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

Good morning, and welcome to Axtel's Third Quarter 2026 Earnings Webcast. My name is Nancy Llovera, Axtel's Investor Relations and Corporate Finance Manager, and today I'm joined by Armando de la Peña, CEO, and Adrián de los Santos, CFO. Financial information for both Axtel and Contralor Axtel, including the anonymized Third Quarter report, is available on our corporate website. 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. Welcome everyone to our conference call. I hope everyone is doing well. Let me begin with an overview of our performance and key developments of the third quarter. During the quarter, the board of directors of Axtel and Controlador Axtel received proposals to acquire 100% of the shares of each company through separate vendor authors. By supporting the information requirements associated with both processes, we have remained focused on executing our business strategy and advancing our priorities of accelerating revenue growth, improving profitability, and consistently generating operating cash flow. As previously disclosed, transactions of this nature involve multiple work streams and remain subject to independent decisions of each shareholder, as well as they require regulatory approvals. The interests from investors reflect the strength of Axtel's business model, confidence on its long-term strategy, and, above all, the results achieved through the commitment and dedication of our employees over the past several years. On the third quarter results, the results were positive, reflecting 8% growth in combined enterprise and government revenues, together with an 8% reduction on the company's expenses, excluding reorganization costs. The improvement in expenses offset the impact on contribution margin, which declined due to a stronger growth in non-recurrent revenues compared to recurrent revenues. During the quarter, we continued working on the re-engineering of key processes, incorporating artificial intelligence as an enabler of efficiency, scalability, and continuous improvement. Our efforts have been focused on processes with the greatest cost impact and the highest automation potential. As part of this effort, we deploy our first AI-powered solutions within service assurance and customer support. These tools provide an unified view of relevant information for multiple platforms, reducing manual activities, accelerating diagnostics, and improving response times. The first phase contributed to an 8% headcount optimization and supported improvements in profitability. As a result, the company recognized a non-recurring reorganization expense of 144 million pesos in September. The acquisition of new contracts in enterprise segments is currently 5% below the cumulative level recorded through September of last year. This performance reflects caution in our customers' investment decisions, particularly in the first half of the year. Recurring contrast acquisitions have shown improvement in recent months, evidenced by a growth of 20% in the third quarter compared to the first quarter of the year. Non-recurring contrast acquisitions increased 53% over the same period, helping to offset the revenue gap. The government segment delivered a strong quarter, with recurring and non-recurring revenues increasing 25 and 84% respectively. This performance was driven by a successful execution of projects and the continued expansion of opportunity across digital infrastructure, telecommunications, and data center services. Based on current activity levels, and our commercial pipeline, we expect positive momentum to continue throughout the remainder of the year. Performance in the wholesale segment was affected by lower revenues from dark fiber sales contracts. On the positive side, recurring revenues from high-capacity transport services remained stable compared to the third quarter of last year and increased 5% sequentially, delivering the strongest quarter of the year. We continue to see a strong demand for wavelength services, helping offset the decline in network links purchased by international carrier customers. ACNET participated in Mexico Connect 2026, promoting cross-border digital infrastructure. During this event in Mexico City, we held more than 60 meetings, exchanging perspectives on scalability to enable scalable and resilient connectivity between Mexico and the United States. supporting today's most demanding digital ecosystems. During the quarter, we formalized an strategic alliance with Tec de Monterrey to establish an AI research laboratory within its innovation district. Through this initiative, we seek to create a collaborative ecosystem among academia, industry, and technology organizations to accelerate innovation. to develop solution with tangible business impact and to contribute to the transformation of the specialized talent required by Mexican digital economy. Axtel continue to strengthen its cybersecurity capabilities through collaboration with Fortinet. We integrated SOAR, Fortinet Security Orchestration Automation and Response Platform, enable faster risk detection Automated Remediation and More Efficient Security Operations. Among more than 270 initiatives worldwide, Aztec was recognized as Pega World for the Aletra Order Management Project, reaffirming our capabilities in automation and digital transformation. Performance in enterprise and government segments together with continued demand for Wavelength Services in Aztec demonstrated ongoing improvements. In addition, efficient operational management and disciplined capital allocation continue to support strong cash flow generation and balance sheet development. Management is focused on accelerating revenue growth, optimizing resource allocation, and implementing more agile and efficient processes for the benefit of our customers and shareholders.

