Earnings Call Transcript - AMX Q2 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, Second Quarter 2025 Conference Call and Webcast. Thank you. Now I will hand the call over to Ms. 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 second quarter financial and operating results. We have on the line Mr. Daniel Hajj, CEO; Mr. Carlos García Moreno, CFO; and also Mr. Oscar von Hauske, COO.

Daniel Hajj Aboumrad, CEO

Thank you, Daniela. Welcome, everyone. Carlos is going to make a summary of the second quarter results.

Carlos Jose Garcia Moreno Elizondo, CFO

Thank you, Daniel. Good morning, everyone. Well, the second quarter was characterized by significant uncertainty associated with the tariffs the U.S. government seeks to impose on merchandise imports. While this uncertainty did not have much of an impact on interest rate volatility during the period, the 10-year Treasury notes ended the first quarter at 4.21% and the second quarter at 4.23%, it did weigh on the value of the U.S. dollar, which during the period fell against most currencies in our region of operations, 7% versus the Mexican peso, 5% versus the real, 2.9% versus the Colombian peso, 2.1% versus the Chilean peso, and 8.2% versus the euro. We added 2.9 million postpaid clients, with Brazil contributing 1.4 million, followed by Colombia with 199,000 and Mexico with 102,000. On the prepaid platform, we recorded net disconnections of 1.1 million subscribers, with each of Brazil, Chile, and Central America connecting approximately 500,000 clients each, while Colombia added 229,000 subscribers, Argentina 251,000, and Mexico 83,000. Altogether, we gained 1.7 million wireless subscribers in the quarter between prepaid and postpaid. In the fixed line segment, we gained 462,000 broadband accesses, including 231,000 in Mexico compared to 155,000 in the prior quarter, 66,000 in Brazil, and 51,000 in Central America. Voice lines and PayTV units declined by 164,000 and 61,000, respectively, during the quarter. At the end of June, we had 404 million accesses, of which 137 million were postpaid clients and 78 million were fixed-line RGUs. Year-over-year, our postpaid base increased 6.8%, which was the fastest-growing pay accesses, and fixed broadband accesses increased by 4.5%. Those accesses constitute our main drivers of revenue growth. In Mexican peso terms, our second quarter revenue totaled MXN 234 billion. That's a 13.8% year-on-year increase, which partly reflects depreciation over that period of the Mexican peso versus most of the currencies in our region of operations. We're talking about the second quarter versus the second quarter of 2024. At constant exchange rates, we posted our strongest revenue performance in over a year. I think, in some report I saw that over 12 years, it was a 7.9% increase. Our revenue expansion was broad-based across business lines and across countries, with service revenue growth moving up to 7.3%, as can be seen in this slide, and that of equipment revenue to 12.5%. It's important to note that practically all our subsidiaries registered faster growth sequentially, practically all of them. On the mobile platform, postpaid service revenue expanded 9.5%, also the best result in over a year, with prepaid revenue growth recovering to 3.1% from 0.9% in the preceding quarter. The rebound in prepaid revenue growth was driven by Mexico, with prepaid ARPU climbing 2.2% in the quarter after posting a 2.2% decline in the first quarter. As can be seen in this slide, prepaid ARPU growth mirrors the growth rate of private consumption in the country, which likely bottomed in the first quarter. On the fixed line platform, corporate networks revenue and PayTV revenue were up 15% and 10.1%, respectively, representing also the best performance in several quarters, with broadband revenue decelerating slightly sequentially to 8.2% from 9.8%. Mexico and Colombia were the countries that had the greatest impact on the sequential acceleration of revenue growth, as can be seen here in this slide. EBITDA came in at MXN 92.4 billion, which was up 11.2% in Mexican peso terms and 5.1% at constant exchange rates, improving sequentially from the prior quarter. And I think, again, something to note is that EBITDA margins were nearly flat sequentially across the board, practically in all countries. Our operating profit came in at MXN 47 billion. That's a 4% increase from the year earlier quarter, as the depreciation of the right of use associated with tower leases jumped 24.5% on account of the consolidation of the Chilean operation and certain effects associated with the accounting methodology applicable to Argentina as a hyperinflationary country. Our integral financial costs were down significantly on account of our having registered MXN 11 billion in foreign exchange gains. This helped us post a net profit of MXN 22.3 billion in the quarter. Our net profit was equivalent to MXN 0.37 per share and $0.38 per ADR. In cash flow terms, our net debt fell by MXN 7.3 billion in the 6 months to June. In that period, our CapEx amounted to MXN 54.9 billion, and our shareholder distributions totaled MXN 9.4 billion, including MXN 8.7 billion in share buybacks, and we covered MXN 2.7 billion in labor obligations. Our net debt to last 12 months EBITDA stood at 1.66x, a slight increase over the prior quarter, mostly on account of the appreciation in the second quarter of the Mexican peso and the euro vis-a-vis the U.S. dollar. As I mentioned before, in cash flow terms, net debt actually fell over the quarter by MXN 7.3 billion. So that should point to a slight leverage. The greater leverage is basically on account of exchange rate movement. So with that, I will pass the floor back to Daniel, and maybe we can open it for Q&A.

