Megacable Hldgs Sab Ord

Good morning and welcome to Megacable's second quarter 2022 earnings conference call. With us this morning from Megacable, we have Mr. Enrique Yamuni, CEO, Mr. Raymundo Fernandez, Deputy CEO, and Mr. Luis Zeta, 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 Yamune. Sir, you may begin.

Good morning, everyone, and thank you for joining us today. During the second quarter of 2022, the country continued to face a complicated economic scenario, highlighting an inflation rate that continues to rise, increases in Banxico's reference rate, and a GDP annual growth expectation below 2%. These factors are being reflected in the economic activity and in purchasing capacity of the Mexican families. In that context, Megacable maintained double-digit revenue growth compared to the second quarter of last year, and a very attractive EBITDA margin, remaining the highest in the industry. These results were mainly due to a successful commercial strategy, including subscriber growth across the mass market with a higher ARPU. In addition to bandwidth capacity increases reflected in a better and more reliable service, coupled with the concrete measures to maintain an efficient cost structure. the previously mentioned offset and increased churn rate mainly due to the economic conditions. It's important to clarify that although we continue to advance in our efforts towards entering new cities, these results does not yet include a relevant contribution from new territories as we expect the bulk of subscribers growth from our expansion plan towards the second half of the year. Sorry. Also, It is worth mentioning the growth trend of the ARCO as we continue to offer additional services to enhance the user's experience such as the XView platform and also contribute with additional revenue from the same number of subscribers on top of the rate increases we did during the month of March. To share more color on XView of quarter, I'm sorry. To share more color on XView at quarter end, 65% of our subscriber base already enjoys the best multi-platform video services with unmatched video quality, speed, and a friendly user interface. Innovation has always been part of Megacab's culture, and XView Plus is proof of that. It is a great service complemented by a new fiber infrastructure in the largest cities, and a robust HFC technology for the rest of the footprint. On the corporate side, connectivity remains the main growth engine for the segment, as Metro Carrier and MCM posted double-digit revenue growth. This is mainly due to the adoption of connectivity and mobility solutions that benefit work out of the premises, a trend that should continue to develop in the coming periods. Yes, like the mass market, our corporate segment will also have a growth boost in the second half of the year with the entrance of the new territories, both metrocarrion and all our potential markets will significantly increase due to the Megacarly 2024 project. All the previously mentioned resulted in double-digit growth in revenues, another record high figure for a single quarter. Additionally, EBITDA margins remain at very attractive levels as a result of the cost control strategies that are part of the company's culture from the very beginning. Looking ahead, we are confident that our business remains well positioned to achieve our annual growth targets in terms of revenues, EBITDA, and subscribers. despite ongoing inflationary pressures in a softer economic outlook. During the quarter, we carried out our first public debt issuance for 7 billion pesos, which will be used primarily to accelerate our expansion plan and, secondly, to refinance our short-term debt. These issuance will further strengthen our balance sheet and support the endeavors that we are executing. Sharing some color on our project in development, regarding our GPON evolution initiative, we are in the final migration process. Most of the milestones that we set for this initiative have already been reached, so we can say that we successfully completed this plan. In this regard, I would like to comment that we are delighted with the positive response of our subscribers to this service upgrade. and we will continue to seek to exceed their expectations and provide them with high-quality service to the deployment of state-of-the-art communication technologies. Regarding the MEGA 2024 initiative, we continue to execute according to the plan. During the past nine months since we announced the project, we have laid the foundations of a robust infrastructure that will enhance growth for many years. Our primary focus has been on site acquisitions. Permits fiber deployment and CTCs and house construction. However, we have already started operations in approximately 10 additional cities, and there are many more to come. It is also relevant to reiterate that in this new market, we will follow a pricing strategy consistent with our usual approach of offering services that meet the needs of users at affordable rates. We are confident in our superior infrastructure and services to gain market share in these new cities without detriment to our profitability. As we have done in the past, we will seek to win new subscribers as well as to retain our current ones by offering the best balance of pricing, bundling, and service quality. We will also look to identify and seize opportunities to grow, as well as to improve our service, making the best use of our flexibility and capacity to adapt in the face of a challenging environment. I will turn the call now over to Raimundo to discuss our operational performance. Raimundo, please go ahead.