Thank you, Fernando, Nancy, and good morning to all. In August, we executed a new $65 million three-year term loan with Export Development Canada to refinance an existing This agreement has an option to extend for an additional year on the first anniversary and if exercised, a second one-year extension on the second anniversary. Concerning our ongoing hedging strategy, we have maintained over 60% of our U.S. dollar-denominated capex and interest payments hedged throughout the third quarter of 2022. We executed new hedging contracts for the fourth quarter and will proactively monitor market conditions to continue our rolling forward strategy for the remaining of the year and first quarter 2027. Let me now move on to review our financial results for the third quarter. Third quarter revenues increased 3% year-over-year, primarily driven by growth in the enterprise and government sectors. Enterprise segment revenues increased 2% compared to the same period last year. IT and cybersecurity revenues grew 15%, supported by continued cloud adoption among existing customers and non-recurring cybersecurity projects in the financial and commercial sectors. These projects reflect the ongoing investment organizations are making to enhance business resilience against evolving threats and the modernization of their technology infrastructure. Telecom revenues decreased 1% year-over-year, mainly due to the lower collaboration and connectivity solution credits, partially offset by growth in managed networks and mobile services. Voice revenues declined 11% and represented approximately 6% of enterprise segment revenue, reflecting continued migration towards digital communication platforms and collaboration solutions. Government segment revenues increased 41% year-over-year, supported by the implementation of new digital infrastructure and data centers projects within the federal government. Recurrent revenues increased 25%, driven by strong demand for telecom connectivity services, while non-recurrent revenues increased 84%, reflecting higher system integration revenues. Year-to-date, the revenue mix was approximately 77% from federal entities and 23% from state and local governments. Wholesale infrastructure revenues declined 18% year-over-year, reflecting a challenging conversion against the third quarter of 2025, which reflected a benefit from a large upfront revenue dark fiber contract reported in that year. Excluding for this contract, wholesale access revenues remained stable compared to the prior year and delivered the strongest quarter of 2020. Growth in high-capacity wavelength services particularly upset the gradual reduction in legacy direct access services provided to international carriers serving their multinational customers in Mexico through Accent. This trend reflects the continued evolution of network architecture and customer requirements toward higher capacity next-gen connectivity solutions. Cost of revenues, excluding depreciation and amortization, increased 21% year-over-year, primarily driven by higher activity levels in the government and enterprise sector. As a result, gross profit decreased 4% while gross margin was 67%, compared to 72% in the prior year's quarter. Enterprise segment costs increased 13% year-over-year, resulting in lower contribution margins. This was mainly driven by a higher proportion of non-recurrent revenues compared to the prior year, which typically carry lower margins than recurring revenues. Government segment costs increased 42% year-over-year in line with revenue growth. Gross profit increased 40%, maintaining stable margins compared to prior years. Performance benefits from growth involved recurring and non-recurring revenues, maintaining the same revenue needs. Wholesale segment costs increased 25% year-over-year despite lower revenues. As a result, gross profit declined 28%, reflecting lower margin revenues from dark fiber contracts, which carry a higher margin. Turning to expenses, total expenses declined 8% year-over-year. Commercial and operating expenses, which are allocated to the free business segment, decreased 4% year-over-year, reflecting continued focus on operational efficiency. Corporate expenses, which remain centralized, decreased 36%, reflecting efficiencies from the organizational restructuring initiatives implemented in the first and third quarters, as well as a one-time benefit related to employee benefit provision. During the quarter, we reported a 144 million pesos in reorganization expenses associated with the personal optimization initiative previously discussed. Excluding this expense, comparable EBITDA reached 917 million pesos in the quarter, increasing 1% year-over-year and 6% sequentially. Year-over-year growth reflects a combination of lower contribution from the wholesale segment and higher non-recurring revenues in the enterprise segment, largely offset by the 8% reduction in total expense. As a result, comparable EBITDA margin stood at 29% in the quarter compared to 30% a year ago. CapEx for the third quarter totaled $20 million, equivalent to 11% of total revenues, compared to $30 million, or 18% of revenues, in the same quarter of last year. Cash balance at the end of the third quarter was $44 million, compared to $38 million at the beginning of the quarter. Free cash flow was positive $23 million during this quarter, resulting from $53 million in EDTA, $3 million of negative working capital, $20 million in capex, and $8 million in interest expense. Additionally, during this quarter, we reported $8 million in debt amortization and $8 million in reorganization expense. At the end of the quarter, net debt stood at $454 million, resulting in a net debt to comparable EBITDA ratio of 2.4 times compared to 2.3 times per year ago. With that, we conclude our presentation and open the call for questions regarding Accent and Controllable Accent. Nancy, you could please go ahead and open the webcast for questions from participants.