Megacable Hldgs Sab Ord

Good morning and welcome to Megacable's third quarter 2021 earnings conference call. With us this morning from Megacable, we have Mr. Enrique Yamuni, CEO, Mr. Raimundo Fernandez, Deputy CEO, and Mr. Luis Zetter, CFO. Let me remind you that the information discussed in today's call may include forward-looking statements on the company's future financial performance and prospects, which are subjects to risks and uncertainties. Megacable undertakes no obligation to update or revise any forward-looking statements. I will now turn the call over to Mr. Enrique Yamuni. Sir, you may begin.

Thank you. Good morning, everyone, and thank you for joining us today. This first result consolidated the positive operations trend in terms of net additions. Not only were we able to continue to grow, but also to pose the highest figures of the year. This achievement reflects the company's resilience dealing with a challenging environment including increased competition. This resilience comes from our advanced infrastructure, rapid execution, and high level of adaptability to new market trends. The demand for our services in the mass market remains at high levels, proved that the changes we experienced on our day-to-day activities including the accelerated adoption of connectivity, are here to stay. This is reflected in a stable churn rate and increased gross ads. We continue to capitalize on these opportunities by offering the best service to edge technology at the best market rate. We have been able to grow in terms of both unique subscribers and early use, which during the quarter have surpassed the $10 million mark. The corporate segment continues to expand, recording the third consecutive period with revenue growth, highlighting Metro Carrier, which continues to reach record high revenue figures, while Ola is on its way to improving its 2020 performance with double-digit growth. In terms of financials, our revenues are higher than ever, Recent record high figures each quarter, which coupled with one of the highest dividend margins in the industry, have allowed us to maintain a very healthy financial profile with a very comfortable balance sheet. To wrap up on results, the company is going through one of its best moments in the quarterly results for this period to sustain the decision we have made in the last couple of years. and validate the projects and challenges we have undertaken. Moving into the projects that reflect the company's vision for the following years, first related for the evolution of our video service, HD Plus has received a wide level of acceptance from our subscribers, whose video content consumption needs are being covered given the growing amount of content supplied from different sources. We have successful I'm sorry, we have successfully consolidated linear or traditional TV, a new generation of TV service that allows the subscriber to go back in time and record future events in the linear channels, catch-up service in a native library of content, plus all the possibilities that external OTPs can provide. Secondly, on GPON migration process, we continue to successfully advance on completion of this project that would improve our infrastructure in the region migrated to GPON and in the HFC footprint that we take advantage of investments already made. This project will ensure to the company the required capacity to reach higher bandwidth that the market will demand in the coming years. Early in the quarter, and as a part of our growth plan, we started to offer services in certain regions of cities like Mexico City, Monterrey, and Zapopan. The rapid entrance to these markets was possibly given the existing infrastructure and our execution capacity due to a greater extent to a high capable team as we complement the operation in those specific territories with additional resources. We will be able to gain a relevant position in these markets. And finally, the third line of our vision for the future in which the company is ready to take it to the next level. We are glad to announce a multi-year program that will represent the evolution of our footprint as we prepare ourselves to deploy a FIDO network in several new markets among various cities. This plan includes operations in the mass and corporate markets through the deployment of a state-of-the-art FIPO network that will allow the company to continue delivering our factory services to new territories, not the existing, new territories. We will continue with the inertia that we already have to cover the demand of a market that continues and will continue to grow by almost doubling the size of this company in the coming years. These territories have been carefully selected on the basis of the market characteristics and return on investments objectives of the company. To elaborate on that, we want to ensure that the markets we are targeting really represent a growth opportunity for the company. We will not enter saturated markets that do not make sense. We are privileging above all value creation through incremental contribution to revenue and EBITDA. Our distinctive know-how developed over many years will help us to efficiently and effectively deploy infrastructure that was not available in past years due to its high cost, but that now represents the best options not only in terms of cost, but also in terms of technology for the future. We are thrilled about the opportunities and challenges that we have ahead of us with the execution of this project. but we are confident in the capacity of the company and in the qualified collaborators that will take this plan into reality. Leveraging on our innovation and adaptation capacity together with our effective execution, we will continue with solid foundations to support an incremental generation of value for our shareholders, the market, and the subscribers, as well as to our working associates. With this, I conclude my remarks, and I pass along the words to Raimundo. Please go on, Raimundo.

