Earnings Call Transcript - ASR Q3 2025

Operator, Operator

Good day, ladies and gentlemen, and welcome to ASUR's Third Quarter 2025 Results Conference Call. My name is Latanya, and I'll be your operator. As a reminder, today's call is being recorded. Now I'd like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.

Adolfo Castro Rivas, CEO

Thank you, Latanya, and good morning, everyone. Before I begin discussing our results, let me remind you that certain statements made during the call today may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our company's control. Additional details about our third quarter 2025 results can be found in our press release, which was issued yesterday after market close and is available on our website in the Investor Relations section. Following my presentation, I will be available for Q&A. As usual, all comparisons discussed on this call will be year-on-year and figures are expressed in Mexican pesos, unless specified otherwise. Before discussing our results, I would like to begin today's call with an important strategic development. As recently announced, we entered into a definitive agreement to acquire URW Airports for an enterprise value of $295 million. This transaction marks a significant step forward in ASUR's international expansion strategy, building on our established presence in the U.S., which began with the operation of San Juan Puerto Rico Airport in 2030. URW Airports manages commercial programs at three of the most iconic and high-traffic airports in the United States: Los Angeles International Airport with six terminals, Chicago O'Hare International Airport at Terminal 5, and John F. Kennedy International Airport covering Terminal 8 and the upcoming new Terminal 1. Together, these terminals process around 14 million enplanements annually. This acquisition provides ASUR with a strategic foothold in three of the largest U.S. air travel markets and strengthens our position in the high-growth non-regulated commercial segment in the U.S. airport industry. The acquisition will be financed by JPMorgan Chase. As with all our strategic decisions, we are approaching this opportunity with the financial discipline and operational rigor that has long defined ASUR's execution. Closing is expected during the second half of 2025, subject to customary regulatory approvals. We look forward to keeping you updated on our progress in the quarters ahead. Now turning to our third quarter performance, we served over 17 million passengers across our airports, with traffic remaining practically flat as continued growth in Colombia and Puerto Rico helped to offset persistent headwinds in Mexico. Starting with Colombia, passenger traffic rose 3% to close to 5 million, supported by a solid 11% increase in international traffic and a modest growth just under 1% in domestic volumes. In Puerto Rico, total traffic was up 1%, reaching over 3 million passengers. Growth was driven by international passengers, which increased nearly 12% year-on-year, offsetting the 0.5% decrease in domestic traffic. In Mexico, traffic declined 1% to nearly 10 million passengers for the quarter. The decrease reflects softer demand in domestic traffic, which was down nearly 2%, and international traffic, which saw a slight contraction of 0.3%. Passenger volumes from the United States, our largest international source market, decreased just 0.2%, while South America contracted 7.2%. On a positive note, Canada and Europe increased 9.3% and 1.3%, respectively. Looking ahead, we anticipate a more balanced operating environment across our portfolio. In Mexico, we expect traffic to gradually stabilize over the next year as aircraft availability improves. In Puerto Rico and Colombia, we expect continuous positive momentum supported by healthy international demand and improving productivity. Now turning to review our financial results. As a reminder, all figures exclude construction revenues and costs unless otherwise noted. Comparisons are all year-on-year unless otherwise noted. Total revenues increased in the mid-single digits, reaching over MXN 7 billion, driven by growth in Puerto Rico and Colombia. Mexico, which accounts for 70% of total revenues, posted a slight low single-digit decline, with aeronautical revenues practically flat and non-aeronautical revenues down in the mid-single digits. Revenue growth was limited by softer passenger volumes and the stronger peso, which continues to weigh on U.S.