Daniel Hajj Aboumrad, CEO

Thank you, Carlos. And let's open the Q&A.

Operator, Operator

The first question goes to Marcelo Santos of JPMorgan.

Marcelo Santos, Analyst

I have 2. The first question is about the Brazilian mobile environment. If you could comment a bit, you had a strong performance with revenue acceleration. Just wanted to hear your comments on the main drivers of that. And the second question would be if you could comment a bit on the recently approved regulatory changes in the Mexican telco framework. Just wanted to hear your considerations.

Daniel Hajj Aboumrad, CEO

Marcelo, well, I think talking about postpaid in Brazil, we're doing very good. We are growing. We have been growing revenue for several quarters with postpaid. All of these things have to do with a very strong and good quality network. We have been improving our network and increasing coverage all around Brazil. We have also increased our sales force, stores, and all the commercial area. We have been doing good plans. Also, our Claro Flex program has been very successful. Overall, we are doing well. Customer care is also performing very well; we have been digitalizing everything, and our NPS has been improving greatly. People view Claro as providing a very good service. It's not only about price; it's about quality and the commercial area. When you put everything together, the market responds very well. That's what we've been doing, and we also have Nubank. It's still small, but our agreement with Nubank has been good, and they are looking for good customers, which has also been helping us. Convergence is important. Many of our fixed customers also have our postpaid or prepaid services. Overall, I believe we have a strong performance and have been executing very well in Brazil. I don't foresee any big changes in the next quarters in Brazil; I think we are doing very well. Regarding the telecommunications law, the new telecommunications law and antitrust law are substantially similar to the original proposal sent by President Sheinbaum to Congress. Under the new law, we will be regulated by two different entities: the Comisión Nacional Antimonopolio, the new regulator for antitrust matters, which will be responsible for imposing and revising symmetric regulations for preponderant and dominant agents, and the new telecommunications regulator that will assume the powers and responsibilities of the former IFT. I can share some relevant changes we see: the first is increasing the fines regulators may impose; that is one. Second, potential discounts on payments for the use of spectrum in exchange for coverage obligations in remote areas and highways; this is beneficial for us. Third, similar terms for public and private concessions for obtaining spectrum for commercial service; we have a lot of questions regarding this. The spectrum will have similar terms for all. Fourth, new obligations regarding the density of all users of telecommunications services for activating and maintaining services, including mobile and prepaid. So that involves a lot of work. Those are the changes and relevant aspects we see in the new telecom law.

Marcelo Santos, Analyst

Just one follow-up. In Brazil, do you have any particular comment regarding prepaid? There seems to have been a big shift in trends from the first quarter to the second quarter. Is there anything extra you could say on prepaid Brazil?

Daniel Hajj Aboumrad, CEO

No. I think what is happening, in Brazil specifically, is that the prepaid segment is transitioning to postpaid. So that's helping us a lot with postpaid. There’s nothing new, just that it seems to be a trend. We've been working with different strategies for prepaid and postpaid, and I think both are yielding good results. It's very important to monitor revenue growth in prepaid, not just the number of subscribers because that can vary significantly. What's crucial is the revenue growth in prepaid. And I think we've seen more than 10% growth in prepaid in Brazil, which is great for us.