Thank you, Enrique, and good morning, everyone. In an increasingly competitive environment, Megacablet has always relied on its operational strengths to remain the best option in the market. Those qualities allow us not just to keep up to date with the current trends, but at the forefront of the services we offer. and therefore to continue delivering results on challenging environments. Performance during the third quarter of 2021 continues to be favored by the solid fundamentals of demand segment and further recovery of the corporate segment. In this sense, our value offer enable us to take advantage of the demand for connectivity services that comes from the inherent conditions of our new day-to-day, including home office, and distance learning. Our sales strategy, focused mainly in the sale of attractive triple-plate bundles, boosted unique subscribers to reach 4.1 million, an annual increase of 6% that equals 245,000 meta-additions, of which roughly 80,000 were added this quarter. On the same line, third quarter 21, our use rose 10% annually, totaling 10.2 million, while IDUs per unique subscriber increased from 2.41 to 2.49. In the breakdown by service, broadband totaled 339,000 net ads for a 10% growth when compared to the same quarter of last year to reach over 3.7 million subscribers. On a sequential basis, 105,000 net ads were recorded. the highest figure since the first quarter of 2018. At the end of the quarter, the number of subscribers with speeds of 30 megabits or more have increased more than 150% when compared to pre-pandemic levels, and this trend is only going to increase. We are looking at a market that continues to grow, and Megacable is growing faster than the market. Regarding video subscribers, they went from 3,360,000 in the third quarter 2020 to 3,515,000 this quarter, with net ads of 155,000 for a 5% growth on a year-to-year comparison. Waterloo net ads nearly tripled when compared to the previous quarters of 2021. going from 24,000 in the first quarter and 21,000 in the second quarter to 59,000 net additions in this quarter. As Enrique mentioned, our new generation platform, XView on XViewPlus, continues to benefit from a solid demand absorption, hosting 1.2 million net annual additions and 203,000 net sequential additions to stand at 2.3 million set-top boxes as of September end. Our XView Plus service came as a revolutionary solution to combine linear TV with an unmatched integration capability. This platform currently delivers over 70 million of interactions monthly. Our interactive features continue to be a significant aggregator to an already very complete solution. in which the integration of external apps now offset the premium bundles. Turning to telephony, this service reported net additions to the period of 129,000. Therefore, telephony subscribers reached the 2.9 million mark in the third quarter, with 423,000 net additions year over year. Separately, the MVNO service reported a remarkable figure of 90,000 net additions for the quarter, thus carving the required drive to reaching almost 350,000 lines as of September 30, 2021, out of which 89% are post-paid services. On the short-range-wide, as a result of the high degree of satisfaction reached by our customer approach and quality of services, This indicator remains virtually unchanged on a sequential basis, with rates of 2.0 at broadband, 2.3% in video, and 2.5% in telephone. This accomplishment gains further relevance when considering the current environment of rising competition and represents a hard proof of the solid position that Mega Cable has gained in the market that serves. Consequently, ARPU per unique subscriber for the third quarter totaled 411.5 pesos, increasing 2% on annual basis, and almost in the same levels as of the second quarter 2021. The above mentioned is explained by a lower contribution given additional discounts as subscribers adopt triple-pay methods. Breaking down by service, ARPU increased 3% and 6% on an annual basis, at internet and telephony, respectively, while video went down 3% year-over-year. In relation to the corporate segment, revenue from both MetroCarrie and OLA remained on its growth trend, with annual growth rates of 9% and 13%, respectively. On the MetroCarrie side, connectivity services continued to be the main growth driver, and this period coupled with the recovery in the hospitality sector. On the other hand, a year-to-year recovery is observing OLA as a result of a better outlook in the private investment. NCM Revenue posted its third quarter sequential growth, standing only 3% below of its annual comparison. On the GPON migration, this process continues to advance and we are aiming at the first quarter 22 for conclusion. This project will undoubtedly expand our competitive advantage for the next few years, improving the overall experience of the subscribers. As Enrique first mentioned, we have established a plan to be executed on the next years that will significantly increase the Mega Cable's footprint. The company is fully committed to taking its services and infrastructure to the next level in terms of coverage. will be destined to ensure that Megacable will be a leading player in the industry for many more years, delivering the best possible service through the best infrastructure. And just to be clear, the goal of this project is not to evolve, but to expand the footprint of the company. Innovation, adaptability, and a fast and efficient execution have always been part of our culture, and the projects and deployments that we have ahead of us will reflect these values. To conclude, quarterly results have confirmed that we are on the right track, and the projects ahead of us are aimed towards securing the future of the company. We will continue to execute as we have over the last few years, with a responsible and intelligent exercise of investment, a focus on cost efficiency, and the maximization of opportunities. With this, I conclude my remarks. Now, I would like to hand the call over to Luis. who will share broader color on the financial results.