Thanks, Enrique, and good morning, everyone. Our operational performance for the quarter included subscriber growth across the mass market, mostly related to successful commercial and sales strategies as reflected in the high figure of gross ads for the broadband service in the history of the company, coupled with an increase in ARPU, which helped to offset inflationary pressures that are impacting short rates. Here it is important to underscore that the entry into the new markets is not yet fully reflected in our operating results, as we are still in the process of deploying and activating the required infrastructure. However, the 428,000 new home paths is record high. This means that the boost from this expansion project in terms of subscriber and RU growth will materialize during the second half of the year. Even in this context, and with a difficult economic environment, the company managed to continue reaching historical revenue figures at very attractive EBITDA margins, proof of the strength and resilience of our business model and the preference of our subscribers. Moving to results. unique subscribers reached 4.2 million at the end of this period, increasing 4.2% versus the second quarter of 2021, which translates into 169,000 net additions. By segment, internet subscribers grew 7.3% compared to the second quarter of 2021, totaling 3.9 million, resulting in 264,000 net additions. As of quarter end, approximately 40% of our broadband subscribers already receive their service through fiber technology. While following the speed increase carried out in the first quarter, over 50% of our subscriber base has a 40 megabits service of higher, compared to 15% a year ago. Video subscribers reached 3.5 million, growing 2.5% versus the second quarter of 2021, adding 86,000 subscribers. Our XView Plus platform continued to grow, going from 2.1 million subscribers at the end of the second quarter of 2021 to 2.7 million this period, an increase of 31.4% or 647,000 net additions. It is also worth noting that near 90% of our subscriber base is digital through more than 5 million of set-top boxes. The telephony segment recorded 3.1 million subscribers, growing 11.7% compared to the second quarter of 2021, implying 328,000 net additions. The MVNO service subscribers totaled 434,000, with 178,000 net additions versus the same quarter last year, maintaining its upward trend. Here it is important to note that we continue to disconnect the lines that are not recording any traffic according to the company's criteria. The company's growth in gross assets was accompanied by increased insurance rates with broadband at 2.7%, video at 2.6%, and telephony at 2.9%. The main factors influencing these connections, as Enrique mentioned, have to do with the economic headwind affecting overall demand, rate increases, a post-pandemic period where people are starting to go out and spend on other activities, and the more competitive environment in the industry. Mega Cable Hub will continue to focus on gaining, retaining, and recovering subscribers in the base of a robust portfolio of products tailored to the subscriber needs. At the end of the quarter, REUs totaled close to 10.6 million, 6.8% more than the 9.9 million of the second quarter of 2021, driven by subscriber growth in the three mass segment services, also reflected in the REUs per unique subscriber, which went from 2.46 in the second quarter to 2.53 this reporting period. Consequently, the ARPU per unique subscriber was 427.3 pesos, recording a significant growth of 4% compared to the second quarter of 2021. This was mainly due to the focus on the marketing of triple-play packages, rate increases in first half 2022, and the contribution of additional services such as the XView platform. Turning to ARPU by segment, the majority of its services had a positive performance, Broadband increased by 4% compared to the second quarter, video by 2%, NVNO services by 15%, and telephony declined by 2% compared to 2021. Including the mobile services, we reached more than 11 million views in the same basis. ARPU per unique subscriber would have been 439 pesos. Now, going to the corporate side, Metro currently records a remarkable 18% growth compared to the second quarter of 2021 as a result of new connectivity projects. On the other hand, OLA faced a difficult comparison due to important projects we had in the second quarter of last year and are now concluded. As Enrique commented, regarding the expansion of the company, we are moving forward with our plans despite a challenging environment. The supply chain management current issues, including shortages and delivery delays, have not been affected significantly. However, we are monitoring the situation closely to identify and correct any situation that may arise. Wrapping up, we will continue to focus our efforts on pushing forward the expansion plan, of which we will commence with commercialization phase on a larger scale in the second half of the year, under a pricing and marketing strategy in line with our approach to profitable and sustainable growth. From an operational standpoint, these efforts will be complemented by actions that are geared towards preserving and building our subscriber base, such as the deployment of robust communication and marketing campaigns by offering accessible bundles with great value. With this, I conclude my remarks. Now I would like to hand the call over to Luis, who will shed broader color on the financial results.