-linked revenue streams. Puerto Rico, at nearly 18% of total revenues, reported revenue growth in the high single digits driven by a 5% increase in aeronautical revenues and a 10% rise in non-aeronautical revenues. This performance reflects positive passenger traffic trends and sustained demand across commercial activities. Colombia, which accounted for almost 30% of total revenues, delivered revenue growth in the high single digits, reflecting a mid-single-digit increase in aeronautical revenues while non-aeronautical revenues were up in the high teens. This good performance was supported by passenger traffic growth and solid activity partially offset by the strong Mexican peso. Continuing our ongoing focus on commercial development, we added 45 new commercial spaces across our airports over the last 12 months, including 31 in Colombia, 8 in Puerto Rico, and 6 in Mexico. This supported a low single-digit increase in commercial revenues as solid growth in Puerto Rico and Colombia was partially offset by a weaker performance in Mexico. On a per-passenger basis, commercial revenue rose 1% to MXN 126. By region, Colombia led with a 14% increase, followed by Puerto Rico, up 10%, while Mexico posted a 4% decline, reaching MXN 144 per passenger. Turning to costs, total expenses were up nearly 17% year-on-year. By region, Mexico posted a 4% increase, largely due to higher minimum wages and service costs. Puerto Rico reported an expense increase of nearly 8%, reflecting inflationary pressures and higher operating activity, while Colombia's costs increased 76%, mainly driven by an adjustment in the amortization method of the concession. Without this increase, it would have been 5.4%. Lastly, in Puerto Rico and Colombia, costs benefited from the depreciation of the Mexican peso against the U.S. dollar. On the profitability front, consolidated EBITDA declined just over 1% year-on-year to MXN 4.6 billion in the quarter. Puerto Rico and Colombia delivered EBITDA growth of nearly 5% and 10%, respectively, while EBITDA in Mexico declined close to 4%, mainly reflecting lower traffic and higher operating costs. The adjusted EBITDA margin, which excludes construction-related revenues and costs under IFRIC 12, declined by 157 basis points to 66.7%. This reflects lower margin contributions from the Mexican and Puerto Rican operations, where the margin contracted 152 and 151 basis points, respectively. In contrast, Colombia reported an 81 basis points margin expansion. On our bottom line, this quarter was negatively impacted by the depreciation of the Mexican peso against the U.S. dollar, which resulted in a foreign exchange loss of nearly MXN 1 billion compared to the reverse effect during the third quarter of last year. Profitability was also affected by a MXN 333 million adjustment in the concession amortization method in Colombia that I just explained. Now moving to our balance sheet, we closed the quarter with a solid cash position of MXN 16 billion, down 19% from December 31, 2024, primarily reflecting dividend payments made during the period. Our net debt-to-EBITDA ratio remained at a healthy 0.2x. In terms of capital deployment, in September, we paid an extraordinary dividend of MXN 15 per share funded from retained earnings. Note that in November, we will be paying an additional dividend of MXN 15 per share. Lastly, we invested close to MXN 1.9 billion during the quarter, primarily directed to projects at our Mexican airports, including the reconstruction and expansion of Terminal 1 at Cancun Airport, and the terminal expansion in another location. In Puerto Rico, we are progressing on the new pedestrian bridge for Terminal A, while in Colombia, we invested in maintenance CapEx. In closing, our third quarter results reflect the resilience of our multi-country platform and the value of our disciplined execution amid a more tempered demand environment. While traffic in Mexico continued to face near-term headwinds, we are encouraged by the ongoing momentum in Puerto Rico and Colombia. We remain focused on advancing our commercial strategy, investing in infrastructure, and maintaining a strong financial profile. These conclude my prepared remarks. Latanya, please open the floor for questions.