Thank you, Raimundo. Good morning, everyone. During the third quarter, debt consolidated revenue rose 9% year-over-year to 6.1 billion pesos. Once again, a new record high for a quarter, driven by the sound performance recorded at our three mass services, coupled with the contributions from the corporate

whose recovery is increasingly dissident.

In this sense, in line with the higher subscriber base, revenue for broadband, video, and telephony posted annual growth rates of 14%, 2%, and 27% respectively, thus posting an annual growth of 10% in the mass segment revenue. Separately, The corporate segment revenue increased 7% on an annual basis, primarily supported by the 9% climb in metro carriers, following higher business connectivity revenues. Likewise, the 13% growth at OLA contributed to offset the slight drop of 3% at MCM. Therefore, in the revenue mix, 83% of the Consolidated revenue came from the mass market and 17% from the corporate segment. On cost and expenses, following the growth record in the mobile business and the recovery of OLA in the corporate segment, which implies a lower margin, the third quarter cost of services was up 10%. Similarly, SG&A increased also 10% when compared to the third quarter of 2020. following the expansion of the subscriber space. All in all, quarterly consolidated EBITDA went up 8% year over year, amounting a little over 3.0 billion pesos, thus reaching a 49.1% margin. while EBITDA for cable operations climbed 9% when compared to the third quarter of 2020 to reach more than 2.8 billion pesos with a 50.6% margin. On a yesterday's basis, consolidated EBITDA margin remains close to 50%, still in line with the company's expectations for the year. On the other hand, the EBITDA margin of cable operations stood at 51.3%. Below EBITDA, over 70% of the growth in depreciation and amortization was caused by the increase in depreciation related to higher capex. The rest is to reflect an impairment on the company's investment on Altan Revis. CFR is also above normal figures due to a one-timer phase to the tax authority. In that line, net income reported an annual contraction amounting $975 and $964 million, mainly following a higher depreciation component that includes the impairment previously mentioned, coupled with the increase on the CFR and a higher tax rate compared to 2020. Excluding the two extraordinary items above mentioned, net income is growing 9% when compared to the third quarter of 2020. Moving into the balance sheet, As of September 30, NEP debt amounted close to 4.3 billion pesos, 13% below than that registered at the same date the previous year. Explained by the combined effect of a lower growth debt and a higher cash and cash equivalent balance. Consequently, both NEP debt to EBITDA ratio and interest coverage ratio reached 0.33 seven times, and 15.3 times, showing our healthy financial position. During the third quarter of 2021, investment represented 34.9% of quarterly revenues, totaling a little over 2.1 billion pesos, mostly deployed in the G-Point migration process and the progressive expansion of our networks. For the nine months of the year, total investment reached more than $6 billion, representing 33.3% of the same period of revenue. To conclude, Megacable is backed by solid operating and very strong financial fundamentals that enable it to capitalize on opportunities and endeavors to extend its competitive position. As we move forward with the plans for the following years, we are confident that Megacable Each quarterly report will bring confidence to our stockholders and confirm that we are taking the right path towards future value creation. With this, I conclude my remarks. Now, let me turn back the call to the operator to open the line for questions and answers.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press start 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment please while we pull for your questions. Our first question comes from the line of Alejandro Galostra with BBVA. Thank you, sir. You may proceed.

Hi, good morning. Thank you very much for the call. I would like to get started with your initial remarks. Apparently you're announcing the expansion of your network into new territories. Apparently aiming to double the size of the company. Could you please elaborate when you plan to start this expansion and how long it will take and how much additional CapEx it will require, and also if you will be entering these new territories with FTTH, and if you plan to upgrade all your current network to FTTH before proceeding with this footprint expansion.

Oh, hi, Alejandro.

Thank you very much for your question. Yes, we already started the expansion. We started the expansion in the easiest areas for us, which is the vicinity of our networks, our current network. Here in Guadalajara, we're expanding to Zapopan. In Mexico City, we already have certain areas surrounding the Mexico City territory. in Tlalepantla and Zumpango and all those. As you know, we operate in Toluca. So we are expanding our network in Mexico City also. We started already four or five months ago. And we are doing also the same in Monterrey. In Monterrey, we have a very large backbone of fiber with Metrocarria, so we started to do capillarity in that city also. We've already started, and now we are going to complete new territories, new cities that make sense for us, cities that we consider underserved, but we have an opportunity to have a very good market share and penetration. And, yes, it's going to be a state-of-the-art FDTH. We will, I mean, we have a big... how would you say, inertia? We are already building a lot of FTTH and we have the capacity, so we want, we will keep that capacity, we will keep the same contractors and our crews also, and take advantage of that. We did build 24,000 of G-PON network in the past, you know, in 18 months, about in 18 months. And so we will take advantage of that capacity to expand to new territories. And we are already doing it in those cities that I mentioned. And we have already started in some other cities. And Raimundo will clarify more about that.