Thank you, Raimundo. Good morning and welcome, everyone. Consolidated revenue reached 6.7 billion pesos in the second quarter, an increase of 10% derived from the subscriber growth achieved in all business segments during the last 12 months, particularly in internet and video. The mass segment revenue for the quarter was up 9% year over year, totaling 5.5 billion pesos. Revenue for all services increased on an annual basis, with broadband, telephony, and video growing 11%, 9%, and 5%, respectively. The corporate segment total revenue was 1.2 billion pesos in the second quarter of 2022, 15% more than the same period last year, driven by a strong quarterly performance in connectivity services. Metrocarrie posted a revenue growth rate of 18% versus the second quarter of 2021, while MTM rose 15%. PCTV climbed 22.5%, while all our revenue remained at the same level as in the second quarter of 2021. Cost of services for the quarter stood at 12% year over year, reaching 1.8 billion pesos. This was due to the overall growth of the company. including higher bandwidth capacity and the growth of the MVNO businesses. In the same way, SG&A increased 13% versus the same period last year, totaling 1.7 billion pesos, mainly due to the inflationary pressures and higher wages and electricity costs, coupled with the expansion of the company. Consolidated EBITDA for the second quarter amounted to 3.3 billion pesos, an increase of 8% compared to the same period of 2021, with a 48.8 margin, the highest in the industry. Net income totaled 1 billion pesos in the second quarter of 2022, compared to 1.1 billion in the second quarter of 2021. This is a result of higher depreciation component following the investment that the company has carried out over the last couple of years and an increased tax rate. Moving into the balance sheet, as a result of the combined effect of higher debt and lower cash levels, net debt went from 4 billion pesos in the second quarter 2021 to 7.8 billion pesos in this period. given the dividend payment carried out during the quarter in the amount of $2.4 billion and the increased deployment of resources to drive our entry into new markets. The net debt to EBITDA ratio stood at 0.62 times, and the interest coverage ratio was 13.28 times, both remaining at very healthy levels. It is worth noting that proceeds from our first debt insurance are allowing us to strengthen our maturity profile. As a portion of these resources will be used to refinance debt, the local notes are not yet considered in the balance sheet as they were issued by mid-July, thus after quarter end. We are pleased with the success and great acceptance of this placement among investors as it was oversubscribed. which underscores their confidence and trust in our competitive positioning and our ability to continue growing with financial strength and stability as reflected in the highest credit ratings assigned by Fitch and HR firms. On the investment front, quarterly capex amounted 2.8 billion pesos. This represented approximately 41.9% of the subscribers' total revenues. and was mainly allocated to the ongoing business expansion project. On a full year basis, CAPEX accounts for 38.8% of total revenue. To conclude, the strong financial performance achieved this quarter sets the company on the right track and gives the confidence to move forward in the sound execution of our expansion project. It is important to note that we will remain proactive approach to mitigate further impacts of inflationary headwinds on key cost components. With this, I conclude my remarks. Now let me turn back the call to the operator to open the line for Q&A.

Thank you. We will now conduct a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. as a confirmation tone will indicate your line is in a question queue. You may press star two 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 star keys. Once again, that's star one at this time. One moment while we pull for our first question. Our first question comes from Marcelo Santos with JP Morgan. Please proceed.

Marcelo, your line is live.

Our next question comes from Ricardo Alvido with JVM. Please proceed.

Hi, thanks for taking my question. Given the current inflation and supply chain disruptions, could you update us on the cost per home connected and expected return of your expansion plan? Additionally, as the second question, you've been entering some cities like Cancun and Aguascalientes, which already have three major competitors. Could you explain your strategies in these cities where there's more competition?

Thanks. Luis, you want to go over the return?

We are still considering that the cost per connected will remain surrounding the $200. So the inflation costs are still yet to be impacted in the future lines. So we'll be between $200 and $210, $215 per home connected.

And the return on investment?

The return on investment, we still depend on the penetration, but with the projections that we have, it will still be between the 15 and 18%. That's right.

