Cablevision Holding S.A.

Q1 2024 Earnings Conference Call


spk00: Good morning and welcome to Cablevision Holdings conference call. My name is Andrea and I will be your conference operator today. After the speaker's remarks, there will be a question and answer session. You may submit your questions throughout the event by clicking in the submit a question box on your screen. Today we will discuss Cablevision Holdings first quarter 2024 results. This call is for investors and analysts only. Therefore, questions from the media will not be taken at this time. However, if you are a member of the media and have questions, please contact FIG Corporate Communications following the call. I will now introduce our speakers. This is Samantha Oliveri, Head of Investor Relations, and additionally, Mr. Ignacio Driolette, Executive Director and Chairman, will also be available for today's question and answer session. The team will be discussing the results as per the earnings released distributed last Friday, May 10th. If you have not received the report or need any assistance during today's call, please contact FIG Corporate Communications in New York at 917-691-4047 or the company in Buenos Aires at 5411-4309-3417. Cablevision Holdings has also posted the webcast presentation that can be found at slash investors. Comments made by management may contain forward-looking statements about Cablevision Holdings' future performance, plans, strategies, and targets. Such statements are subject to uncertainties that could cause Cablevision Holdings' actual results and operations to differ materially. Such uncertainties include but are not limited to the effects of the impact of new or ongoing industry and economic regulations, possible changes in demand for Cablevision Holdings products and services, and the effects of more general factors such as changes in general market, economic, or in regulatory conditions. Please refer to the disclaimer in the earnings report or presentation for additional information regarding forward-looking statements. It is now my pleasure to turn the call over to Ms. Samantha Oliveri. Please go ahead.
spk01: Thank you, Andra. Good morning, everyone, and thank you for joining us. Today's call will begin with a brief macro overview and continue with a review of the company's income statements and operating results, followed by a review of the financial position. Having gone through the agenda for today's webcast, please move to slide four for the macro overview. As we mentioned in the previous call, in its first few days in office, the new administration proposed an economical program of controlled shock. It's declared objective to simultaneously attack several fronts, amongst them the fiscal deficit, the correction of relative prices, mainly official exchange rate and utility tariffs, and the central bank's balance sheet by both recomposing the international reserves and diluting their remunerated liabilities of the monetary authority. With about a little over five months into the current administration, results are better than expected. However, the process of correcting the multiple imbalances inherited by the government is costly in terms of activity level and employment, although for the time being, not on the government's popularity. The jump in inflation derived from correcting the distortion of most of the relative prices crumbled the purchasing power of salaries and income. Several sectors of the economy, such as industry, auto, and construction, registered average drops of around 20 to 25% in the first quarter of the year, while key consumption indicators, such as retail sales, supermarkets, and shopping centers, also registered similar falls. Going forward, expectations are placed on whether the inflation will continue its deceleration trend and a recovery of salaries, purchasing power, and therefore of consumption and activity will occur during the second half of the year. The degree of social tolerance to the unprecedented adjustment underway proposed by this administration still represents a question mark as does the governability moving forward. Slide six shows the key financials for the first quarter. The company has reflected the effects of the inflation adjustment adopted by Resolution 777-18 of the Comisión Nacional de Valores , which establishes the re-expression of figures must be applied to the annual financial statements for intermediate and special periods and the dies-off, and including December 31, 2018. The reported figures corresponding to the first quarter of 2024 include the effects of the adoption of inflationary accounting in accordance with International Accounting Standards 29. For comparative purposes, the results restated by inflation corresponding to March 2023 contain the effect of year-over-year inflation as of March 2024, which amounted to 287.9%. In this presentation, we include some figures and historical values for the sake of clarity. TVH owns 39.08 state in TEO and is controlling shareholder of Telecom Argentina. It consolidates 100% of its operations. Revenues in nominal terms increased 207%. In constant currency, revenues for the first quarter 24 dropped 17.9% from 833.2% to 693.9 billion pesos, mainly driven by lower service revenues. Increasingly higher inflation is challenging to fully pass through to prices for our services. The main source of our revenues is our fixed infrastructure. Broadband, pay TV, and fixed telephony and data services amounted to 53.5% of the total. Mobile service participation decreased slightly reaching 40.7% from 40.8% in first quarter 23, driven by lower ARPU in real terms, given the competitive dynamic of the industry, and a migration from post-pay to prepaid subs in the customer base, with an increase in mobile subs. EBITDA reached approximately 206.7 billion pesos in constant currency, a 17.8% decrease compared to first quarter 23, driven by lower revenues, partially offset by lower operating costs. EBITDA margin reached 30.2%, similar to the level of the same period of the previous year. EBITDA and nominal pesos amounted to $201.3 billion, 228% higher than the nominal EBITDA for the first quarter