Earnings Call Transcript - CAAP Q3 2022

Operator, Operator

Good morning. And welcome to the Corporación América Airports' Third Quarter 2022 Earnings Conference Call. A slide presentation accompanies today's webcast and is available in the Investors section of the Corporación América Airports’ website. As a reminder, all participants will be in listen-only mode. There will be an opportunity to ask questions at the end of the presentation. At this time, I would like to turn the presentation over to Patricio Inaki Esnaola, Head of Investor Relations. Patricio, please go ahead.

Patricio Esnaola, Head of Investor Relations

Thank you. Good morning, everyone and thank you for joining us today. Speaking during today's call will be Martin Eurnekian, our Chief Executive Officer; and Jorge Arruda, our Chief Financial Officer. Before we proceed, I would like to make the following Safe Harbor statement. Today's call will contain forward-looking statements and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. Now, let me turn the call over to our CEO, Martin Eurnekian.

Martin Eurnekian, CEO

Thank you, Inaki. Hello everyone, and welcome to our third quarter 2022 earnings call. We reported a robust quarter with sustained growth in top and bottom line, both beating recorded levels. Total revenues were up in the low double digits against third quarter 2019, supported by a continued recovery in traffic and strong growth in commercial revenue. Along with our ongoing focus on cost control, we reported an adjusted EBITDA of over $130 million with positive contributions from all countries of operations. Notably, the adjusted EBITDA margin ex-IFRIC12 was also above pre-COVID levels, expanding to 38% this quarter, up from 32% in the third quarter of 2019 and the low 20s in the third quarter last year. For the first nine months of the year, adjusted EBITDA already amounted to $339 million. On the balance sheet front, our leverage ratio continued to trend down with net debt to adjusted EBITDA below 3 times, reflecting relatively stable net debt levels combined with significant recovery in adjusted EBITDA. Let me also highlight that last August we redeemed the remaining outstanding amounts related to the preferred shares in AA2000, which amounted to nearly $40 million. As a reminder, this is deducted from mandatory CapEx in Argentina. Finally, as part of our development ambitions, we were named prepared bidders to run Abuja and Kano airports in Nigeria this month. We are now in talks with government officials about the terms of the concession agreements and we will update you on this matter as we make progress. As shown on Slide 4, passenger traffic continues to post a sustained recovery trend with over 18 million passengers flying through our airports in the third quarter. Traffic reached 82% of the third quarter of 2019 levels, up from 76% in the second quarter, reflecting solid demand and the removal of travel restrictions. We also saw an improved performance month over month throughout the quarter, with this momentum continuing into October when traffic nearly reached 90% of pre-pandemic levels. Armenia continues to lead the recovery with traffic 16% above pre-pandemic levels. This revamp continued into October when traffic was up 26%. We remain vigilant about the geopolitical environment in the region. We also saw a good performance in Ecuador, supported by traffic from the US, Europe, and Panama with higher frequencies for international and domestic flights. Passenger traffic surpassed pre-pandemic levels by 3% and benefited from the airport closure during three weekends of September 2019. This strong performance continued into October when traffic increased by 8% compared to October 2019. In Italy, traffic posted a robust sequential improvement, driven by the summer season, reaching 89% of the third quarter of 2019 levels and continued the recovery observed in the prior quarter. Traffic in Brazil increased to 91% of the third quarter 2019, up from 76% in the prior quarter, and we expect this momentum to continue through the remainder of the year. Argentina and Uruguay continued the gradual recovery trend with passenger traffic reaching 80% and 68% of the third quarter of 2019 levels, respectively. As a reminder, borders were fully reopened at the start of November last year, while in Argentina, old COVID entry regulations were fully lifted only towards the end of August this year. Turning to Slide 5, we also continued to see a sustained recovery in cargo, which increased to 82% of third quarter of 2019 volumes. Uruguay, Armenia, and Italy were particularly strong, beating third quarter of 2019 levels while Argentina posted a sequential improvement with cargo volumes reaching 83% of pre-pandemic levels. Notably, cargo revenues increased 43% against the third quarter of 2019, also reflecting the revisions implemented last year. I will now hand the call back to Jorge, who will review our financial results. Please, Jorge, go ahead.

