Megacable Holdings

Good morning and welcome to Mega Cable's second quarter 2020 earnings conference call. With us this morning from Mega Cable, we have Mr. Enrique Yamuni, CEO, Mr. Raymundo Fernandez, Deputy CEO, and Mr. Luis Zetter, CFO. Let me remind you that the information discussed in today's earnings call may include forward-looking statements on the company's future financial performance and prospects, which are subject to risk and uncertainties. Megacable undertakes no obligation to update or revise any forward-looking statement. I will now turn the call over to Mr. Enrique Munez. Sir, you may begin.

Good morning, everyone, and thank you for joining us today. The second quarter of 2020 was marked by the challenges arising from the measures deployed to contain the COVID-19 spread, highlighting the significant economic slowdown, reflected in the loss of more than 900,000 formal jobs as of June 30. According to that data provided by Instituto Mexicano del Seguro Social, 12 million including informal jobs as indicated by . In the four months in which we have experienced the pandemic, our everyday life has suffered significant and sudden changes which we initially thought would be a lot more gradual. In this sense, it is important to highlight the resilience of the telecom sector, which is considered essential as connectivity has become a fundamental component of our daily lives, whether it is for educational, professional, or recreational purposes, mainly in the current situation where people are encouraged to stay at home and performing remotely. This, together with the timely investments in incremental capacity that we have been carrying out of several quarters, which is necessary to support the increased demand for bandwidth, contributed to our quarterly operations dynamism, hosting a resilient performance amid the current cycle. Turning to our quarterly results, total subscribers went up in the three services of the massive segment. supported by our strategy towards the sale of triple plate bundles. In the same line, unique subscribers continued with a strong pace, resulting in higher IGUs per unique subscriber rate. The previously mentioned coupled with the contribution from additional services supported a sustained growth in the R2 on our annual basis. Revenues for the quarter increased in its annual comparison as the income obtained from massive market segments and additional services offset the impact recorded in the corporate segment as these presented some projects post-spotments. Following a tight expense control and cost efficiencies implemented, we were able to increase the profitability metrics when compared to last year. as reflected by a higher consolidated EBITDA margin for the quarter and for the first half of 2020, even in this challenging environment. Regarding the special projects that we have been carrying out, we moved forward with the Network Evolution Project, a fund migration endeavor that will directly influence our competitiveness in near future and ensure the successful continuity of the business as we maximize the value of investment made in past years. We continue to prioritize the most important projects of the company, carefully analyzing those that are considered essential and postponing or modifying those whose contribution to productivity is not essential at this time. I would like to take the opportunity to remind you that the incorporation of the NVNO service in our offer will bring forth a valuable opportunity to strengthen the commercialization of Guadalupe Play packages as we have consolidated a highly competitive offer with disruptive breaks that is pretty much aligned to the arising consumption trends. Likewise, I would like to highlight the achievement of a significant milestone as our submarine cable is already 100% active, allowing us this period to generate important savings as we will no longer have to disburse excessive connection fees in benefits of our developed line. Enhance our service portfolio to the offering of more megabytes at attractive prices and diversify our revenue mix as other carriers would probably access our Sumo and Cable towards the payments of wholesale rates. In addition, as anticipated at the end of May, we settled a dividend payment for 1.5 billion pesos reaffirming our commitment to deliver value to our investors, even at the face of the prevailing environment. Nevertheless, it is worth noting that our liquidity remains in healthy levels, allowing us to build on solid grounds towards the upcoming periods. In this pandemic, our main priority continues to be the safety of our collaborators, clients, and their families. We're taking all necessary measures to keep our workplaces sanitized, as well as providing materials and personal protective equipment according to the established protocols. Now, I will hand over the call to Roy Mendez.