Operator, Operator

The next question goes to Gustavo Farias of UBS.

Gustavo Farias, Analyst

I have 2 on my end. The first one, if you could comment on the outlook for Mexico, how you're seeing economic activity trending? How is the competitive environment in the country, especially for mobile, but also for broadband? And my second one, we've seen a lower increase in CapEx this quarter. I wonder if the target for the full year stands around MXN 7 billion.

Daniel Hajj Aboumrad, CEO

Well, regarding CapEx, we are on target. I think it will be, I hope, less than MXN 7 billion; it should be around MXN 6.7 billion to 6.8 billion, which is what we discussed, and that's what we expect this year. So no changes on that. There's a lot of questions about what will happen next year, and our target is to maintain the same percentage of CapEx to sales that we've had this year. I don’t expect any change in our investment strategy for the next one or two years. That's good news for us. As for the economic outlook in Mexico, there are no significant changes in the commercial offers for fixed or wireless; the competition remains the same as last year. This year, there's extensive competition in the Mexican market. We believe that Mexico’s economy is beginning to grow, albeit slowly. The rebound in revenues is also supported by this growth. The competition is there; we think we have a robust network, good revenues, commercial strategies, promotions, and distribution, along with strong customer care. Telmex has shown growth. We hope to sustain this trajectory and perform well in the upcoming quarters.

Operator, Operator

The next question goes to Phani Kanumuri of HSBC.

Phani Kumar Kanumuri, Analyst

The first question is about labor obligations. In the first half, your payments were significantly lower than last year. Do you anticipate that labor obligation outflows will be less? The second question is also related, yes.

Daniel Hajj Aboumrad, CEO

No, do you want Carlos to answer this?

Carlos Jose Garcia Moreno Elizondo, CFO

On the pension, so that you understand, part of the obligations we have are paid out of pension funds themselves. Part of the payments are made out of pocket. This changes throughout the year, okay? For the full year, you should not expect to see any major changes relative to what we had last year. So how much we pay in a given quarter can change depending on market conditions.

Phani Kumar Kanumuri, Analyst

And the second question is regarding the changing competition in different markets. We are seeing a lot of M&A happen in different markets, whether it's Argentina, Colombia, Ecuador, or Uruguay. Are you seeing a change in competition there? Do you think the markets are becoming much more rational on a general level?

Daniel Hajj Aboumrad, CEO

Yes, as markets consolidate, I think we will see more rational promotions and competition will become more sensible. That’s the hope. The Latin market is consolidating, particularly in Argentina and Colombia. In Peru and Uruguay, new entrants are entering the market, so every market is different. We hope that in the markets where consolidation is happening, it will lead to a more rational competition.

Operator, Operator

The next question goes to Walter Piecyk of LightShed Partners.

Walter Piecyk, Analyst

I was hoping you guys could comment a little bit about Bait. I think if I look at this quarter compared to last quarter, in Mexico, particularly in prepaid, you did much better. When we look at the Bait numbers, they did worse. So I'm just wondering if that was the reason you were doing better? Additionally, I think Bait this week talked about possibly entering the postpaid market, and I'm curious how you see that playing out. It seems like their model is interesting in terms of them getting usage at grocery stores, I guess, to pay for service. So just if you can comment on what's going on in the market this quarter in relation to Bait and how you anticipate competing against whatever they're planning to do on postpaid.

Daniel Hajj Aboumrad, CEO

Well, the first thing is that we have been improving in prepaid. As I mentioned earlier, the economy is doing a bit better, so that has contributed to our growth. On Bait, I can’t talk too much because their numbers are unclear to me. They claim to have more ARPU with fewer subscribers, which is puzzling. It's quite challenging to compare quarter by quarter. As a new entrant, it’s easier to grow from a low base, but maintaining a substantial customer base can be more demanding. That might be what they're experiencing. But as I mentioned, it’s difficult for me to interpret their figures. In our case, we have been growing consistently, supported by our robust network and good coverage. Therefore, the prevailing economic environment is fostering our prepaid segment's resurgence.