Yes, Alejandro, and expanding what Enrique explained, we want to take advantage of everything that he's explained. Right now, we see an increase in the demand for our services. It is not the same 10 years ago that it is right now when broadband needs, we call that megacable is a big necessity. It's an essential company. And it's not mega cable, it is the need of the broadband both for enterprises and businesses. So the market continues to increase and we'll do that in the years to come in Mexico. We manage and we have access to the best technology. Right now the cost of technology to be deployed, let's call it FTTH, is way more efficient than what we did or what we had as an option 20 or 50 years ago. First, we believe that we have proven to run this organization in a very efficient manner with the highest margins in the industry. And of course, we manage that with a low ARPU. So looking into those conditions, we have decided to continue, not continue, to expand the footprint of the company to new markets. It is very important to understand that the GPON project was a project aimed to do evolution of the existing network because we save it and we make more efficient the existing CAPEX. The CAPEX that we're taking away from those cities that are GPON is taking on the HFC network that we have. So we're taking the best of the two worlds. The HFC network has managed to be able to be very competitive. We have a 40% increase of bandwidth last year when we started this terrible pandemic period. And we managed with the HFC networks in those areas to manage to provide that bandwidth to subscribers. So in terms of our evolution of the network, we are very happy with the FDTH, but we're happy also with the HFC. The year to come on the CapEx, it will be for the expansion of the company. It will go to new markets. And as Enrique said, We will continue to be very careful where to go, but we want to take advantage of those four advantages, if I can say it again, that we have as an organization. So I hope Alejandro can answer the expansion of the FTTH. It's going to be new markets, and the existing of the networks will be still FTTH and HFC, at least for the years to come. the two, three, four years to come, and the capex will go to the expansion of the company.

And if I may, we will mostly cover these capex with our own cash generation. We also have a strong balance sheet, and if needed, if we need to accelerate, we will use the balance sheet if needed. We think that CAPEX will continue to be in a good range, and we will still generate cash, and that's how we plan to cover for this expansion.

Okay, thank you. I just want to make something. It seems that What you're announcing today is a more ambitious plan than what you've been stating in previous calls where you said that you were going to enter new regions, but apparently it seems to be a more ambitious plan. Should we think about going nationwide now and how much capex it will require?

It is an ambitious plan, Alejandro, but as Enrique said,

We already have existing footprint for MetroCarrer in the main cities nationwide. We also have massive services in the main two cities, which is Mexico, Syria, and Monterey, and already expand our network to Zapopan. What we're doing is replicating the 24,000 kilometers that we're building in between these 18 months as we speech for the Epoch Revolution. taking that capacity to other markets and expand that. So we believe we can do it around the next three to four years pretty much. That's what we're trying to do. It might be before, it might be some problems on the way, but we're ready and we have experience and we're proving that with the EGIPCOM project that we can go from a company that builds three to four thousand kilometers per year to 13,000 kilometers, 2,500, 13,000 per year, and now continue to do that in new markets and even improve it. Really, we can do that. And like Luis said, which was very, very, very, very clear on that part, we managed to provide that with the capex that we have and keep the capex in the lowers, not in the lowers, in the levels that we have and we have experienced as of this year. If we need to get into our balance to have more, we will do, but we expect to finance all this with the existing level of capex that we have. Please, you may ask.

Yeah, we will keep for the first years on the 30s, but after three, four years, we will reduce capex to go basically to low 20s and even could be below 20%. after that.

Okay, I see. So this is a higher guidance, higher capacity-based guidance than you were getting before. And when you say doubling the size of the company, when Enrique mentioned that, do you mean doubling revenues or subscribers or homes past?

It is all integrated.

When we say doubling the size, think about the 10 million home paths that we already have. I'm thinking a company in the next in the next three years and catch nine more million compas. That would call the kilometers, subscribers, and everything. But just to take some measurement in terms of compas, going from 10 million to 18, 19 million, that's pretty much what we see. And who knows? Maybe more.

OK, understood. Thank you very much. Thank you, Alejandro.

Thank you. Our next question comes from the line of Marcelo Santos with JP Morgan. Please proceed with your question.

