Axtel, S.A.B. de C.V.

Good morning, and welcome to Axtel's fourth quarter 2025 earnings webcast. My name is Nancy Llovera, Axtel's Investor Relations and Corporate Finance Manager, and today I am joined by Armando de la Peña, Chief Executive Officer, and Adrián de los Santos, Chief Financial Officer. Financial information for both Axtel and Controlador Axtel, including the unnoticed fourth quarter report, is available on our corporate websites. We will begin today's session with an overview of our business performance, followed by a Q&A segment. For your convenience, this webcast is being recorded and will be available on our website. Before we begin, please note that today's discussion may include forward-looking statements. These statements reflect management's current views and expectations and are subject to risks and uncertainties that could cause actual results to differ. Axtel assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. With that, I will now hand the presentation over to Armando.

Thank you, Nancy, and thank you all for joining us today. I wish you well this year. Before reviewing our financial results, I would like to comment about four-quarter and full-year performance. as well as opportunities we see for our business. Results in the fourth quarter had a year in which we generated the highest annual operating cash flow in our history. Fourth quarter performance faced a thought comparison versus a strong fourth quarter 2024, particularly in EVDA. A 14% increase in government segment revenues helped offset marginal declines in the enterprise and wholesale segments. For the full year, we increased revenues, EBITDA, and generated $80 million in cash flow. Even excluding the extraordinary first quarter cash flow related to the execution of the conclusive agreement with a major mobile customer, Cash flow still improved more than 20% year over year, demonstrating our commitment to financial discipline and shareholder value creation. The year presented challenges in closing new projects as customers remained cautious amid economic uncertainty. Although, we expanded the enterprise segment opportunities pipeline by 24%. New contract acquisitions remain similar to 2024 levels. Services such as cybersecurity were particularly affected by slower adoption of new offerings and upgrades by clients. Overall, customers' technology and telecommunication investments were focused mainly on cost optimization rather than capacity expansion or modernization. A mixed performance across the enterprise segment business lines resulted in 3% growth, moderating from a stronger growth achieved in 2024. Mobile services delivered a robust moment, with revenues expanding by over 50%, and IT services posted a solid growth of 13%. These gains were particularly partially offset by a more modest growth of 1% in the telecom services and a decline in cybersecurity revenues. Notably, the 1% growth in telecom services significantly outperformed overall industry trends, highlighting the resilience of the core business despite a challenging market environment. The decline in cybersecurity revenues reflects a difficult comparison to the extraordinary performance achieved in 2024, as well as a softer demand conditions across the industry. The government segment delivered a solid fourth quarter following a year with limited new public acquisitions and auction opportunities. which were mostly restricted to renewal of ongoing services. Performance for the year was well balanced with recurring revenues growing at 22% and one-time revenues increasing 24%. During the year, we continued the implementation of the new platform for the digitalization of our international trade documentation in Mexico, contributing to the growth of our recurring revenues. This initiative is particularly meaningful as it emphasizes Accel's role in advancing the digital transformation of international trade in Mexico and reinforces our commitment to delivering innovative high-value solutions. The wholesale segment had a very positive year, with revenues growing close to 20%, supported by a contract with a major hyperscaler customer. Our new Querétaro-Texas fiber optic route, deployed in 2025, is expected to continue generating opportunities for infrastructure and capacity sales, capitalizing on the next-generation low-latency network with more than five times the capacity of comparing routes. Axtel announced a collaboration agreement with McAllen Data Center, NBC, to strengthen digital interconnection along the Mexico-United States border through the integration of MDC Center 2 as a new primary point of presence in Texas. This alliance represents a significant step in meeting the growing demand from operators, enterprises, and digital platforms requiring greater density, neutrality, and scalability in their cross-border connectivity. As part of our artificial intelligence strategy, Axtel established a strategic alliance with Simple Ask, a Canadian company specialized in AI treatment automated solutions. This partnership adds virtual assistants and intelligent agents into the e-Alextra portfolio, solutions characterized by rapid, flexible deployment and immediate results. Organization effectiveness remains a key factor in our artificial intelligence and business agenda, requiring the mix of talent, experience, and diversity of perspectives. Gender diversity has been a strategic priority for many years, and it's embedded in certain trade agreements. In 2025, women represented more than 25% of the workforce with strong representation at senior leadership positions. Looking ahead to 2026, the organization will evolve following the planned retirement of two executive directors. As part of this transition, the enterprise and government commercial organizations will be consolidated under a single executive leader, and all artificial intelligence initiatives will be centralized within one team under the executive leadership of commercial development. We remain committed to maintaining an agile and efficient organizational structure aligned with evolving needs of the business in 2026 and beyond. In 2025, we strengthened our infrastructure to capitalize on the increased demand of AI driven data transport between the United States and Mexico. We also diversified our U.S.-Mexico connectivity portfolio by linking our Cancun network to trans-American fiber TAN-1, submarine cable providing an alternative route to the U.S. East Coast and Central and South America. Likewise, our new generation Querétaro-Texas route is expected to bring meaningful business opportunities in the years ahead. In 2026, we aim to continue outperforming industry growth by focusing on cross-sell and up-sell opportunities, particularly with our top accounts. In the government segment, we will pursue multi-year projects to expand our base of recurring revenue. For Axnet, we will enhance connectivity toward the U.S. and promote high-capacity services, particularly wavelengths. driven by hyperscaler, data centers, and artificial intelligence. We will maintain our financial discipline, increase cash flow generation, and continue building stronger business and financial platform in the best interest of our shareholders and all stakeholders. I will now turn the call over to Adrián for additional remarks and discuss Axtel financial resources.