And Ricardo, what we... because our expansion plan that we announced a quarter of a year goes from looking into doubling the size of the company by the next five years in that part. That's a big investment that we have and that accounts to cover the majority of the cities in Mexico. We understand that some of the cities have strong competition as we are facing right now in our market. But let me tell you why we do that. We have the highest margin, and we have said this several times. So we are a well-run, strict cost-oriented company. In that part, we have a great product, our XView Plus platform with Android TV and OTT devices that are state-of-the-art and have proven to be of a great success for the company. We have the balance sheet to do it, and we believe we can capture a very decent penetration rate of those areas so we can achieve the goal of doubling the company. Regardless of those cities, as we described, and Enrique commented in his remarks, we finally just opened those cities. But really, really, at the end of the second quarter, you can see, and most of you noticed the increase of Compass. That's great news for everybody, because that will bring a further view that we are working on the expansion plan and materialize. But you can see that Aguascalientes and San Luis Potosi, if I can recall, our announced date was San Luis Potosi on June 30, and Aguascalientes on July 7. So really, we still don't have those systems with subscribers. But we can tell you that we will continue to grow in terms of what we're selling. We expect above 15% return on everything that we invest. We keep a very low capex over connected compas. and even at margins of 48, 49, 50% that we have so far. So we don't see a reason why not to be successful in the future to come. The majority, it will be not the subscribers will come from third and fourth quarter, fourth quarter of this year and of course 2023 will be a materialization of everything that we're talking about that's pretty much our plan and we call it mc 2020 25 24 because that's where we're building infrastructure in the next three to three and a half years so we can double the size in the next five years it took me longer to answer your phone your question but but The majority of you are wondering about the expansion plan, and we can go any further if you want. I hope I answered your questions on that panel, Luis, as well.

Well, very clear. Thanks to both of you. Just a quick follow-up. Would you be willing to provide any guidance in Revenue Civita for the second semester of this year? Thanks.

uh well no we'd rather we'd rather stay the way we are we have to tell you about the expansion plans and everything uh we don't like because of holding uncertainty but but i would say that that the growth that we're having and we're expecting it will be met we have discussed that before and as of today we would like to give any any straight guidance on that one understood thanks

Our next question comes from Andres Coelho with Doja Bank. Please proceed. Andres, your line is live.

Our next question comes from Victor Tomito with Goldman Sachs. Please proceed.

Hello. Good morning, everyone, and thanks for taking our questions. A couple of quick questions from our side. The first one is if you could give us an update following up on the previous question on how the competitive environment for mass market services has evolved over the quarter in your key regions. And a related question, our second question, would be regarding the higher churn rates seen in mass market services in this quarter. You already mentioned the key drivers, but Could you give us a bit more color on this, particularly on whether this higher churn was driven by any particular region or particular client profile or by any particular competitor, and on whether we could still see some additional disconnections in the third quarter? Thank you.

Thanks for the question, Victor. As well, it's an obligated question for us to answer. Let me tell you what happened during the quarter. As I said, we have four factors for the increased insurance and the results of net additions. Those ones were the economic situation, the increasing rates that we have in March at the end of the first quarter. We have an increasing rate coupled with the economic situation. We have also the post-pandemic effect of our subscribers that they were from home office in the majority to start going out and spending in other things. And of course, competition. Those four issues put pressure on the shrine, but let me tell you that there are some regions more affected than other ones, of course, because economic changes in everything, but it is related, as we see, to the increasing rates and the economic situation that we have. We were able to offset this because our force, our self-force, is increasing. So the number of closed ads continues to increase on that part. So that will bring us into the future, coming with a much more robust and still a good level of closed ads that will certainly bring expansion to subscribers of what we have. The competition, and why I tell you about the economic situation and the increasing rates, because we felt that across the different markets, whether we have or not competition. So even though we have markets where we have easy and top of place, other ones where we have top of place, those markets were already there before. before the second quarter. What we did different was increasing rates, and we felt that economic situation this year that we did not have on the pandemic part of 2020 and 2021. I don't know if that answers the question.

It's very clear. Thank you very much.

Thanks to you for the question. Our next question comes from Alejandro with Galastroff with BBVA. Please proceed.