Hi. Good morning. Thanks for taking my question. The first question is regarding the expansion plan. So how would you deal with – how do you think about overlapping fiber? Is this new fiber that you're going to lay in new regions going to be in places where there is no fiber yet? Or do you – I just wanted to understand how this competition with other fiber players will take place. That's the first question. And the second, just to clarify, you said the first few year capex will be the 50% range of revenues and then go down to low 20s. Just wanted to get that number clarified. Thank you.

You might clarify the capex before. Yeah, the capex investment, the percentage to revenues is going to be on 33 zeros. Mid-30s. Mid to low 30s, right? Okay. And we'll go down after three, four years to low 20s, and even could be after that even below 20%.

And the first one that you, yeah, go ahead, Marcelo.

No, no, I was going to say thank you for the first question, first answer.

Oh, okay. And then going back to your first question regarding the expansion, well, we do compete right now with FPTH in our markets. The markets where we're going have some FPTH and some HFC still, and some of them, steel, copper, or DSL. We, as I said before, we believe we manage a right FTPH network with the right video product in terms of the XView platform. And we have the power of the 24,000 employees and organizations that were already working in those areas to be able to expand and to manage efficiency. Our output were used to run low ARPUs to expand the company, and still manage above 50% marginals. So, yes, some of the markets will be in FTTH markets that has coming from, there are two or three companies in the markets. It doesn't make any sense to tell them, but as you know, it's public play, you can tell them. But we believe we can go to those markets and some selected areas where there's only HFC or copper, And some of the big areas will have FPTH too. But based on our experience and our know-how, we believe we can capture an important part of the market share and still make a great return for our shareholders.

Perfect.

And just one question, a follow-up. You said you're going from like maybe 10 million homes passed to 18, 19 million. What do you think for that? You mentioned that you would be doubling the size of the company, going from 10 million homes passed to 18, 19 million homes passed. What would be the timeframe for that? How long, more or less? Is it three, four years to achieve all of that?

Three to four years to achieve that. I can talk more, but I will tell you three to four years. Perfect. Enrique is pushing me to three, but I want to say three to four. No, I'm pushing you.

Okay.

Thank you.

To be realistic, as we said, that will be an important effort from the company. But these past 18 months built the right infrastructure in terms of construction power, materials, logistics, equipment, people managing, and we feel confident we can achieve this, as I said, in three years.

Now that we have the engine ready, we just release it.

Perfect. Thank you.

Thank you. Our next question comes from the line of Fred Mendez with Bank of America. Please proceed with your question.

Hello. Good morning, everyone, and thanks for the call. I have two questions as well. The first one, if you have some kind of customer satisfaction indication, something in this line, that when you measure the customer satisfaction for cyber versus cable, there's a significant difference because obviously as you private more and more your network, we would assume that over time your churn should reduce. This is the first one. And then the second one, we are seeing a decrease in ARPU on the video segment. If this is due to the bundles and eventually you're giving more discount there, or that's just market conditions and that should be the trend as we move forward. Thank you.

Sure, Fred.

Good question, Volk, as all have been. We do have seen a slight increase in customer service related to KPIs. However, this is not a relevant event yet, Levitz. We think that a real difference could be observed once a major part of our subscriber base starts to demand more bandwidth for higher speeds. That's when we should be able to get a difference, which is, of course, what we expect to see in the coming years. It is too soon to see. Regarding your second question, and what will be the reason to see the ARPU, the video ARPU, there are several reasons behind this trend. As video subscribers migrate from a single play or double play to a triple play package, the overall ticket that each subscriber pays is definitely higher. However, given the discounts that are applied to the triple play bundle, the contribution to each individual service is lower than what they have on a single or double play, thus affecting the app. I believe we're still seeing the adoption of new subscribers of lower packages, while the premium packages are still being affected by OTT+. All these that I'm telling you will be offset by a higher number of subscribers added, coupled also with the revenue coming from additional services such as . So we have some items and external factors that affect the lower R4 video and some that affect the positive. is the ticket that each square plate is definitely higher for a triple plate, what effective discount it goes to be.

Perfect. Very, very clear. Thank you. Thank you very much.

Thank you. Our next question comes from the line of Alejandro Chavellas with Credit Suisse. Please proceed with your question.

Hello, Megatim. Thanks for taking my question. Most of my questions have already been asked. Just one on the Altan impairment. If you can comment a little bit on why did you decide to do this impairment? How much was the decline in stake? And generally, more color on that impairment. And do you think perhaps the Altan situation could affect your ability to operate in mobile going forward? Thanks.

