Grupo Aeroportuario del Sureste, S. A. B. de C. V.

Good day, ladies and gentlemen, and welcome to Azure's third quarter 2022 earnings conference call. My name is Elaine, and I will be your operator. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of today's conference. If you would like to ask a question, please press star followed by one. If you want to withdraw your question at any time, by please pressing star followed by two. If you are using a speakerphone, please lift the handset before making a selection. 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.

Thank you, Elaine. And good morning, everyone. Before we started the covering of the highlights from the quarter and then taking your questions, let me remind you that certain statements made during this call 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. As usual, additional details about our quarterly results can be found in our press release, which was issued yesterday after market closed and is available on our website in the Better Relations section. We reported another solid quarter with record passenger traffic, improved cost efficiencies, and strong profitability. Starting with our review of travel demand, total traffic growth over 24% year-on-year and exceeded third quarter 2019 levels by nearly 23%, reaching a record of 17 million passengers in the third quarter. Airports across our three geographies all contributed to this solid growth. Compared to pre-pandemic levels, third quarter 2019, Colombia maintained the strongest recovery of 37% with domestic travel expanding in the low 30s and international travel in the high 50s. We expected this surprisingly strong recovery to continue over the coming months, supported by a structural shift in demand driven by new routes and airlines. Traffic in Mexico was up 22% against third quarter 2019 driven by both international and domestic passengers. with all the airports contributing to this growth. In particular, international traffic growth accelerated to 30%. This strong performance reflects higher travel demand from all regions of this market, exceeding 2019 levels, except Canadian demand, which still remains at slightly over 65% of the last 12 months of 2019. Looking ahead, traffic from Canada is expected to resume its winter season levels, mainly November through April next year, while the U.S. and Europe are expected to continue delivering steady growth. We also expect that domestic business travel will continue to lack leisure. We expect Merida Airport to recover 2019 levels during the rest of the year, with Veracruz, Minatitlan, and Villahermosa Airports recovering in 2023. Finally, in Puerto Rico, traffic continued to normalize after a very strong performance in prior quarters, posting a high single-digit increase in traffic compared with the quarter 2019, with domestic passengers up 9%, and international travel practically recovered to pre-pandemic levels. Overall, we continue to expect solid traffic demand, underscored by pent-up travel demand, with recoveries expected in some remaining markets, such as Canada, helping mitigate any potential disacceleration that could result from increasing inflationary global context. Moving now to our financial results, note that all reference to revenues and costs exclude construction revenues and that all comparisons are against the quarter 2019 levels. Revenues increased 50% to $5.8 billion. This was again a record high for any given quarter, driven by a good performance in both aeronautical and non-aeronautical revenues across geographies. Mexico accounted 72% of total revenues in the quarter, Puerto Rico 16, and Colombia 12. Reported by traffic growth, commercial revenues remain strong, up 45% with increases of 57% in Mexico, 30% in Colombia, and nearly doubling in Puerto Rico. Commercial revenues per passenger were nearly 117 pesos above the 99 pesos reported in TechWater 2019, a nearly flat year on year. Commercial revenues in the quarter were in the range of 141 to 161 pesos in Mexico and Puerto Rico. In Colombia, commercial revenues per passenger stood at 37 pesos, likely below third quarter 2019 levels. Note that the Colombian peso depreciated 24% against the Mexican peso over the last 12 months, while international passengers account for nearly 17% of total traffic in Colombia. Regarding the composition of our passenger traffic, the portion of domestic passengers remained the same as the third quarter 2019, although We benefited from additional growth in the U.S. tourism and from European passengers spending at pre-pandemic levels. The number of Canadian visitors remained flat at 65.5 of 2019 levels. Moving down to the P&L, total operating expenses increased in the high teens, excluding expense reimbursements in Puerto Rico in both quarters, Operating costs and expenses would have increased