Earnings Call Transcript - OMAB Q1 2025

Operator, Operator

Ladies and gentlemen, greetings and welcome to the Grupo Aeroportuario del Centro Norte, OMA First Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Emmanuel Camacho, Investor Relations Officer. Please go ahead, sir.

Emmanuel Camacho, Investor Relations Officer

Thank you, everyone. Welcome to OMA's first quarter 2025 earnings conference call. We're delighted to have you join us today as we discuss our Company's performance and financial results for the past quarter. Joining us today are our CEO, Ricardo Dueñas, and CFO, Ruffo Pérez Pliego. Please be reminded that certain statements made during the course of our discussion today may constitute forward-looking statements which are based on current management expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our control. And now I'll turn the call over to Ricardo Dueñas for his opening remarks.

Ricardo Dueñas, CEO

Thank you, Emmanuel. Good morning everyone. We appreciate your presence on this call today. This morning, Ruffo and I will review our quarterly operational financial results and then we'll be pleased to answer your questions. In the first quarter of this year, OMA's passenger traffic totaled 6.4 million passengers, a 9.1% increase year-over-year. This increase was mainly attributable to an increase in seat capacity of 13.4% during the quarter. On the domestic front, passenger traffic grew by 8%, driven primarily by the Monterrey Airport, which saw increases on routes to Querétaro, the metropolitan area of Mexico City, including the Mexico City, AIFA and Toluca airports, Hermosillo, Ciudad Juárez, Guadalajara and Culiacán. These routes collectively added over 285,000 passengers during the quarter, representing 72% of the total domestic passenger growth. International passenger traffic increased 15.1%. This growth was also driven by the Monterrey Airport, with passenger traffic increases on routes to San Antonio, Chicago, Los Angeles, Orlando, San Francisco, Oakland, Miami, Austin and Denver. These routes collectively added over 132,000 passengers during the quarter, accounting for 94% of the total international passenger increase in the first quarter. During the first quarter, we launched 16 new routes, five of which were international. In terms of airline participation, VivaAerobus represented 49% of our total traffic during the quarter with an 11% increase in terminal passenger numbers compared to the first quarter of '24, while Volaris, which accounted for 22% of our total traffic, recorded a 20% passenger increase during the quarter. Moving on to OMA's third quarter financial highlights. Aeronautical revenues increased 13.8% with aeronautical revenue per passenger rising 4.3% in the quarter. Commercial revenues had strong double-digit growth with commercial revenue per passenger growing 13% to Ps.66 as compared to the first quarter of '24 driven by VIP lounges, restaurants, and retail. VIP lounges benefited from higher access rates and a larger number of users as well as the effect of the previously opened lounges. The restaurant and retail line items benefited from the consolidation of new business units opened across our airports during past quarters. The occupancy rate of commercial space stood at 96% at the end of the quarter. On the diversification front, revenues increased 22%. OMA Carga contributed most to this growth, mainly as a result of an increase in revenue related to air cargo operations in Monterrey. Revenue from industrial services increased 56.4% year-over-year, reaching Ps.42 million, primarily driven by a higher number of square meters leased in our industrial park. During the quarter, we completed construction of a warehouse measuring about 9,200 square meters as well as a 2,400 square meter expansion of an existing facility. Additionally, we are currently building a 5,000 square meter warehouse which we expect to complete in the second quarter of this year. OMA's first quarter adjusted EBITDA increased by 16% to Ps.2.4 billion with an adjusted EBITDA margin of 74.9%. On the capital expenditure front, total investments in the quarter, including MDP investment, major maintenance, and strategic investments, were Ps.502 million. Lastly, I want to mention that last Friday we held our 2025 Annual Shareholders Meeting where shareholders voted on several matters, including the declaration and payment of a Ps.4.5 billion cash dividend. I would now like to turn the call over to Ruffo Pérez Pliego, who will discuss our financial highlights for the quarter.