Operator, Operator

The first question comes from Rodolfo Ramos with Bradesco BBI.

Rodolfo Ramos, Analyst

I have a couple, if I may. The first one is in regards to the URW acquisition. Can you shed a bit of light on the economics, revenue per passenger, and how much EBITDA contribution you're expecting from these assets on an annualized basis? And the second is on Colombia. Can you elaborate on this adjustment to the concession amortization method that we saw during the quarter? Was this a one-off? Or should it be a new level going forward? I don't know if it has to do something with the economics of your concession title there?

Adolfo Castro Rivas, CEO

Thank you for your questions. In the case of URW, I cannot yet share numbers with you until closing. In the case of Colombia, basically, what we have done is to change the amortization method because in accordance with our estimates, during 2027, we will not receive regulated revenues anymore and the concession should be over by 2032. So we are aligning amortization in accordance with revenue generation there, and it's going to be not one-off, but rather at the new ongoing level.

Operator, Operator

The next question comes from Ernst Mortenkotter with GBM.

Ernst Mortenkotter, Analyst

I wanted to follow up a little bit on URW. I understand you cannot discuss the financials. But leaving that aside, it seems like a great way to gain some strategic insight into the consumers that go from your airports to the U.S. I just was wondering if you could discuss a little bit what kind of synergies you see? Or what is the strategic rationale behind this acquisition?

Adolfo Castro Rivas, CEO

Thank you, Anton. Well, basically, the most important for us is to put a foot in the U.S. market. The U.S. market represents 22% of the aviation market of the world, and these terminals are extremely important for the U.S. market. So establishing our presence there is critical, and this should be the platform for future growth in the United States, likely in similar contracts to the ones we are entering now. That is the most important strategy.

Operator, Operator

Our next question comes from Andressa Varotto with UBS.

Andressa Varotto, Analyst

I have two here on my side. The first one is about the Motiva Airports that are for sale. We've been seeing the news that ASUR is looking to acquire this airport, so just wondering if you could provide some more information—if you're looking, for example, at all of the airports or just a subset of them. And how would the company finance this? My next question is regarding the traffic trends that you've been seeing for Mexico. We've been seeing recently in the news that the Tulum airport has been facing some cancellations, and if you think that this could help Cancun airport in the near future. These are my two questions.

Adolfo Castro Rivas, CEO

In the case of Motiva, I cannot comment. In the case of the traffic trends, what I see today is a slow recovery in the domestic market because of Pratt & Whitney engines, something that should improve, in my opinion, during the next year. For the moment, the traffic is really weak and the demand is slow in that region. If we consider Cancun and Tulum together for the first eight months of the year, traffic for the region decreased by 3.1%. If we go to the latest month published for Tulum, which is August this year, the traffic for the region showed a decrease of 5.1%. So the traffic remains soft, nevertheless, what you mentioned about the recent cancellations at Tulum may have some impact.

Operator, Operator

The next question comes from Pablo Ricalde with Itau.

Pablo Ricalde Martinez, Analyst

My question is related to the Cancun airport. Is it still expected to be open around Q3 2026, or are there delays on that construction?

Adolfo Castro Rivas, CEO

What we are expecting is to open this new facility during the third quarter of 2026.

Operator, Operator

The next question comes from an unidentified analyst.

Unknown Analyst, Analyst

Just two questions. First, is there any way or somehow that capacity allocation from carriers has been shifting from Cancun? And the second question is whether the decrease in traffic could somehow accelerate the pace of writing the tariffs towards the maximum tariff faster for either this year or next year?

Adolfo Castro Rivas, CEO

Well, in terms of capacity, we are not seeing a shift in capacity. What we are seeing is weak demand, as I said, due to Pratt & Whitney and some other elements. And in the case of the U.S., the numbers for the quarter showed a 0.2% decrease, which is small, but it's the largest market we have. Let's see how the winter comes, and I hope that the winter will be strong in the northern part of the Americas. The positive side is the case of Canada, which is up for the quarter, and I expect it to remain positive during the fourth quarter as well.

Unknown Analyst, Analyst

And in the case of the traffic decrease, could that accelerate the pace on which tariffs are increased up to the maximum tariff?

Adolfo Castro Rivas, CEO

No. I don't see that. Our maximum tax compliance this year should be similar to last year, at more than 99%.

Operator, Operator

At this time, we'll turn the call back over to Mr. Adolfo Castro for closing comments.

Adolfo Castro Rivas, CEO

Thank you, Latanya, and thank you all of you again for joining us on our conference call for the third quarter 2025. We wish you a good day, and goodbye.

Operator, Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.