Good morning, and welcome to GAP's Conference Call. All lines have been placed on mute to prevent any background noise. After the presentation, we will open the floor for questions, and at that time, instructions will be given if you would like to ask a question. It is now my pleasure to turn the conference over to GAP's Investor Relations team. Please go ahead.

Thank you, and welcome to the first quarter 2024 conference call for Grupo Aeroportuario del Pacifico. Presenting from the company today, we welcome Mr. Raul Revuelta, GAP's Chief Executive Officer; and Mr. Saul Villarreal, Chief Financial Officer. Please be advised that forward-looking statements may be made during this conference call. These do not account for future economic circumstances, industry conditions, the company's future performance or financial results. As such, statements made are based on several assumptions and factors that could cause actual results to materially differ from the current expectations. For a complete note on forward-looking statements, please refer to the quarterly report issued earlier this week. At this point, I'd like to turn the call over to Mr. Revuelta for his opening remarks. Please begin, sir.

Thank you, and good morning. As always, it is a pleasure to be reviewing another quarter with you. We appreciate you taking the time to join us today. I'm going to briefly review operational and financial figures before taking your questions. During this quarter, the total number of passengers reached nearly 16 million, which was almost flat compared to the first quarter of 2023. As many of you are aware, we have experienced a slight deceleration in passenger traffic since the fourth quarter of 2023 due to the preventive inspections of the Pratt & Whitney engines. These inspections will continue throughout 2024. As of today, Volaris, the airline that handles most of our passenger traffic, has the highest number of grounded aircraft. As 2024 progresses, we will continue to monitor the availability of seats and passenger traffic trends in order to keep the market updated on any changes. Despite the slowdown of the domestic market, the international market has been growing in double-digits. As we look ahead to the rest of the year, we will expand our market beyond the U.S. and Canada with new routes to Europe and Asia. As of today, we expect to initiate at least 11 new international routes during 2024, nine of them to North America and two of them to Europe, which include Frankfurt to Los Cabos and Prague to Puerto Vallarta. Moving on to financial performance, on the top line, total revenue remained almost flat compared to the first quarter of 2023. Aeronautical revenues decreased by 1.3%, mainly due to discounts to passenger charges that are in place at nine of the 12 airports in Mexico. As a result, we reached 97% of the maximum tariffs approved, while in the first quarter of 2023, it was 99% of the maximum tariffs. Despite this, non-aeronautical revenue continued strong, achieving a 15.2% increase to reach MXN1.7 billion. For the first time in the history of the company, we have reached MXN109 per passenger. As we have previously discussed, we renegotiated several of the tenant contracts, which resulted in more than positive financial conditions for the company. The main revenue generated from commercial revenues was additional capacity at the airports with expansion in terms of square meters. This includes the new terrace with a huge food and beverage area in Guadalajara, which is surrounded by top restaurants and offers stunning views of the runway. Those of you who attended the GAP Day had the opportunity to walk through this new area. There are several other strategies on the commercial side that are being worked on, in addition to large sale areas. This includes new business lines such as the mixed-use building, which can also be found at the Guadalajara Airport, with the opening of a new hotel in March of 2024. On the expenses side, this increased by 10.3% compared to the first quarter of 2023. While we remain focused on maintaining strict cost control, the current changes in labor law affected all major cost lines. The salary costs have been greatly impacted, as well as other major personnel contracts such as cleaning, security, and maintenance. Down the line, we have higher costs that correlate with airfield and terminal expansion, in addition to an inflationary effect. Regarding the concession fee in Mexico, which is the amount that concession holders such as GAP must pay for the use of federal airports, you may remember that in January, these fees increased from 5% to 9%. In accordance with the new rules for tariff regulation, the payment made over those included in the last tariff review will be added to the reference value during the next review of the maximum tariff. However, this only applies for the regulated revenues. In line with this, the 4% difference paid over aeronautical revenue in the first quarter of 2024 was recognized as an intangible asset under IAS 38 and will begin its amortization in January 2025, continuing until the end of the concession period. The amount recognized as an intangible asset in the airport concession during the first quarter of 2024 was MXN175.5 million. On the other hand, the 4% additional payment over the non-aeronautical revenue was recognized as an expense. As a result, EBITDA reached MXN4.6 billion with an EBITDA margin of 69.8%. This differs from our guidance released in January, mainly due to the recognition of the intangible asset I just mentioned. On the debt front, total debt reached MXN4.5 billion during the first quarter of 2024. In March, we issued another two tranches of labeled debt bonds in the Mexican market for a total of MXN3 billion. The proceeds were used to pay down the GAP 19 bond that matured in March for the same issue amount. These were the fifth and sixth labeled bonds that are sustainability-linked and directed towards reducing carbon emissions, thus further demonstrating our commitment to enhancing sustainability at the company. We look forward to continuing to update the market on these initiatives, and we will continue integrating this philosophy into our operations and infrastructure projects. Along with these figures, we continue to maintain healthy leverage levels, reaching a net debt-to-EBITDA ratio of 1.7 times for the trailing 12 months, thus compliant with all our debt covenants. Moving on to CapEx. During the quarter, capital expenditure reached approximately MXN1.4 billion. This positioned us well to comply with the challenging Master Development Program that is in place. Before I conclude, I want to mention that our ordinary and extraordinary shareholders' meeting will take place tomorrow, and we will be proposing a capital reduction of MXN13.86 per outstanding share. I would like to express my gratitude to all who attended our GAP Day at Guadalajara Airport on April 10. It was a great event where we were able to tour the newly expanded commercial and passenger area, the airport fire station, and even stay at the new Hilton Garden Inn hotel that is just steps away from the main entrance of the airport. I hope that all who were able to join us left with a sense of all the hard work and commitment we have for our markets and for the growth of our company. With that, I would like to open the floor for questions.