Ruffo Pérez Pliego, CFO

Thank you, Ricardo, and good morning everyone. I will briefly walk you through our financial results of the quarter and then we'll open the call for your questions. Aeronautical revenues increased 13.8% relative to the first quarter of '24, driven primarily by higher aeronautical yields as well as an increase in both domestic and international passenger traffic. Non-aeronautical revenues increased by 20.9%, commercial revenues increased 22.8%, and the line items with the highest growth were VIP lounges, restaurants, and retail. VIP lounges rose 80%, mainly due to increasing rates and a higher number of users as well as the opening and consolidation of the Zihuatanejo Lounge, which started operations last year. Restaurants increased 32.8%, driven by greater customer penetration and the opening or replacement of outlets in previous quarters in airports such as Monterrey, Ciudad Juárez, and Lulango. Retail increased 50.9% due to the contribution of new spaces opened or replacement of existing spaces in previous quarters, as well as a higher penetration primarily in airports like Juárez, Monterrey, Torreón, and Culiacán. Diversification activities increased 22%, mainly due to high revenues from OMA Carga and the Industrial Park. Total aeronautical and non-aeronautical revenues grew 15.6% to Ps.3.1 billion in the quarter. Construction revenues amounted to Ps.403 million in the first quarter, a decrease of 60% due to lower MDP investment execution. The cost of services and G&A expenses increased 10.2% year-over-year, primarily due to a 42% rise in other costs and expenses. Payroll increased by 9.9% while contracted services grew 8.8%, mainly due to higher costs for security and cleaning services following contract renewals in prior quarters. Concession tax increased 16% to Ps.259 million in line with the increase in revenues. Major maintenance provision was Ps.53.4 million as compared to Ps.71.3 million in the first quarter of '24. As Ricardo mentioned, OMA's first quarter adjusted EBITDA was Ps.2.4 billion and adjusted EBITDA margin reached 74.9%. Our financing expense reached Ps.312 million, an increase of 13%, mainly due to lower interest income as a result of a lower average cash balance during the quarter compared to the same period last year. Consolidated net income reached Ps.1.3 billion, which showed an increase of 19.7% versus the first quarter of '24. Turning to our cash position, cash generated from operating activities in the first quarter amounted to Ps.1.9 billion and cash at the end of the quarter stood at Ps.2.3 billion. At the end of the quarter, total debt amounted to Ps.11.3 billion. We maintained a strong balance sheet, ending the quarter with a net debt to adjusted EBITDA ratio of one time. This concludes our prepared remarks. Zico, please open the call for questions.

Operator, Operator

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. The first question comes from Alan Macías with Bank of America. Please go ahead.

Alan Macías, Analyst

Hi, good morning and thank you for the call. Just a question on your expectations for traffic. Traffic in Monterrey has continued to be very strong. I understand there's more capacity, but how are you looking at demand? And how was April so far? Thank you.

Ricardo Dueñas, CEO

Hello, Alan, thank you for your question. Yes, first quarter traffic was looking good numbers for April. Remember April, we're going to have the holidays, the Holy Week in April. We didn't have that one last year. So month-to-month the numbers are going to be good. We're still looking at the same expectation as we mentioned on the previous call, somewhere around the mid-single digits. We are cautious for the rest of the year as we're monitoring the macro landscape and the international news coming there.

Operator, Operator

Thank you. The next question comes from the line of Pablo Monsivais with Barclays. Please go ahead.

Pablo Monsivais, Analyst

Hi, thanks for taking my question. This is just a more broad question, but in case that your MDP has low CapEx requirements and you don't have major investment opportunities abroad, what do you think the right strategy for dividends will be for OMA going forward? Thank you.

Ruffo Pérez Pliego, CFO

Hi, Pablo. So over the past few years, we have tried to distribute as much cash as possible to shareholders in the form of dividends. That strategy, I don't think it's going to change in the foreseeable future. So as we are able to generate higher free cash flow, that should be translated into higher dividend distributions.

Operator, Operator

Thank you. The next question comes from Jens Spiess with Morgan Stanley. Please go ahead.

Jens Spiess, Analyst

Hello, congratulations on the results. I have two questions. My first question is about capital allocation. CCR is selling some of their assets in Brazil. Would you be interested in acquiring those assets, either partially or fully? I would appreciate any insights you can provide on that. My second question concerns traffic guidance. I’ve noticed that low-cost carriers like Volaris and Viva have reduced some of their capacity. However, it still appears that you're on track for significant capacity increases, perhaps even double digits, for the remainder of the year. This makes your guidance seem a bit surprising. Could you explain how conservative your approach is? Additionally, if the macro environment causes a downturn in the second half of the year, wouldn't that actually position you more favorably compared to other airport operators, since it would lower the traffic base for your upcoming negotiations? Thank you.

Ricardo Dueñas, CEO

I'll take the first. The first one, yes, we took a look at the CCR assets, but at the moment we decided not to participate in that process. For the second part, Ruffo.