of 2023, while average inflation for the same period was approximately 273.5%, and the end-of-period year-over-year inflation amounted to 287.9%. Net income resulted in a profit of 773.8 billion pesos from 109.3 billion reported during the first quarter of 2023. This increase in net income is mainly explained by financial net results as a variation of the parity between the official exchange rate and the U.S. dollar was lower than the inflation for the period resulting in positive foreign exchange results partially upset by income tax. The equity shareholders net income for the period amounted to 261.5 billion pesos and is mainly the result of CBH's stake in Telecom. Now let's move on to slide seven. Mobile revenues represented approximately 40.7% of our revenues and decreased 18.1% in real terms when comparing first quarter 24 to first quarter 23, which is mainly explained by lower ARPU in a highly competitive environment and a change in the prepaid and postpaid mix, partially upset by an increase in subs. Personal Argentina clients increased 3.3% to 21.2 million, of which postpaid clients amounted to 39%. Mobile internet usage increased, reaching an average of 6.8 gigabytes per user per month in first quarter of 24. In Argentina, AdWords stated in constant currency decreased by 23.6% to 3,872 pesos in first quarter 24, and monthly churn decreased 1.5% from 1.7% in first quarter 23. Currently, more than 45% of telecoms broadband customers have a mobile bundle. Since the rollout of the strategic CapEx plan and the convergent offer, the company has turned around its trend of negative portability net addition in Argentina and has been increasing the number of subs over the last six years, even in highly competitive markets. Telecom's CapEx deployment has also allowed it to obtain the award for the fastest 4G network in Argentina from UCLA at the 2024 Mobile World Congress in Barcelona for the fifth year in a row. Please turn to slide eight. Revenues for fixed services, including broadband, cable TV, and fixed telephony and data services decreased by 50.4 percent in real terms, mainly driven by the challenging inflationary dynamic. Legacy copper fixed voice service continues experiencing a reduction in accesses, partially offset by an increase in IP telephony lines. Data services are agreed in U.S. dollars, offsetting the decrease in legacy telephony revenues. On the business-to-business services, Telecom's strategy is to position itself as an integrated service provider for large customers by offering convergent ICT solutions, including fixed and mobile voice data, internet, multimedia, data center, and application services through sales, consulting, management, and specialized and targeted post-sales customer services. Broadband subscribers remain stable at 4.1 million while monthly churn dropped to 1.5% in first quarter 24 from 1.7% in first quarter 23. Nonetheless, there is growth in the fiber to the home segment resulting in an increase of average speeds. 85% of our customers have accesses with speeds of 100 megabytes or higher versus 81% in first quarter 23. ARCO in real terms decreased to approximately 12,733.2 pesos. Price increases during 2023 and first quarter 24 and higher internet speeds sold to our customer base were not enough to fully offset the inflation. It should also be noted that due to our cross-sending strategy, fixed products have been offered with some discounts to encourage the positive mobile portability. Moving to the table, TV subscribers, The customer base decreased to 3.3 million following industry trends, while Flow unique customers achieved 1.5 million, a 12.4% increase from figures observed over a year ago. For its proposal as a content aggregator, Flow includes not only linear TV, series, on-demand movies, documentaries, and co-productions, but also music, gaming, and exclusive events. ADAPO in real terms decreased by 37.5% to 9,041 pesos during first quarter 24, and monthly churn stood at 1.8%. Please turn to slide 9. In August 2020, the Argentine government issued Decree 690-2020, later confirmed by the Congress, declaring mobile, fixed voice, broadband, and pay TV as public essential services and freezing their prices until the end of 2020, while instating ENACOM as a regulatory agency in charge of enforcing the decree and regulating the industry prices. Its legality has been challenged in the court by the industry in general. In 2021, Telecom was granted a preliminary injunction suspending the effects of several sections of the decree, which has been extended several times and is currently in effect. In addition, during November 2023, Telecom was notified of a favorable first instance ruling declaring the nullity of said decree. Finally, by Decree 302-24, issued on April 9th this year, the Executive Office repealed Decree 690-2020. The company has been trying to offset the inflation impact on revenues and costs, but with the increasingly high inflation dynamic of the last two years and the stress price increases generated, generate on the subscriber base, recovering terrain is a challenge. Year-over-year inflation as of March 31st of 2024 amounted to 287.9%, while inflation average for the same period was 273.5%. During 2023, given the increase in inflation, our subsidiary, Telecom, increased prices of its services with greater frequency and continues with this policy during 2024. In response to the increasingly complex inflationary dynamic, it began increasing prices on a monthly basis, which has allowed it to close the gap between inflation and outputs. In parallel, it has undertaken retention actions, mainly granting distance to its clients. These price increases have resulted in higher ARPA nominal terms across all services, as shown in Exhibits 15 to 18. The nominal price increases, coupled with certain discounts and promotions to retain customers following these rises in a strong competitive environment, were not enough to offset the interannual inflation, thus resulting in lower revenues when measured in constant pesos versus first quarter 23. The company will continue to monitor its cost structure, competitive environment, client behavior, and