We'll take our first question from Rodolfo Ramos with Bradesco BBI. Please go ahead.

Good morning, everyone. Thank you for addressing my questions and congratulations on your results. I have a two-part question regarding the progress of your Master Development Plan negotiations with the authorities. Can you provide insights on both the tariff aspect and the Capital Expenditure side? Specifically, I am curious about your CapEx needs moving forward, especially considering you operate airports exceeding the 10 million passenger threshold annually, and Cabo is nearing that figure. It appears that CapEx is becoming increasingly important, as we observed in ASUR's MDP. Are there any significant projects at these three primary airports that could influence this negotiation? That would be my question. Thank you.

Thank you, Rodolfo. This is Raul. We are still working with authorities. We have presented the first draft of our master plan and we are just in the process of visits with the authorities or the physical visits of all the airports and review of all the different investments that we are proposing to the authorities. As we have said in the last conference calls, we are expecting an increase of the maximum tariff of around 0% to 5%. What is important to have in mind is, we cannot assure completely what the result will be. We need to see how the discount rate will change in the coming months. After that, we could have the number. As you remember, in terms of the airport law, the authority has until the last day of the year, December 31, to have an authorization. We are working with them, trying to accelerate this authorization. In terms of the CapEx that we are expecting, we are maintaining the same level of investment per passenger that we have in this period of the master plan, which is around MXN110 per passenger. Some airports will need additional space or additional terminals or big investments to handle the increase of passengers, specifically Tijuana. For sure, in Guadalajara, we are proposing to the authorities a completely new terminal, Terminal 2, for the airport. As for Cabo, we also know that we need to expand our terminal building - the second terminal building, the international terminal building, and the Terminal 1, the domestic terminal building in Cabo. And for Vallarta, as you know, we are developing the second terminal of Puerto Vallarta. We will continue the expansion there in the coming year, but it will not be included as an additional investment for the new master plan. In general terms, the biggest investments we will see at our larger airports will be expansion of terminals in Tijuana, a new terminal in Guadalajara and expansions on Terminal 2 and 1 at Cabo. For sure, other airports will have some expansions, but the main expansions regarding terminal buildings will be at those airports.