Hello, good morning, everyone. I have a question regarding the homes passed. You have passed 550,000, almost 550,000 new homes during the first half of this year. And I would like to know, in how many clusters you have passed these new homes, the average size of these clusters and the geographic location and cities of these clusters, the geographic locations where you're seeing these opportunities. And also it would be helpful to know what is your target of Homes Pass for this year. Thank you.

Thank you, Alejandro. Yes, as you said, we have around over half a million Home Pass. We built this year almost the same amount that we built in the full 2021, in the first two half, in the first half of this year. And most of them, the $430,000 came on the second quarter. As we expressed before, all the challenges regarding logistic material, site permits, as Enrique commented in his remarks, are overcome and finally we are able to activate those 430,000 at the end of the second quarter. Those cities, it is public. I mean, we announced Aguascalientes, San Luis Potosi, Cancun, Saltillo, Celaya, some cities surrounding the state of Puebla, more kilometers, some kilometers in Ciudad de Mexico, Monterey, Ciudad Juarez, you want to name it. I mean, our plan is to go to expand the company, as we say, and double the size. So really, when you go geographic, start looking for everything that we don't have right now. And that's where we're working. These are the first cities, the 10 cities that Enrique said are these. But really, we're working in much more larger amount of cities. for this year to build. As the number of compas that we expect, as I said, we don't like to give any guidance, but let me tell you that we'll be around the two million to two million and a half pretty much for this year. Hopefully we can do better than that, but I will tell you that the state conservative of two million Try to look into 2.5, something in between, and hopefully we'll surprise you with more as we ramp up the construction unit within MegaCable continues to be more productive.

Thank you. Thank you, Raimundo. So is it fair to assume that you're deploying one cluster in each city or multiple clusters in some of them? And what's the average size of these clusters?

We're building multiple cities, as we speak, in different size of cities. That's where we see the opportunity according to market, competition, size of it. So we have from mid to large to macro cities like Mexico City and Monterey on that part. The customers that we have there, I would like to keep it to myself, Alejandro. So it's part of our marketing strategy and what we're targeting. But as we said before, we look in the long run to have a 25% penetration of those markets pretty much.

OK, good. Thank you, Ramon, for the color on the guidance.

No, thank you, Alejandro. Sorry, sorry. Sorry to keep something here, but that's the way it is. Thank you.

Thank you. Our next question comes from Alejandro Chavales with Credit Suisse. Please proceed.

Hi, Mayor Chavales. Thanks for taking my question. Just a couple on my side on costs. The first one is a follow-up from a previous question. You mentioned that costs for home-connected expectations remain the same, but we have seen, for example, Fiverr costs uh remain well doubled since 2021 so i was wondering how is it that you are keeping the cost per connected a home stable is it that you bought all the fiber that you need for the 2024 expansion plan in advance or or how can how can this be and the second one is also on costs What should we expect for the second half of the year in terms of cost growth? Because obviously new subscribers will take some time to come. That is normal. But the cost of activating these networks, how much could that impact on the cost line? Thanks so much.

Alejandro, thanks for the questions. And let me just... point out something that yes we acquired in advance a lot of materials but not for the entire mega 2024 and as you stated yes so uh that's why i said that with inflation we we expect that to to reach between 210 215 by the end of the project um and and that is considering the inflation that is already in the new acquisitions that we will do of materials uh but again i want to point out that is homes connected and that includes the cost of acquisition of the subscriber right so for uh for any doubt that it could imply and

You want me to go? Alejandro, and besides that, what we have found is we understand that there is an increase in the cost and inflation because of the materials and everything related to the GPON project. But there are other ways we have been efficient on the part that goes to the way that we do the drop in the connected comms. We found a way, and we explained that before, to have a much more less expensive way to do it in that part. We increase our external plant technicians. So we do it now ourselves with a much more lower cost on the part. We did efficiently our design of the cities where we have and do synergies with what we have before with MetroCarrie. So at the end, we are looking into other ways to overcome. the expenses that can come from the increase of materials that we have on that part. That includes cheaper way of getting even CP device on that part compared to what we have before in that part, regardless of the chipset that they have. Okay, that includes also back end, let's say the licenses that you have. So altogether, there are ways that we can overcome, and that's what we do. We look to every single opportunity that we have so we can correct and adjust to those prices. So you can expect to continue to have the investment and capex that we announced on that part.

