted 1 million net prepaid losses as both Mexico and Brazil disconnected clients, 831,000 and 545,000 respectively, while Argentina added 230,000 subs and Colombia added 434,000 subs. So, prepaid disconnections were limited to Brazil and Mexico. In the fixed line segment, we connected 446,000 new broadband accesses. Mexico was the main contributor with 165,000 clients, followed by Brazil with 98,000 and Central America with 52,000. Both lines and PayTV units fell by 130,000 and 32,000 respectively. Mobile postpaid and fixed broadband were the main drivers of growth in our client base, increasing by 6.1% and 4.3% respectively, again you can see this in this slide. Our first quarter revenue was up 14.1% year-on-year in Mexican peso terms to MXN232 billion, with service revenue expanding 15.8% and adjusted EBITDA increasing 13.3%. The latter figures partly reflect the year-over-year appreciation of most currencies versus the Mexican peso, particularly the Colombian and Chilean pesos, which were up 18% and 14% versus the Mexican peso, with the dollar up 17.7% and the euro up 14.1%, again versus the peso. So that essentially means that, with the exception of Brazil, all other international operations of América Móvil were worth more in Mexican peso. At constant exchange rates, adjusting for these exchange rate movements, service revenue increased 6.1% and adjusted EBITDA 4.0%, adjusting for the sale of towers by Telmex a year before. Most of our operations saw EBITDA margins increase sequentially. Our wireless service revenue climbed 5.7%, decelerating somewhat from the prior quarter as prepaid revenue continued to slow down mostly on account of weak economic activity in Mexico, as we've seen before. Posted revenue growth remains fairly stable across the board and actually accelerated slightly to 8.8% when our Chilean operation is included. On the fixed line platform, service revenue growth came in at 6.7%, with corporate networks revenue appearing to slow down. This effect had mostly to do with the fact that in the year-ago quarter, that line item had a very strong showing. And you can see this again in the slide. Broadband revenue growth maintained its pace at 9.8%, while that of PayTV came in at 8.7%, the fastest pace seen in many quarters, reflecting, on one hand, on cooperation in Chile, but also better growth in Central America and Austria and Eastern Europe. And we are seeing less of a drag in Brazil, where although growth is still negative, the rate of decline has slowed. The Central American and Eastern European blocks were the top performers in the period, exhibiting faster service revenue growth in both the fixed and the wireless platforms than they had in the preceding quarter. Our first quarter operating profit totaled MXN44.8 billion, a 10% year-on-year increase after depreciation and amortization charges that were up 16%, which partly reflects the incorporation of our Chilean operation. With our comprehensive financing cost decreasing slightly from the year-ago quarter, our net income was up 38% to MXN18.7 billion, equivalent to MXN0.31 per share, $30 per American Depositary Share. Our net debt at the end of March stood at MXN500 billion, not including capitalized lease obligations. It was equivalent to 1.5 times last 12 months EBITDA. In cash flow terms, our net debt increased by MXN11 billion in the quarter, which helped us fund capital expenditures in the amount of MXN25 billion, share buybacks of MXN4 billion, and MXN7 billion in labor obligations. That's the summary, and I will pass the floor back to Daniel so that we can begin the Q&A session.

Daniel Hajj, CEO

Thank you, Carlos. We can start with the Q&A session.

Leonardo Olmos, Analyst

My question is going to be centered on regulation and laws in Mexico. So, I think what we're seeing now is unprecedented for many years. If you could first discuss the new telecommunications law legislation that could impact the spectrum distribution and what your positioning on it? So potentially, regarding spectrum to competitors, and new competitors? And second is what the Trump administration is proposing on deliberation date, if there is any type of impact from Mexico? Because there was a document that by that date is released, mentioning that they were concerned, the U.S. government was concerned about concentration, high concentration of market share and telecommunications in Mexico, if that could be a concern to you?

Daniel Hajj, CEO

Thank you. As we know, Congress is currently discussing the proposals made by President Sheinbaum regarding the new telecommunication law and some changes in the competition law. Those are currently being discussed in Congress. We are monitoring closely both proposals and providing comments to the Congress members. So that's what we have now. We don't have anything else. Everybody knows what the proposals are. I agree with what you're saying about the spectrum. So, we are giving our views and we can discuss that in more detail once both laws have been enacted. But right now, nothing else to say. The laws are there. Everybody is discussing. We're giving our point of view. And that's all. So, I think in the next two months, as the President said, they are going to be enacted. So, that's what we have right now. On the other side, I don't exactly understand what you mentioned about President Trump and the concern about competition and dominance and all of that; well, that will be included in these laws that are currently being discussed right now. So, another important issue, which we put in front of the first page of our results, is the market share that we have in fixed broadband and TV, we have 27%, and Telcel has 55%. So that does not include the Customer Premises Equipment that also has some subscribers. So, I think we are discussing that. We think that we are not a dominant player anymore, and the laws have to show that. So, that's mainly what we've been discussing.