All right. Thank you, Raul. And just a follow-up on that. You mentioned that the authorities have until the last day of this year. So I'm assuming that you will be concluding your negotiations with the next administration. Is that correct?

At that moment, Rodolfo, we cannot assure it's going to be with this administration or the coming administration. We are working on all the technical aspects of the master plan. Just think for a second that a master plan is a document that for GAP will be around 2,000 pages, which will have a lot of blueprints and a lot of technical work. So for sure, we are working today with the technicians of the AFAC. At the end of the day, we will try to close this negotiation as soon as possible. But today, I can't assure it's going to be with this administration or the coming administration. What is clear is that we are working and have all the technical approaches and studies for the capacity and the new investments in the master plan, and we will have it on the table for the authority, and we are expecting the correct timing for the authorization.

Great. Very helpful, Raul. Thank you very much and congrats on the results.

Thank you. And we will move next with Stephen Trent with Citi. Please go ahead.

Good morning, everybody, and thanks for taking my questions. First, could you give us some indication on the Jamaican airports and the timing of the regulatory reviews, and what chance do you see that maybe authorities could possibly extend those concessions when the review is done?

Hi, Steve. This is Saul. Thank you for your questions. We have been working very well with the authorities. Indeed, during GAP Day, we had the Minister of Transportation in Jamaica present. The communication and relationship are very positive. We have been working and have a final proposal; however, we haven't achieved the final document signed to be applied. So we have good news, but we cannot disclose yet because it's not possible as we don't have the official document from the authorities of Jamaica. However, we feel very comfortable with the results in the negotiations for both airports.

Okay. Appreciate the color, Saul. Thank you. And just a follow-up with something you mentioned in the prepared remarks. I believe you mentioned nine new routes to North America and two new routes to Europe, if I'm not mistaken. And just, one, if I got that right? And two, what potential do you see for new Asian routes?

Yes, this is Raul. We're expecting that by the end of the year, we will have at least one direct flight from China to Tijuana. So we are really close to having some announcements.

Okay. Perfect. Thanks, Raul. Appreciate that.

Thank you. And we will move next with Guilherme Mendes with JPMorgan. Please go ahead.

Thank you and good morning, Raul and Saul. And Alejandra, thanks for taking my question. My first question is on the guidance. Raul, you mentioned at the beginning about the effect of how the concession fee was accounted. Clearly, there was some upside on the EBITDA margin reported in the first quarter. I'm just wondering if you see any upside for your full-year guidance, if you should expect any changes from here? And the second question is regarding the bidding process for the Turks and Caicos Airport. You mentioned in the fourth quarter earnings that you were participating in the process. Just wondering if there's any updates on this. Thank you very much.

Hi, Guilherme. This is Saul. For your first question, we need to revise our guidance, but we want to wait for a clearer idea from the Pratt & Whitney engines review and monitor traffic trends in the coming months. If we gain more visibility by the end of the year, we will release new guidance, but we prefer to wait until the second quarter to update it. Regarding Turks and Caicos, we haven't made any progress yet and have no updates from the authorities. We are attentive to any meetings with the government, but we were selected as a bidder.

Okay. Very clear. Thanks, Saul.

Thank you, Guilherme.

We will move next with Alejandro Fuchs with Itau Group. Please go ahead.

Yes. Hello, Raul, Saul and Alejandra team. Thank you for taking the question and congratulations on the results. Very quickly, I have two questions. The first one is on aeronautical revenue. They were flat year-over-year, as Raul was mentioning, even though you mentioned that the TUA was still down for nine airports. I wanted to get a sense of how the aeronautical revenue was flat year-over-year with flat passengers and lower TUA. Are you charging maybe a higher percentage of the maximum tariff? I wanted to understand that correctly. And then, I have a follow-up. Thank you.

Hi, Alex. Regarding the TUA, we already applied the discounts. As we mentioned, we are applying a 6% discount over the TUA at nine airports. We have different factors like inflation and the exchange rate in order to fulfill the maximum tariff. But we expect until the end of the year to be close to 97%, 98% of the maximum tariff. Our basis approach is 97% at the end of the year.