Sure, Alejandro. Yes, we have to recognize this due to really our internal auditors and the situation, external auditors of course, and the situation that was publicly announced by El Tan. So this is something that has to be booked on the value of our investment. And we continue really closely watching and following the happenings on the outside. We think that the company will rebound and in the long term will be a great investment. But this is just an accounting topic that given the situation that is public that we really have to impact our books. But we don't. foresee an immediate change in that, but we see a long-term recovery from Altan. I don't know, Enrique or Raimundo, if you want to... Oh, no, yeah.

Altan is a company that has a social orientation also, and it needs to be kept alive, and it will be kept alive because... It is part of the plans for the global connectivity of the Mexican government for remote places. The quality of the shareholders is very good. There are very good shareholders there. One of the major holders through the development banking system of Mexico and also which is the entity that promotes the telecommunications development or investment in telecommunications in the Mexican government, which that entity did put the frequencies into the corporation. Taltan is not paying for those frequencies. Because the Mexican government is a shareholder, it's a partner in this joint venture. So we think that in the long run, the viability of Altan is pretty much guaranteed. And we are not a big shareholder there. We can't be a big shareholder because we are a user of the network. And we don't see for now a... risk to keep using the Altam Network to provide for our MD&O. Although we do have some relations with other M&O companies in Mexico, so we're covered in case that in the very remote case that Altam could be at risk. We're okay. We feel confident. that we will be, in any case, able to keep our NBNO intact with respect. We do also have good margins there and almost no capex. So it's a good business in the long run.

Thank you very much for the detailed answer. Perhaps just a follow-up of my colleagues' questions, is there a region in particular where you see an opportunity for expansion? I don't know, for example, in the Bajio or Michoacan or the south, somewhere where you see a big opportunity for the expansion that you're planning?

We wouldn't like to disclose existing areas, but I can tell you that it will come on the site where we already have MetroCarre, expanding Mexico City, Monterey, and Zapopan is for sure areas where we're going to be. And the rest, to build 9 million home paths, it covers everything, from Bajio to the north to the southeast part of Mexico. In the selected areas where we see that there is more opportunity, and of course, looking where we can compete better in those areas. There is good economy. And we are confident that we can capture that because of the organization we have. We have already our plan, but those are plans that we would like to keep it this way. We might disclose later, and you will see what we're building, what we're building. But right now, we would like to keep it a 9 million compass. That gives you an idea of the size of the investment. The time that it will take and the number, everything subscribers and everything that will come if you just take those 9 million home paths and try to apply the efficiency we have in the path, that will tell you why Enrique was clear about our goal to double the size of the company.

Great. Thanks a lot. Thank you.

Thank you. Once again, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Andres Coelho with Scotiabank. Please proceed with your question.

Yes, thank you very much. I think you already talked about CapEx, and as you know, CapEx is something that is concerning investors a lot. That's probably why your shares are down almost 40% since 2018. The CapEx outlook is concerning. But I wanted to get your view on EBITDA, EBITDA growth. In 2020 and in 2021, you grew EBITDA by around 1 billion pesos per year, no? So you went from 10 billion in 19 to 11 billion in 20, and you are heading towards 12 billion in EBITDA for 2021. So I was wondering if with all these investments, do you believe that you can continue growing EBITDA by around a billion pesos per year, or perhaps a little bit more than a billion pesos per year? So in other words, We already have your view on CAPEX, but it will be good to have your view on revenue and EBITDA growth.

Thank you. Yes, Andres, and thanks for the question. And you're right. You're possibly right on, I mean, you're perfectly right on the numbers and the expectations you have for the future. And yes, we foresee a higher growth in EBITDA than the thousands you're seeing right now uh so yes uh we we we don't we are not uh willing to give a guidance per se as you know we we want to be more uh generalistic on that but for sure it's going to be much higher than 1 000 per year yeah we're not talking about doubling besides kilometers and for us we're talking about increasing the size of the company significantly

And that will take you, if we continue to manage the levels of margin that we have slightly below that, that sure will take you, Andres, to double the amount of that area that once the project is already finished and as we continue to build the farm.

So you're expecting to double the size of the network and also double the size of EBITDA in the long term. That's your view, right?

I would say that naturally the EBITDA is going to grow pretty much in the percentages that we grow the number of homes passed plus... depending on how successful we're going to be in the penetration and the market share that we can take in those areas. We are confident that the market is growing and it will keep growing. We are confident in the quality and the capacity of the company to add value to the market. We are by far the company that adds more value to the subscriber in the market. So it shouldn't be much different in those new areas. There's going to be better areas than others, but in the mix, we think that we can achieve pretty much the same results that we have currently in our footprint.