nearly 26%, but significantly below the revenue growth of 50%. In Mexico, costs were up 26%, significantly below the 67% increase in revenues. This was mainly driven by increased personal costs, along with higher technical assistance and concession fees. These increases reflect high revenues and EBITDA, along with a higher cost of services, including the cost of sales that rose as a result of the strong performance at directly operated stores. In Puerto Rico, costs were up 19% or 16% when excluding the benefit of expensing rembourses in both quarters, while revenues nearly doubled in this market. Finally, costs in Colombia were up in the low 20s, but below the 30% revenue growth. Efficiency measures implemented over the past couple of years have allowed costs under our control to remain at third quarter 2019 levels and at only 81% of these levels when compared them on a per passenger basis. This was true even with a 50% increase in revenues during the period. Note that costs under our control include costs minus construction costs, depreciation, and amortization, as well as technical and concession fees. We achieved a record high profitability this quarter with consolidated adjusted EBDA of 4.1 billion pesos. up 64% from 2019 levels, driven by solid performance across key metrics. Sustained growth in passenger traffic together with higher commercial revenues and operating leverage more than offset higher tariffs. Mexico turned into a very strong performance with adjusted EVA up 51% to 3.1 billion pesos. Colombia continued to recover with EVDA up 67% to 455 million pesos. Puerto Rico, in turn, posted a 7% increase in EVDA to nearly 470 million pesos, although down 16% year-on-year, reflecting the 7% decrease in passenger traffic and increasing the cost of services primarily because of increasing the cost of energy. A geographic region adjusted India margin improved nearly 5 percentage points in Mexico to 75.3 and 10 percentage points in Colombia to nearly 64. Margin in Puerto Rico was slightly over 49% this quarter, 70 basis points above third quarter 2019, but below the 59% reported in the same quarter last year, reflecting the impact of Hurricane Fiona during the the airport for a day and a half. In sum, we reported another solid quarter with traffic and revenues at record highs, which combined with the operating leverage resulted in a 42% increase in net majority income to 2.5 billion pesos in the quarter, up from 1.7 billion in the third quarter of 2021 and 1.3 billion in the third quarter of 2019. Turning to CapEx, we invested nearly 550 million pesos during the quarter, of which 88% was allocated to Mexico, nearly 12% to Puerto Rico, and 1 billion pesos to Colombia. We remain on track with our CapEx plan across the regions. In Mexico, we completed the first phase of Terminal 4 expansion at Cancun Airport, which consisted of adding two international boarding gates And we continue moving forward with the expansion of terminal building in Merida with the third phase of this project to be completed by the year end. We are also on track with the remodeling of terminal B and major maintenance repairs to runways and taxiways in Puerto Rico. Commenting on the balance sheet, we've maintained a strong liquidity position and a healthy debt profile. We closed the quarter with cash and cash equivalents, nearly 14 billion pesos with a net debt last month's EVA at just 0.1 times at the quarter end, with interest coverage at 10.7 times. Finally, across receivables, increased nearly 17% year-on-year, reflecting increased activity across our airports. Before we move to the Q&A portion of the call, A quick recap of the quarter. We welcomed another record number of passengers in the third quarter, surpassing 2019 levels once again, thanks to robust travel spend. While Canadian traffic remained below its pre-pandemic levels, traffic in all the markets was above 2019 levels. Also, we expect Canadian traffic will finally normalize this winter season, Such a recovery would help offset any fall in demand that could eventually arise from the inflationary environment that persists in the U.S., Europe, and elsewhere in the world. As today, we see healthy traffic trends that are supported by a still strong pent-up demand. Lastly, I noted earlier we were able to deliver strong profitability as additional passenger growth drove operating leverage that we have achieved by significantly improving efficiency levels throughout our business over the last two years and a half. Please, Elaine, open the call for questions.

Thank you. Once again, to ask a question, please press star 1. And again, please make sure your mute function is turned off or your handset is picked up before pressing the corresponding digits. We will take our first question today from Rodolfo Ramos of Bradesco BBI. Please go ahead.