Thank you, Armando, Nancy, and good morning to all participants. Last year, we prepaid $55 million of our syndicated bank loan using cash generated from operation. In addition, we refinanced nearly $90 million more through a new 10-year loan with Bancomex, shifting our debt profile to 60-40% pesos and dollars, respectively. Our goal is to align our debt currency mix with that of our revenues. In 2025, we generated approximately 20% of our revenues in dollars, which are generated in both pesos and dollars. Notwithstanding the higher proportion in peso denominated debt, which carries a higher interest rate, we estimate $45 million in interest expenses for 2026, a $5 million reduction compared to last year, resulting from the debt prepayments achieved in 2025 and the more favorable interest rates environment expected for 2026. During the fourth quarter, Fitch Ratings upgraded the company's credit rating from BB- to BB with a stable outlook. This reflects expectations of continued delivering and solid cash flow generation. We will maintain active engagement with both rating agencies to ensure that their assessments accurately reflect Axtel's strong operating and financial performance. For 2026, we expect ongoing economic uncertainty and anticipate that clients will remain cautious in their technology and telecommunications investment decisions. We're continuing to advance the development of artificial intelligence-based solutions, supporting clients who are primarily focused on optimizing their operations. Internally, we will concentrate resources on the business lines with the strongest demand and maintain strict discipline in our spending and investment decisions. Under this scenario, we estimate revenues of 12,850 million pesos and comparable EBITDA of 3,800 million pesos. We expect capital expenditures of approximately $83 million and cash flow generation of more than $60 million. Based on these estimates, our net debt to EBITDA ratio should reach approximately two times by year-end. For budgeting purposes, we are using an average exchange rate of $18.65 per dollar. I will now move on to review our financial results for the four quarter and full year. Four quarter revenues decreased 1% year over year, while full year 2025 revenues increased 7%, reflecting solid performance across all three business segments. Enterprise revenues declined 3% in the quarter, mainly due to a 10% contraction in IT and cybersecurity services, following extraordinary licensing and equipment sales recorded in the prior year. Within IT, hosting and systems integration revenues grew 30%. Telecom revenues were stable year over year, as solid performance in managed networks and mobile services revenues offset the expected decline in collaboration services. For the full year, enterprise revenues increased 2%, supported by 6% growth in IT and cybersecurity solutions, and a 2% increase in telecom services, driven by strong results in connectivity, managing networks, and mobility, exceeding telecom industry performance. Voice revenue declined 6%, representing 7% of this segment revenues. Government revenues grew 14% in the fourth quarter, driven by a 59% in recurring revenues. Full-year revenues increased 22%, supported by a similar increase in recurring revenues, reflecting the company's successful strategy to renew 99% of expiring contracts and expand service penetration among existing federal customers. Revenue mix consisted of 70% federal and 30% state and local entities. Wholesale infrastructure revenues decreased 5% in the quarter, primarily due to a lower volume of upfront high-capacity contracts in this period. However, for the full year, revenues increased 19%, driven by strong demand for upfront high-capacity contracts due to AI-related data transport and increased data center connectivity. Even excluding extraordinary revenues from the conclusion of a workout agreement with a mobile customer in the first quarter, revenues will have registered double-digit growth in the year. Four-quarter cost of revenues, excluding depreciation and amortization, decreased 5%, resulting in a contribution margin improvement to 66% compared to 65% a year ago. Enterprise segment costs declined 9%, reflecting stronger margins in IT and cybersecurity services. Government segment costs increased by 2%, with margin expansion supported by greater proportion of recurring revenue. Wholesale segment costs increased 5%, reflecting lower margins in the quarter. For the full year, cost of revenues increased 5%, with lower enterprise costs offset by higher government and wholesale costs, probably aligned with their revenue trends. Contribution margin remains stable at 71%. Commercial and operating expenses are allocated to the three business segments while corporate expenses remain centralized. Commercial and operating expenses increased 35% in the quarter and 11% for the full year, mainly due to the extraordinary bad debt provision benefit reported in the wholesale segment during the fourth quarter of 2024, creating an unfavorable comparison base. General corporate expenses increase in the quarter and for the full year, driven by higher personal expenses. Higher personal expenses were influenced by labor legislation changes and an extraordinary pension provision benefit recorded in 2024. Excluding these effects, company-wide personal expenses would have increased 6% in the year. EBDA reached 833 million pesos in the quarter, a 30% decline compared to the fourth quarter of 2024, reflecting lower contribution from the business segments and higher corporate expenses. For the full year, EBDA increased 3% supported by contributions across all three business segments affected by higher general corporate expenses. EBITDA margin stood at 31% for the year. CAPEX totaled $86 million, equivalent to 13% of total revenues, compared to $72 million in 2024, equivalent to 11% of revenues. The increase mainly reflects an extraordinary investment related to the new Querétaro Macallan fiber optic deployment, and the renewal of a 15-year fiber optic lease, ensuring the long-term resiliency and competitiveness of our network infrastructure. Cash balance at year-end reached $73 million compared to $39 million at the beginning of the quarter. Four-quarter cash flow was positive $40 million, And full-year cash flow was positive $80 million, resulting from $196 million in EBITDA, $20 million in positive working capital, $86 million in CapEx, and $49 million in interest expense. Additionally, we recorded $71 million debt reduction in the year. year-end net debt stood at $456 million with a net debt to EBITDA ratio of 2.3 times compared to 2.5 times a year ago. And with this, we conclude our presentation and openly call for questions concerning both Axtel and Controladora Axtel.