Thank you, and good morning. Thank you, Enrique, and good morning, everyone. As Enrique just mentioned, during the second quarter, new challenges emerged from the health contingency. In the telecom sector, new opportunities also appeared, such as the surge of internet demand, as well as the need for paid TV entertainment from both current and new subscribers. In this sense, despite the considerable rise in bandwidth demand, our network performed fast and reliable, reflecting the company's technology edge and high quality of our service, results of the investments we have done in the last period. In this context, Megacable recorded net addition of 206,000 subscribers in the Internet segment over the last 12 months, of which 83,000 were added this quarter. That's probably 3.2 million of active subscribers for this service. As the demand for higher speeds continues to rise, the company is ready to take on this challenge with the state-of-the-art infrastructure. As of June this year, the percentage of subscribers with the speeds of 50 megs or more have doubled when compared to a year ago, and our network has absorbed this volume without a struggle. In relation to the video segment, as of June 2020, we reached close to 3.3 million subscribers, recording net annual and sequential additions of 44,000 and 28,000 subscribers respectively. XView was able to beat the 1 million subscriber mark as of quarter end, recording 455,000 net additions when compared to the same quarter 2019, and 202,000 sequentially as a result of a very successful marketing campaign. We are preparing for the launch of the next generation of this platform, which will undoubtedly improve the user experience and drive growth in this segment. Likewise, our HD service reported 167,000 net additions in a sequential basis, already surpassing the 1.2 million subscribers. Meanwhile, the telephony segment posted 2.3 million subscribers at quarter end, rising 280,000 subscribers on an annual basis and 82,000 quarter over quarter. On the MVNO side, Our differentiated offer and extensive marketing approach, which geared towards the sale of attractive bundles rather than the individual services, enabled us to reach 44,000 lines at the end of the second quarter, leaving us in a good position to reach the first milestone we established. All in all, unique subscriber rose to more than 3.7 million at quarter end, representing an annual increase of 2%. In addition, REUs grew 7% in an annual basis, totaling 8.8 million. REUs per unique subscriber was 2.37 as of quarter end. It is important to know that a more selective sales strategy and higher quality services, coupled with a new way of watching TV, such as XView, have positively contributed to boost customers' loyalty as attested in the stability of the short rate of the three mass segment services, even at the face of COVID-19. Turning to the ARPU, ARPU per unique subscriber went from 396.5 pesos in the second quarter of 2019 to 405.7 pesos this period, a 2% annual increase driven by our triple-plate package approach reflected in a higher number of REUs per subscriber, the pricing upward adjustment carried out at the end of 2019, and the contribution from additional service. On a sequential basis, output per unique subscriber decreased due to the implementation of promotional rates, contingency support packages, REU growth, and a comparison effect given that there was no rate increase during this quarter, as we usually do every year. All the above mentioned, once normalized, will help us pick up the growth trend we had from previous quarter. Regarding individual ARPU, we recorded mixed results, as internet and video remain at the same level of the second quarter 2019, while telephony decreased 4%, following the offer of cheaper packages and retention strategy, since certain clients have experienced the effect of the harsh economic environment. In relation to corporate services, Revenue decreased 9% in an annual basis as some clients decided to delay decisions of projects given their uncertainty environment. In this sense, OLA and MetroCardio recorded a decrease when compared to the second quarter of last year in the amount of 24% and 13% respectively. This is primarily explained by the delay in renewal of services and support contracts of OLA in the government segment, which have a major weight in revenues. Additionally, There has been a delay since last year in the implementation of new projects without the backlog, given the instability in demand. Now, regarding MetroCarrie, the main impact came by the cancellation of the Mexico Conectado project, as well as delayed investment decisions, mainly in the infrastructure sector. In the other hand, MCN grew 9% during the quarter, reflecting a more stable customer base with a higher component of recurrent revenues. Before concluding, our commitment to remain at the forefront continues, as we have already reported a good progress on the development of our GPON network evolution project, as well as the second generation of XView. This later will allow us to further strengthen our market position and differentiate us from the competition. As Enrique said, we recently launched our Submarine Cable project, an important milestone that we have been carefully planning and executing for approximately two years. This project is already generating additional revenue, cost savings, and subscribers growth for the company. Additionally, it will become a launching pad for metro carriers in this region, benefiting the carrier enterprise and mass segments. With this, I conclude my remarks. Now I would like to hand the call over to Luis, who will shed broader color on financial results.