Ruffo Pérez Pliego, CFO

Yes, the capacity situation is somewhat unstable. There were announcements last week indicating that some low-cost carriers will begin implementing capacity cuts starting in May and June. It's important to note that several routes were introduced in the fourth quarter of 2024, which will provide a higher base for comparison during that time. While we may appear cautious, there are uncertainties, and we prefer not to be overly optimistic about capacity growth at this moment. Regarding your second question about whether this will benefit us in the MDP negotiations in the latter half of the year, keep in mind that the current formula considers traffic over the first five years and extends through 2040 in our situation. Therefore, any small changes in capacity for a particular year are unlikely to significantly impact the long-term traffic forecast for the next 15 years. As a result, a lower traffic expectation this year isn't necessarily going to be a significant positive factor.

Jens Spiess, Analyst

Okay, perfect. So it probably helps in the negotiations, but only marginally. Perfect. I appreciate the clarity. Thank you.

Ruffo Pérez Pliego, CFO

Thank you.

Operator, Operator

Thank you. The next question comes from Alberto Valerio with UBS. Please go ahead.

Alberto Valerio, Analyst

Hi, thank you gentlemen for taking my question. My question is on non-aeronautical revenues per tax was strong this quarter, a jump from fourth quarter last year and also year-over-year from the first quarter. I'm wondering if you can see another jump for the following quarters or will be something more stable, inflation-indexed looking forward for that line? Thank you.

Ruffo Pérez Pliego, CFO

Yes, I think that the results in extra aero reflect the strategy that we have been implementing over the last couple of years, especially since VINCI acquisition. For the next quarters in terms of commercial revenue per passenger, we expect a similar outcome to the first quarter, and most likely in 2026 we'll see a higher yield as the new spaces in Monterrey start to be opened.

Alberto Valerio, Analyst

Perfect. Those spaces will be open before the World Cup, isn't it?

Ruffo Pérez Pliego, CFO

Yes, correct.

Operator, Operator

Thank you. The next question comes from Pablo Ricalde with Itaú. Please go ahead.

Pablo Ricalde, Analyst

Hi, good morning. Congratulations on results. I have two questions. The first one is on the routes. I remember when your new partner came in VINCI, there were like all these plans of adding new routes, like long-haul routes. Is that still on the table, or given all these macro concerns, that's on hold for now? And my second question is on the Industrial Park.

Ricardo Dueñas, CEO

Can you start again?

Operator, Operator

Sorry to interrupt you, Mr. Pablo. Maybe the question, you use your handset please.

Pablo Ricalde, Analyst

I don't know if you can hear me now.

Ricardo Dueñas, CEO

Yes, we can hear you.

Pablo Ricalde, Analyst

So my first question is on the new routes. I remember when VINCI came in there were like all these plans of adding new routes, like long-haul routes. Is that still on the table or that's on hold for now?

Ricardo Dueñas, CEO

In terms of new routes opened, we have a constant dialogue with airlines. We are focusing both on building our international connectivity, and the increase that you saw in the last few quarters, particularly from Monterrey Airport, points towards that strategy of building good connectivity out of Monterrey. But we also have two strong players in the local market, and therefore, we also focus on building greater regional connectivity.

Pablo Ricalde, Analyst

Okay, thanks.

Operator, Operator

Thank you. The next question comes from the line of Jay Singh with Citibank. Please go ahead.

Jay Singh, Analyst

Thanks for taking my questions. Jay, dialing in for Stephen Trent. First thing I want to ask is, do you see any regulators pushing to adjust the TUA at Mexico City airport? And to the extent that you could talk about it, maybe could this have any tariff implications for OMA?

Ricardo Dueñas, CEO

Sorry, the question again, the regulator pushing TUA, again?

Jay Singh, Analyst

TUA just airport use fees at Mexico City airport?

Ricardo Dueñas, CEO

Well, the TUA for Mexico City airport is set in dollars and it increases by US CPI inflation. We have not heard that the process or mechanics of adjustment is going to change. So I believe that's adjusted at the beginning of every year, so probably the adjustment already took place in January, and we wouldn't expect an increase in TUAs in the Mexico City airport for the rest of the year.

Jay Singh, Analyst

Okay, got it. And my second question is how much do you interact with VINCI on strategic matters such as the MDP or any potential foreign investments?

Ricardo Dueñas, CEO

We have very close communication with them. They're involved in the MDP, of course in non-aero, they have been very active in CapEx execution as well. So it's a very close communication with them.

Jay Singh, Analyst

Got it. Thanks so much, gentlemen.

Operator, Operator

Thank you. As there are no further questions, I would now like to hand the conference over to Ricardo Dueñas, CEO, for closing comments.

Ricardo Dueñas, CEO

We would like to thank everyone for participating in today's call. We appreciate your insightful questions, engagement, and continued support. Ruffo, Emmanuel, and I are always available should you have any further questions or require additional information. Thank you once again and have a great day.

Operator, Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.