Thank you. That was very clear, Saul. And maybe just a quick follow-up. I wanted to see if I got this very clear, but on the concession tax, the MXN715 million that you paid this quarter, I wanted to make sure that this includes the 4% increase, even though this is going as an intangible asset as well. So we saw this through the P&L and it's included in the EBITDA. I got cut off a little bit on what Raul was explaining, so maybe you could re-explain for me. That would be very helpful. Thank you.

Yes, Alex. The concession tax is mandatory to be paid to the government. It pays every two months. We relayed the first two months of the year, but we have to make a provision for March. What is in the financial statement, in the income statement is only the concession tax at 9% for the non-aeronautical revenues and 5% for the aeronautical revenues. The difference is recognized as a concession asset, which will be amortized during the concession period. Just to be clear, it is a cash flow for the full 9%. But the recognition in the income statement is 9% for the non-aeronautical and 5% for the aeronautical just for 2024. In 2025, everything will be at 9%.

Thank you very much. Very clear, so thank you.

Thank you. We will move next with Pablo Monsivais with Barclays. Please go ahead.

All right. Thanks for taking my questions. Just a quick one on the cost side. You mentioned that the labor law is impacting your costs, and that has been the case for this year. But do you see any extra pressures or headcount increases that could further pressure your costs this year? Thank you.

Hi, Pablo. The pressure from the labor law is clear, not only in Mexican airports but also in Jamaican airports, where we have seen a significant increase in minimum wages, around 40%. It's not highly relevant because the participation of the Jamaican airports in the total EBITDA is minor, but it is significant for the overall cost expense increase. We want to be clear that our management philosophy is to maintain cost control. We will not be hiring additional headcount solely for the hotel, and in case we open additional business lines or more units, we will then add additional headcount; otherwise, we won't.

Perfect. Very clear. Thank you very much.

Thank you. We will move next with Gabriel Himelfarb with Scotiabank. Please go ahead.

Hi. Good morning. Thanks for the call. I just need a bit of an update regarding the issue with the Pratt & Whitney engines. Do you think for this year, over the last quarters, capacity could be limited due to the engine failures or maintenance? Volaris mentioned that most of the peak of the capacity will be in the third and fourth quarters. Do you see that this could affect passenger traffic for the last two quarters of this year? Thank you.

Thank you, Gabriel. It's Raul. When we presented our original guidance, we considered around 200 days for the maintenance period of each grounded plane. As you mentioned, Volaris recently stated in their conference that they are expecting the worst part of this peak decrease in capacity for the third and fourth quarter. We are aligned with that; our guidance expects that the worst part of this supply crisis will happen in the summer. After that, we expect to gradually see some of the grounded planes return in November and December. In general terms, we maintain the same number we originally presented in our guidance, and we consider that the worst part of the decrease in grounded planes will be in the third and part of the fourth quarter.

Okay. And do you think that this supply shock could somehow be utilized for the next Master Development Plan for passenger levels should there be a decrease in the coming MDP?

The point here, Gabriel, is that in general terms, this is a supply-side crisis. As soon as the fleet recovers and flies again, we will have a recovery similar to a hockey stick because the demand is still there. This situation will not change the long-term trends. Therefore, we do not plan to adjust our CapEx needs or forecasts for the long term concerning passenger traffic at our airports. We actually expect a recovery in 2025 for traffic. Our master plan reflects the demand needs for the new capacity that we expect to deploy across our airports.

Okay. Thank you very much.

Thank you. Our next question comes from Anton Mortenkotter with GBM. Please go ahead.

Hello, guys. Thank you for taking my question. I'm looking to understand if the increase in idle per passenger was driven by improvements in the commercial areas of your airports or if it had some relationship to the real estate investments. I was wondering if this quarter's non-aero revenues had some contribution from the mixed-use facilities and the hotel, possibly from advance payments from the mall or something similar.