household income in order to decide on future price increases to help compensate for inflation and maintain sustainability. Let's move to slide 10 for a discussion of cost structure before we discuss quarter-over-quarter EBITDA performance. Among the most significant operating costs and expenses are salaries, fees for services, maintenance materials, and supplies costs, and taxes and fees with a regulatory authority. On slide 11, we show the performance of EBITDA and the behavior of different components of revenues and costs. The company continues with its cost management efforts and has shown positive results despite a challenging economic context. Operating costs, excluding cost of equipment and handsets, decreased in real terms 16.5%. Most of the company's cost components decreased in real terms, reflecting efficiencies achieved by the company's management in terms of cost. Total operating costs decreased 18% in real terms, higher than the reduction in revenues. Thus, although EBITDA decreased by 17.8% in real terms, margin increased slightly to 30.2%, a similar level to the level for the same period of previous year. Next slide, please. It is worth mentioning that even in the challenging macro environment, this is the fourth quarter positive margin performance since the first quarter of 21, reflecting efficiencies achieved in terms of costs and the pricing policy executed to tackle the increasing . Slide 13, please. In first quarter 24, investments as a percentage of revenues was 21.3 percent or 15.3 percent before rights of use from leases, higher than the same period of the previous year. Investments decreased 8.6 percent year over year. The CAPEX plan is flexible, and the company has been investing above the global average ratio of CAPEX to revenues during the previous years in order to achieve its goals in terms of network performance and coverage, which is currently strong. Technical CAPEX was mainly allocated to network and technology and customer premises equipment, or CPE. The balance was allocated in our international operations in Paraguay and Uruguay. During the last quarter, the company continued with the deployment and upgrading of existing sites and expansion of the fiber to the home network, including the overlay over the HHC network. Following the frequency option in 2023, it has over 105 G sites working on the newly acquired 3.5 GHz band. The CAPEX program will continue evolving according to Argentina's economic condition, network performance, and customers' requirements. Going to the debt financial position, as per slide 15, as of March 2024, we have reported a total financial debt of 2,446 billion pesos and a net debt of 1,973.4 billion pesos, equivalent to 2.3 billion in U.S. dollars. The year-over-year increase of total debt measured in constant pesos is mainly explained by the debt for acquisition of Spectrum, additional debt to subscribe BOP Real bonds in order to settle commercial debt generated by the restrictions in access to FX market with the past administration, and the jump in the FX rate, which surpassed inflation for the same period. While canceling 2023 cross-border maturities, the company continued accessing the local capital markets to attend its financing needs. This trend is expected to continue during this year. 100% of the debt is at operating level in Telecom Argentina. Of the total debt, 52% is cross-border dollar denominated, 40.6% is in Argentine pesos, including dollar-linked local emissions, and the rest is in Guaraníes and Rambimbi. Telecom has been accessing the local market for its financing needs, tackling the increase in interest rates and reducing cross-border risk. In an exceptionally challenging year, it has been able to pay down or refinance all of its debt commitments during 2023. From 2024 to 2026, debt maturities remain manageable. Net debt to adjusted EBITDA coverage ratio as of the end of March 2024 was 2.4 times. Following the abrupt depreciation of the Argentine peso in December 2023, With most of Telecom's debt in foreign currency, while most of the EBITDA is generated in local currency, its net debt to EBITDA ratio increased temporarily. In March 2024, Telecom requested and obtained waivers from its loan creditors to increase the net debt over EBITDA maintenance ratio above the originally established level, raising it to 3.75 times. Among other commitments, while the waiver is in effect, dividend payments are subject to a maximum of $100 million, so long as they perform a net debt to EBITDA ratio after September 2024, is up to three times. Next slide, please. As this slide shows, once CBH fully canceled its financial debt, we have passed through 100% of the dividends collected from Telecom, which during the past years have been paid in kind. At the shareholders' meeting held on April 30th, and in the event that Telecom's Board of Directors decides to pay dividends if the aforementioned conditions are met, CDH shareholders resolve to delegate powers to the Board of Directors in order to reverse in full or in part the optional reserve for illiquid results to distribute dividends in cash or in kind or any combination of both for up to the total amount that the company is entitled to collect as a result of such distribution granting CBH the flexibility to pay immediately, therefore avoiding any potential change in valuation of the dividend collected. That concludes our comments. We are now ready to take your questions. Operator?
spk00: We will now begin the question and answer session. If you would like to ask a question, please type it in the box and click send. We will now pause for a few seconds in order to allow participants to write their questions. As it appears we have no questions at this time, I would like to turn the program back over to Samantha Oliveri for any closing remarks.
spk01: Thank you, Andrea. Thank you all for your interest in CVH. Should you have any questions, please do not hesitate to contact our IR team. We look forward to seeing you again for the second quarter 2024 results.
spk00: The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.

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