Walter Piecyk, Analyst

Can you just address the impact of tariffs potentially on handsets? How do you expect this to impact your business?

Daniel Hajj, CEO

Well, there are currently no changes on tariffs on handsets right now in Mexico and Latin America. I don't know if we can expect anything in the future. So, at this moment, it has been a little bit better because the exchange rate has come down somewhat, and since we buy everything in dollars, the price of handsets has been better. So, at this moment, we don't have anything on tariffs, and we don't expect anything on tariffs for the next months.

Walter Piecyk, Analyst

Sorry, I was going to continue, just noting perhaps the trade deficit that exists between Mexico and China? And if there's anything perhaps, given everything that's happening in the world about how manufacturing can move to different locations, whether that could extend in terms of Mexico's relationship with China?

Daniel Hajj, CEO

Well, I think there are big discussions on the trade deficits, trade deficit in the U.S. and trade deficit in Mexico with China. So, it's going to be very difficult to understand what is going to happen in the future. But I think that Mexico will have a very good probability of increasing manufacturing more and more in Mexico to supply the U.S., producing more with Mexicans and doing things in Mexico, not importing from other countries, and then exporting to the U.S. I think that's going to change a little bit. If we produce here, I think Mexico will have a good opportunity to grow. So, I hope that all these discussions and what is happening in the world will benefit Mexico.

Walter Piecyk, Analyst

Carlos also obviously mentioned we've seen the results, the impact of some of the economic issues in terms of consumer demand in Mexico. I mean, you guys have both been there a very long time. And obviously, Carlos, very involved in Mexico in general, even before mobile. Just curious, kind of your thoughts on timeframe and how long you think that this will progress through your numbers? How deep of a dip, how soon of a recovery, I suppose?

Carlos Garcia Moreno, CFO

I think what I was saying before is we had an extraordinary situation last year, in the second half of last year, because of the confluence of many events. One was the election in Mexico, which always leads to a slowdown in economic activity for the month after the election and the beginning of the new administration; that's our historical pattern. Then you have the elections in the U.S. at this time, which were probably more eventful than had been expected. We had very high and increasing real rates of interest because policy rates were constant, but inflation was declining rapidly. So, the real rates of interest were going up, which obviously impacted overall spending, both consumption and investment. Then to make things even harder in terms of short-term economic activity, the new administration came in with a commitment to put order in public finances, which meant reducing the fiscal deficit, and they have been doing so effectively. We've seen the numbers through February this year,and they are performing better than the budget. You have a primary surplus that has increased significantly, not compared to last year, but even to two years before. Our view is that these effects I mentioned are going away. Obviously, the elections have happened, and the uncertainty on tariffs will be resolved relatively soon. The real policy rates are coming down in Mexico; they have been coming down, and we expect them to continue to decline. So, we expect that the government will be in a position in the second half of the year to be a bit more forthcoming with their expenditures. So, I think that our current expectation is that we are seeing the bottom right now in this first quarter, and we would expect to see a recovery in the second half of the year.

Marcelo Santos, Analyst

I have two questions. The first is regarding Mexican prepaid. I understand in the release you attributed the weakness mostly to the economy. But I would like to see if you could discuss a bit the competitive angle. We are seeing some MVNOs growing very aggressively in prepaid. Do you think this is affecting what could you discuss of the competitive angle on prepaid in Mexico? And the second question is regarding the appetite of América Móvil for M&A in the region. There are some players that are divesting some assets, and I wanted to know what you think about that?