Hi, Anton. This is Saul. The increase in revenues per passenger, which is around 2%, is mainly due to the increase in non-aeronautical revenues. You are right; this is part of the new revenues brought by the Guadalajara airport, including the new commercial retail and food and beverage areas that opened. The hotel opened around March 26, so it is not relevant in the figures yet. However, the new areas in retail, the renovation of the contracts, and the renewal of contracts contributed to this increase, plus we also saw some commercial retail openings in Montego Bay. The commercial revenue showed an extraordinary increase this quarter of around 15%. For aeronautical revenues, we saw a decrease of around 1.5% due to the discounts to the TUAs or passenger charges at nine of our Mexican airports.

Thank you. Your next question comes from Andressa Varotto with UBS. Please go ahead.

Hi. Good morning, Raul and Saul. Thank you for taking my question. I just have a follow-up here on the non-aeronautical side. You mentioned both of the new projects the company has been working on in the last few years and also the renegotiation of contracts with tenants. I just wanted to know if you could break down how much each of these factors contributes today for the non-aeronautical side and what your expectations are going forward about the contribution of these two factors? Thank you very much.

Hi, Andressa. This is Raul. In general terms, non-aeronautical revenues grew in the quarter mainly due to the expansion of some areas in our terminals, particularly for food and beverage in Guadalajara and various additional retail areas. What we have seen this quarter is an increase in some business lines with the positive effects mainly seen in food and beverage after renegotiating contracts in Los Cabos, Guadalajara, Cabo, and Tijuana. We are seeing results reflecting these new conditions. Additionally, we have seen positive effects from revenues generated by GAP directly, such as those from parking lots, which increased even with flat levels of passenger traffic. It is essential to note that revenues from parking lots often correlate directly with passenger numbers. Due to a new tariff strategy, we generated positive growth in parking lot revenues, even with flat passenger numbers. Moving forward with the new conditions on significant contracts, we expect that as soon as passenger traffic returns to normal levels, we will see significant revenue growth since we have already established advantageous layouts, contracts, and brands to maximize results. Thus, we anticipate strong revenue growth in 2025 once traffic returns to airports. For 2024, we expect to increase non-aeronautical revenues from 12% to 14% and believe we are aligned with that original guidance.

Perfect. Thank you very much. And if you could provide an update on the operation of the hotel and the commercial space you’re developing in Guadalajara?

Yes. We just began operations in the last week of March. We are now working on the new areas of Guadalajara, mainly the hotels, and we will start recognizing revenues from the hotel in the second quarter of this year. Regarding the mixed-use building, we expect revenue recognition from new tenants of the office building to begin in the third quarter of this year. Additionally, we expect to have full revenue recognition from the new food and beverage mezzanine area in this mixed-use building in the third quarter as well.

Perfect. Thank you very much. Have a good day.

Thank you. We will now take the webcast questions. I will turn the call over to management.

Thank you. We have one question from Bernardo Malpica from Santander. The increase in international passengers compensated for the fall in domestic passengers. Did you see any top line benefit from this change in mix?

Yes, Bernardo. In general terms, the change of the mix, when we talk about aero revenues, brings us additional tariffs, particularly in U.S. dollars. It also depends on the peso-dollar exchange rate. Overall, I would say that the change in the mix is positive, and it could lead to some additional benefits for the top line since, with increased international passenger traffic, we can also enhance our non-aeronautical business, particularly in duty-free operations that domestic traffic does not provide.

Thank you, Raul. The last question is from Areli Villeda from Invex. I would like to understand the amendment of the legislation related to the concession rights. If the government recognized a double charge, how would this affect you?

Hi Areli, this is Saul. At the beginning, when the change from 5% to 9% happened, there was some misunderstanding. However, it was clarified in the legislation. Therefore, we do not anticipate any double charge; that is not a possibility.

Thank you, Saul. Those are the only questions we have. We have addressed the other ones during the Q&A segment. So thank you.

Thank you.

Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time.

Thank you once again for joining us today for our first quarter results conference. Our team is available to address any questions you may have. Have a great day. Thank you.