Operator, Operator

The next question goes to Vitor Tomita of Goldman Sachs.

Vitor Tomita, Analyst

We have 2 from our side. The first one is on Mexico's broadband market. We saw an acceleration in broadband net adds this quarter, quite a bit of commercial effort in Mexico. Could you give us a bit more color on how you see that acceleration in your broadband volumes in Mexico this quarter? And whether this commercial intensity is expected to continue into future quarters? Also, my second question is on the litigation provision you booked in Colombia that affected margins this quarter. Could you give us a little bit more color on that? And particularly on whether the provisioning already assumes a worst-case scenario or whether there is a risk of further provisioning depending on how this goes or the potential for reversing provisions?

Carlos Jose Garcia Moreno Elizondo, CFO

Well, talking about the Mexico broadband, first we increased our sales force to be more proactive in the market. Secondly, we reinforced retention strategies to keep customers with Telmex. We now have 91% of the customer base already connected with fiber, so we are delivering at high speed and with great quality. Another initiative that has been successful is adding streaming platforms; we have incorporated all the major ones, and they’ve been received well in the marketplace. If this trend continues, we anticipate positive figures in the coming quarters.

Daniel Hajj Aboumrad, CEO

Regarding Colombia, there's a case where we lost related to content, which affects all industry players. What we booked is this – we have to pay something right now that we've accounted for. We have some payments to make in the next months until the end of the year. So we have less payments than what we've booked today. However, the case is closed; we lost, and it's booked. We will have monthly payments for the remaining amount until the end of the year. There won't be substantial payments in the coming months, and while it’s a closed case, it affects the entire industry.

Operator, Operator

The next question goes to Valeria Miranda of GBM.

Valeria Miranda, Analyst

Focusing on Colombia, how are you seeing the dynamics with the consolidation there?

Unidentified Company Representative, Company Representative

Well, the consolidation is set to be declared in September. I believe that’s when they will decide whether to approve it or not. Consolidation is often beneficial for the market. However, the companies involved are still separate, and we don’t know what will happen. It looks like a good thing for the market, but we'll have to wait and see what the regulator decides in Colombia. Let’s see what develops in September.

Operator, Operator

The next question goes to Lucca Brendim of Bank of America.

Lucca Brendim, Analyst

I have 2 here. First, following up on Marcelo's question, can you please double-click on postpaid net adds in Brazil and break it down? According to Anatel data for the past 2 months, machine-to-machine net adds were really strong. So were there any new strategies on this front? And also, you mentioned Nubank is already helping with results; is all that reported in postpaid? And then a second question – can you also provide some color on lease expenses? During the quarter, they expanded at a higher rate than revenues. We’d like to understand how this line should behave going forward. Should it grow in line with revenues, faster, or slower? Any insights would be great.

Daniel Hajj Aboumrad, CEO

Regarding the last question, I don’t fully understand what you mean. For the first question about postpaid and machine-to-machine, machine-to-machine is growing as well, but I don't believe we've seen a significant change compared to the previous quarters. The main point is to focus on revenues. Our postpaid revenues have grown nearly 10%. So that's quite strong. Many of the growth contributions are from traditional postpaid, not just machine-to-machine. However, if you want specific numbers, our Brazilian team can provide them; they report all the metrics diligently. There isn't a drastic difference compared to our previous quarters. As I've noted, we are performing well in Brazil with postpaid, prepaid, and fixed. Furthermore, in the fixed aspect, we're also witnessing growth; we've seen a few quarters with increasing revenues in Brazil, which is positive news. We see good opportunities in small and medium businesses, and we’re focusing on that.

Carlos Jose Garcia Moreno Elizondo, CFO

On lease expenses, several of the lease agreements adjust based on inflation. However, many of these are dollar-based, so if the currencies appreciate relative to the dollar, you shouldn't expect significant changes. The appreciation should be greater than inflation adjustments.

Operator, Operator

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

Daniel Hajj Aboumrad, CEO

No, I just want to thank everyone for being on the call. I think we had a very good quarter. Thank you all.

Operator, Operator

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