Thank you. And let me ask you a second question on the broadband additions. I think the broadband additions during the third quarter were four times higher than the additions of EZE. So I was wondering if your FTPH network is already helping you to accelerate broadband growth or if the broadband additions are still coming mostly from HFC areas. Just if you can give us a breakdown perhaps of your broadband additions for technology. Thank you.

Well, what we can tell you, Andres, is that we are growing broadband as well as the rest of subscribers both. in the FTPH and the HSC networks. Really being very clear on that.

Both technologies represent growth for the company. Okay. Thank you.

Thank you. Our next question comes from the line of Patrick Brennan with Brennan Asset Management. Please proceed with your question.

Hi, I had a question on just how you're measuring the return metrics for this new expansion. And can you sort of just talk in broad strokes on sort of the unlevered IRR you anticipate from the network expansion? And then any other details you can share in terms of anticipated cost per home passed, any turn expectations? And then maybe importantly, what are you assuming on penetration percentages, especially as you enter a market that has an existing fiber-to-the-home competitor currently? And then I have one follow-up after this. Thanks.

Well, related to some of the items that you are asking, we really don't like to disclose the cost of homes. the cost of home spas and that type of investment. We can maybe have a separate conversation to discuss some of the topics that you established. There are some other more general topics that we can talk, but the details on that, we don't like to really share it.

Okay, fair enough. Can you just talk maybe just generally in terms of maybe the magnitude of difference in terms of penetration for a market that has a fiber competitor versus one that doesn't? Would that be possible?

Well, we can say that the markets that we compete in, we already have fiber here. We managed to have a very decent, I don't want to say only decent, but very We are the relevant player in those markets, whether we have HFC or Fiber. We manage to compete in terms of our knowledge, know-how, and expertise on the market, and efficiency of the code that we have. Our video platform and the way that we manage broadband is able, whether it's HFC or Fiber, to compete with them. In those new markets where we go, not all the markets have Fiber, and the ones that have Fiber don't have that many subscribers. So every market will be different. It will be different to compete in Mexico City than to compete in a mid-sized market where there is no fiber in that part. All of them might have different penetration and different output, too, according to the size of the market. Those information, as we said, we would like to keep it to ourselves in that part, but we can tell you that we did the 25,000 kilometers of GPON in these 18 months. You've seen the levels of capex. You've seen the levels of evidence that we continue to have. Of course, it was an evolution of the network. But we expand also to Mexico City, Monterey, and Zapopan in the last five, six months. We've been working there. We're competing in markets strongly with other big competitors like Telmex, Easy, and Total Play. And we're confident we can do the same in this expansion of the companies.

That's pretty much the message we want to send.

Okay, fair enough. And I guess my second question is just, how do you think about, I mean, presumably you see very attractive incremental IRRs on the rollout of this, you know, broadband project. But your stock price seems sort of puzzling trading at, you know, half the level on, you know, as your growth rate. And so presumably, the IRR on a share repurchase would be extraordinary, assuming you're targeting very attractive returns for this expansion. Can you just sort of talk through your thought process on the current stock price, how you think about potential buybacks, if there's any appetite within the family to consider that? And would you think about any incremental, you know, small amounts of incremental leverage to, you know, potentially, you know, look at would presumably would be a very high attractive IRR purchase. Thanks a lot.

Thank you very much, Mr. Ricci. The company went public to be public. And we intend to stay public. At least that's the board's decision. We think that to buy a stock is a very good opportunity at the price that it is right now. It's really an opportunity. We're trading at around five times EBITDA. Our peers in the U.S., there are around nine in Europe and other parts of the world. Mexico, Bolsa is not performing good. but we think that should be temporary. I don't know how temporary it's going to be, but it's not our intention to do a buyback program because in Mexico it's complicated. The rules are complicated. If you do that, it's like you're paying a dividend. You have to take taxes on that. We'd rather keep our dividend policy So the shareholders of the company decide whether with that money they want to go back and buy more stock for the company or other stocks. We think and we really believe that the stock is really inexpensive. I don't want to use the word cheap, but it's nonsense. It's a company that grows at... almost two lower double digits and has this history of performance. The company has always, always been cash positive operating. It has always been growing the EBITDA and the revenues and we are constantly updating our technology. We have one of the best human resources of the industry, but for the knowledge that our people have of the business. And it doesn't make any sense that the price that the stock is trading, but that's the market. We don't intend to try to intervene to solve that.

Thank you. Our next question is a follow-up from Alejandro Galastro with BBVA. Please proceed with your question.