Jorge Arruda, CFO

Thank you, Martin and good day, everyone. Starting with our top line on Slide 6, total revenues ex-IFRIC 12 showed a very strong performance this quarter, surpassing pre-pandemic levels for the first time. Aeronautical revenues increased nearly 130% year-on-year, mainly driven by continued recovery in passenger traffic across geographies, reaching 93% of the third quarter 2019 levels. Armenia continued to make a strong contribution to this growth with aeronautical revenues up in the mid-teens from pre-pandemic levels along with Ecuador, which also reported a low single-digit increase against the third quarter 2019. Commercial revenues continued to be the major contributor to our total revenue growth, up 90% year-on-year and 42% above 2019 levels. This was mainly driven by higher cargo, parking, and duty-free revenues in Argentina and higher fueling services in Armenia. As a reflection of these strong results, our revenue per passenger increased by 30% from $13.6 in the third quarter 2019 to $18.6 this quarter. Now turning to our cost structure on Slide 7. Total operating costs and expenses increased 56% year-on-year, mainly reflecting the strong pickup in business activity. However, this increase was significantly below the 106% revenue growth. Compared to 2019, operating costs and expenses for the quarter increased by 4%. This is mainly explained by higher fuel costs in Armenia due to the strong increase in fuel sales in the quarter and to a lesser extent by higher salaries in Argentina, as the local inflation rate was significantly above currency depreciation. However, this was partially offset by lower SG&A expenses as the third quarter 2019 was impacted by a $23 million bad debt charge in Argentina. Now turning to profitability on Slide 8. We delivered an adjusted EBITDA of $131 million, up from $40 million in the same quarter last year. Notably, adjusted EBITDA surpassed the endemic levels by $31 million. Again, this quarter, strong commercial revenue growth combined with our linear cost structure is driving the acceleration of our adjusted EBITDA recovery with positive figures across our geographies. We achieved significant margin expansion year-on-year to nearly 38% this quarter compared to third quarter 2019 levels. And excluding the $23 million bad debt charge, adjusted EBITDA margin ex-IFRIC was only 1.2 percentage points below. This was mainly explained by the changing revenue mix due to the significant growth of the fuel business, which has a lower margin. Turning to Slide 9. We ended the quarter with a total liquidity position of $470 million compared to $448 million at the end of June 2022. As Martin mentioned, during the quarter, we consummated the final early redemption of our preferred shares in AA2000. As a reminder, the total amount of $174 million paid for the redemption of these shares is deducted from our $406 million CapEx program of our AA2000 concession. Moving on to our debt and maturity profile on Slide 10. Total debt at the end of the quarter was $1.5 million, while our net debt stood at $1.1 billion. Driven by strong performance of our adjusted EBITDA during the last quarter, our net debt leverage ratio showed further significant improvement this quarter, declining to 2.6 times from 3.5 times in the prior quarter. Importantly, our strong financial results enable us to continue funding the CapEx program that we have previously announced while maintaining stable net debt levels. We remain committed to keeping a strong balance sheet and healthy debt profile that will allow us to take advantage of future growth opportunities. I will now hand the call back to Martin who will present our closing remarks on Slide 12.

Martin Eurnekian, CEO

Thank you, Jorge. Now to wrap up, please turn to Slide 12. Looking ahead, we expect sustained growth in passenger volumes across our airports. In the short term, we have already experienced increased demand from the start of the summer in South America. We expect this to benefit our performance, while we remain cautious about the overall macroeconomic and geopolitical environment. We are also working on several fronts as we seek to drive value creation. First, we remain focused on building new routes to serve our passengers across our airport network. Second, this month, we received economic compensation for our concession in Brazil and remain focused on advancing with the economic re-equilibrium process for our concession in Armenia. Finally, I reiterate that the key element of our growth strategy is to selectively expand our airport concessions, and we remain focused on pursuing attractive value creation opportunities for our company. Before we conclude, I would like to share that last week, we had a town hall meeting with our main leaders and key managers of our operations globally and took the opportunity to reinforce and reiterate our ambition to grow our business, creating value for our shareholders, employees, customers and all stakeholders based on our purpose of connecting the world in an easy, inclusive, and sustainable way. With this, I would like to thank you all for your attention. We are now ready to take your questions. Operator, please open the lines to questions.

Operator, Operator

The first question today comes from Alejandro Demichelis from Nau Securities.

Alejandro Demichelis, Analyst

Two questions, if I may, please. First one is maybe you can give us an indication of how you see international traffic and availability of seats for the upcoming summer season in Argentina. That's the first question. And then the second question is, could you give us some kind of feel on how you see the evolution of the non-commercial revenues for the group? Because when we look at the third quarter numbers, if we subtract the fuel revenues, then your non-commercial revenues seem to be lower than, say, the ones we had the last couple of quarters. So trying to understand how that should be evolving.

Jorge Arruda, CFO

You may have seen that we reported October numbers recently. And you may have seen that we continue to see recovery across the board and in Argentina, in particular, which was your question. Obviously, the recovery in the past several months has been strong, given the starting point post-pandemic was super low levels. We expect continued recovery at a slower pace but continued recovery. Across the board, obviously, the challenge will always be availability of aircraft and confidence by the airlines that the recovery will continue. But so far, or currently better speaking, we foresee a continued recovery. Regarding your second question, I just wanted to clarify. You were talking about aeronautical revenues or commercial revenues?

Alejandro Demichelis, Analyst

I'm talking about non-aeronautical, yes.

Jorge Arruda, CFO

We experienced a notable improvement in duty-free sales and parking overall, especially in Argentina, as well as in fueling. Although fueling has a lower margin, the volume is considerable. We've seen a significant rise in Armenia, largely due to the local conditions and traffic dynamics, particularly with regards to Russia. Specifically, more aircraft are now flying to Armenia, which increases the demand for refueling there as they require more fuel than before with the larger aircraft.

Alejandro Demichelis, Analyst

Could you please provide an update on international traffic? We have heard that some airlines, like British Airways, are expecting a return of long-haul flights. Do you have any visibility on whether you are seeing more activity from these airlines?

Jorge Arruda, CFO

We have access to several months of flight availability and ticket purchasing options throughout our system. Again, we are observing a continued recovery.

Alejandro Demichelis, Analyst

Okay, thank you.

Jorge Arruda, CFO

I'm not ready to provide specific flight details right now, but if you're interested, we can have a one-on-one discussion where I can share more information about what is available. Overall, I can say that we do see continued recovery.

Operator, Operator

Thank you. There are no further questions registered at this time. So I'd like to pass the conference back over to Martin Eurnekian for any closing remarks. Please go ahead.

Martin Eurnekian, CEO

I'd like to thank everybody for joining us today. And remind you that the team remains available for any questions or follow-up questions that you may have. Please enjoy the rest of your day. Thank you very much.

Operator, Operator

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