Daniel Hajj, CEO

Well, let's talk about Mexico. First, we already talked a little bit about broadband and postpaid. I think in Mexico, we had a very good quarter in broadband and, in postpaid, I think we are doing well. People are consuming more. ARPU is going up in postpaid. In broadband, we're still gaining subscribers, moving to fiber, and doing well. I think when you talk about broadband, fixed, and postpaid, we're doing okay in Mexico. When you speak about prepaid, the concern I have seen this morning is, well, first, not the only thing is the slowdown of the economy in Mexico, I think that's the primary cause. You see that the ARPU is declining a little bit because our consumers are spending a bit less than they used to. When it comes to prepaid, it's really tied to the economy. So, when things are good, consumers consume more, and ARPU growth increases; when things are not so good, it slows down, and then people are consuming a little bit less. On the other side, we have very aggressive competition from promotions from some MVNOs like BAIT; they are very aggressive, and they are growing. The difference is that they have an ARPU of MXN38, whereas we have an ARPU of MXN177. So, the difference between their subscribers and our subscribers is about 3x to 4x. We have been looking into our strategy, which is to target good ARPU customers in prepaid and postpaid. Our number portability is performing slightly better than last year. So, I think we are starting to see better numbers on that. The market is competitive with aggressive promotions where people are not paying or paying a very low amount of money. When these promotions eventually change, I think it will be interesting to see how they retain those customers. Our ARPU is MXN177 in Telcel and MXN38 in the other companies. So, it's not solely one thing at play; it's a combination of factors. I want to announce that, since the last call, we decided not to give guidance for CapEx budget. The CapEx for this year is going to be lower than last year, at MXN6.7 billion. This decision comes from observing a slowdown in all economies. We have been investing heavily, especially with 5G, over the last three years, expanding fiber and IT systems. This allows us to change our strategy this year considering the slowdown. We made this decision during the Board meeting, and I feel very comfortable with it. On the M&A front, we are open to M&A opportunities. It may be challenging to find something in the region alone. However, if you are referring to Telefonica selling their assets, we are aware of that and are open to considering if something fits into América Móvil's strategy.

Carlos Garcia Moreno, CFO

Just to provide additional color on prepaid. The prepaid ARPU was increasing last year by 4.5%. By the third quarter, it slowed to 3.1%, then 0.8% in the fourth quarter, and it was down 2.2% in the first quarter of this year. This aligns with the decline in domestic consumption I mentioned. As Daniel noted, the appeal of prepaid plans is that people have more control over their spending, so they adjust quickly based on their financial situations. If they feel uncertain about the economic environment, they will reduce their prepaid spending. That's the nature of prepaid plans.

Daniel Hajj, CEO

As I mentioned, there is a slowdown in the economy, along with aggressive promotions from competitors. It's a combination of factors affecting us in Mexico, and all of this contributes to the current situation. The market dynamics indicate that we have strong attributes such as the best network, good coverage, and industry-leading IT systems, which also play a significant role.

Lucca Brendim, Analyst

I have two questions. The first one is regarding the recent M&A moves that we saw in Latin America. I wanted to check if you're already seeing some changes in terms of competition in the competitive environment in any of the regions where we have seen M&A or discussions about potential changes.

Daniel Hajj, CEO

I think that M&A brings consolidation. Consolidation generally leads to stronger competitors, which is beneficial for all markets. I don't consider this to be a negative phenomenon. In the case of Colombia and Argentina, consolidation is not adverse. For Chile, we're still trying to grow our market share and focus on profitability. We aim to enhance our market share in the wireless market as it remains low thus far.

Carlos Legarreta, Analyst

A couple of questions on my end. On Chile, Paraguay, and Uruguay that you're reporting together now, you mentioned in the press release that these are pro forma figures for Chile. Yet there's a double-digit increase in EBITDA, a massive increase in the EBITDA margin. Can you clarify what is driving this?

Daniel Hajj, CEO

In Central America, we have been managing through challenges posed by a cyberattack last year. When comparing performance with last year, it's different. However, if you examine our fourth and third quarter results, we see improvements in Guatemala due to our substantial investments in 5G frequency, coverage, and fiber. We are tightly controlling costs while still delivering strong performance improvements. Overall, we are seeing positive growth across most regions, including Colombia and Peru.

Oscar Von Hauske, COO

Regarding the financial statements, we included pro forma figures to assist your models. Moving forward, we will provide combined financials for the Southern Cone region. While we aim to enhance synergies in our operations here, I've observed growth and efficiency as we've streamlined our processes.

Daniel Hajj, CEO

Just to clarify, our EBITDA is indeed pro forma. We're seeing a notable increase due to synergies, higher operational efficiency, and strategic recovery after last year's challenges.

Vitor Tomita, Analyst

Just a very quick follow-up on the new CapEx guidance. Back in the previous earnings call, it was mentioned that there could be some additional CapEx for Chile. Does this new guidance already include what you plan to invest in Chile or is it separate?

Daniel Hajj, CEO

All our CapEx guidance includes all expenditures across companies, including Chile. We used to provide a three-year CapEx forecast. As for the reduction this year, I don't foresee a significant increase in the following year, although it is difficult to predict.

Operator, Operator

We have no further questions. I'll hand back to Mr. Daniel Hajj for any closing comments.

Daniel Hajj, CEO

I just want to thank everyone for being on the call. Thank you very much.

Operator, Operator

Thank you. This concludes today's conference call. You may now disconnect your lines.