Hi. Thank you for the follow-up. You mentioned that OLA benefited from the recovery in the government segment. However, other companies in the sector continue to experience declines in government revenues. Could you please explain what is the difference between Merakavli and other companies in government revenue trends, please?

Well, actually, Alejandro, OLA did pretty well in the private segment, too. That's part. Government did increase, but private, we managed to do very well with higher ticket, average ticket per customer on the private segment. And that's why we're very happy on that part. It's not coming only from government. OLA is not a company that depends on government only. Our corporate segment has a component, an important component of government, but it's not the key part of it on that part. And I can tell you that the growth in OLA was very, very similar in terms of private and government. Both were positive. Above double-digit growth in those two, that's why we have the 13%, and we're very happy with that, that we do not depend only on the increase of the government dependency on that part. It's still the component that we have the majority of OLA. I can tell you that more than 65% of OLA revenue comes from private investment on that part. And if I can recall just the last number, maybe more than 70%. So you can be sure that we have also a company target to the peak market that goes to private and government as well.

Thank you, Raymond. I understand this, but you're still growing in the government segment. And given the current austerity plans from the government, how do you manage to grow in this segment? And how is it that you keep growing, more or less, but you still keep growing and other companies in the industry are experiencing high revenue declines in this segment? How would you explain that?

It depends what the products and what the segment that you're talking about. There's always a design component, not that big, to be able to manage a decline of federal government or state government. We sell to municipalities, states, and federal government, and we sell information technology or PIC services on that part. We managed to grow MetroCard also for activity. But this one, we're talking about a new product that goes in terms like security. Security is very important to be sold to government. The soft that we have, all the different products that we allow to the market. So our particular segments of the market were all I started. Infrastructure that needs to be updated to couple with the demand, that cannot wait. That's updating and maintaining the network that they use And that's what we get. Those are particular projects. How we do that is because we have a more experienced sales force. We have a very bad 2020 in that everybody holds the projects, not only government but private. And now we're in a better position. There is no way looking into the future that the technology market doesn't grow. There is need for everybody, government and enterprises, to be able to secure the information they have to grow in terms of servers, to grow in terms of collaboration services and licenses, and that's what we see. So maybe that's the explanation you are waiting for, but it's different for somebody really, really big than for OLA, which is not the leader in the tech market. So we expect to continue to grow as we continue to gain experience in that market.

Okay, great explanation. Thank you very much, Raimundo.

Thank you. There are no further phone questions at this time. I'd like to turn the call back over to management to answer any webcast questions.

Okay, we have a question from Barclays, and it's consolidation of the cable market in Mexico has long been speculated. Given your ambitious growth plan, is it fair to say you continue to believe you are better off growing on your own?

I don't know about that. We don't have any perspectives of consolidation so far. But we are not close to that. I mean, that could happen also. But we do think that this is a smart move of the company. And it's something that we need to do. And we think that we can do a very good case out of it. But we're not close. I mean, the possibility of consolidation is still open. In Mexico, I think that the market has been consolidated in the past, but there's still some room for that. But we think that this is a very good alternative for us in case there's no consolidation.

OK. And we have a second one from GBM.

You mentioned you want to double the size of your company based on home specs. Do you think you can replicate the level of RGU per unit subscriber and unique subs per home in those new units?

I think that question has already been answered by Raimundo. Most of our sales currently is triple-play by far, around 70-something percent of the total sales that we make, new contracts, are triple-played. So we think that we can continue with that. Our video service is extremely attractive. It's not expensive, and it has a lot of functionalities. I think that it's the best video product that there is in the market, I would say, in Latin America and in most of the world. There are probably a handful of companies in the world has the level of service and the user interface that we have in video. Our video application is Vue Plus. So we think we can continue growing in video and selling triple play for a long time.

Anyone else? Yeah, we have another one.

What penetration of the new 8 to 9 million points path do you think do you get in the next three to four years?

What is the mix of new broadband itself versus market share in these regions?

We don't want to be all around here. I think that we would not like to disclose that, but we think that we will be successful in those areas, as we have been very successful in the areas where we currently operate. And the time will tell. But I think it's been very well analyzed by our people in the company.

And it totally makes sense to do what we're planning to do.

Thank you.

We have a number of questions from the web.

Thank you. This concludes all of the questions for today. I'd like to turn the call back over to Mr. Enrique Yamuni for his final remarks.

As always, it was a pleasure to discuss our results with you and our future plans now. Please contact our Investoration Department if you have any questions or concerns regarding the company. And have a beautiful and a wonderful day and weekend. Thank you very much.

Thank you all.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.