Okay. Great. Thanks so much. Perhaps on the operating costs for the second half of the year, what should we expect considering the activations?

Well, as we mentioned in the beginning that we were seeing some impact, a slight impact in our margins, but not really a dramatic thing. So I'm not sure if your question goes on activating, but uh you know activating it it's considered as part of the cost of of the subscriber and and it's just commissions so it goes by every subscriber that we get no i meant the cost of of uh lighting up the network in these new cities not not the the commissions of the activations but that it will be the same It goes with the CAPEX.

It is part of our CAPEX, and that one is part of the one that we announced. Some of you have asked us about CAPEX, the 42% CAPEX that we have in the quarter, and the 39% that we have on a cumulative basis. And we discussed here, and we wanted to make it clear. I mean, that's the level of CAPEX that you have when you have an expansion project. like the one that we have. The majority of you recognize that that capex will increase significantly as we continue to bring and do the expansion in terms of subscribers and expand our EBITDA. That's our goal. I mean, we have a very clear goal. We have the balance sheet to do a great expansion project. That's why we launched the fund. in that part so we can build the home parts that we promised you to do to have the double size. And when this company in the near future has a larger amount and doubling the EBITDA, you will see that that capex that we're investing right now that might seem high at 42, it is of no significance because we are very well positioned to be the best company in the future. We will be a national company, we're doubling the size, with a really, really good ratio of capital for revenue with no doubt about it. Everything that we're building on Fiverr, even the HFC and Fiverr Deep that we have in some markets, I've been thinking about the future. And we have a very clear roadmap of how we can continue to bring subscribers to the XView Plus platform. As we said, I don't know if it was myself or Enrique, 65% of our subscribers are already in the XView platform. That means Entertainment comes on a two-way platform. It comes on the way of nonlinear TV and multi-platform with all the apps that they can possibly have. And 40% already converted to fiber and continue to increase. But we went... to more than 50% of our subscribers with more than 40 megabits from 15% last year. What I want to tell you is that we're putting money where we believe in the future to come. We will continue to have and increase our margins, and you can expect pretty much to remain the same, but capex will decrease our revenue because of the larger amount of EBITDA that will come in the next years and months. That's the view that we have, and that's what we're working. We're very happy that we have those 430,000 home paths that we have in the second quarter. And we expect that amount to increase significantly in the second half. As I said before, if we're going to get to 2 million probably over that, that means we're going to build 1.5 million in the next two quarters, or probably 1.7. That's our view, and that's what we're working for.

And thank you for all the questions, Alessandro. Thank you.

Our next question comes from Andres Coelho with Scotiabank. Please proceed.

Hello, guys. Good morning. Thank you for taking my question. Well, there was obviously a drop in broadband additions, and I think that there are many theories on why this happened. But I think that there is a special concern on Jalisco, and specifically in Guadalajara, given the easy invasion of the city. So I was wondering if you can give us any color on what's happening in the greater state of Jalisco in terms of competitive dynamics, not only in Guadalajara, but also if you are entering new municipalities in Jalisco, for example, your thoughts on Puerto Vallarta and other important cities there. So just trying to understand if you are actually losing customers in Guadalajara. That's my first question. And my second question is perhaps if you have any thoughts on CapEx for next year at least, if you can give us what are your preliminary thoughts on how much you're going to invest in 2023. Thank you. Thank you, Andres.

We love you. When you wanted to make the first question, it's good to have you here. Let me be straight. Compared to last year, we have not lost subscribers in the Guadalajara area. We don't have any kind of different results that we have in the rest of the country. It is very, very hard. We protect. We migrate Guadalajara to Piper. We do have fiber and we have a few platforms which is very competitive and it's really well accepted by our subscribers. Related to the rest of Jalisco, we control and we have presence in many, many towns of Jalisco.

You asked particularly Puerto Vallarta.

As I said, our expansion plan will cover the majority of the large and macro cities in Mexico, and of course, Puerto Vallarta is one of them. It's not one of the 10 that we announced. but I can tell you we're working on that. It's one of the ones that we're working, as well as many other cities that we are at the same time. So let's not focus only on Puerto Vallarta, and if it's related to Guadalajara, I can tell you we have no loss compared to last year on that part. Mainly because we have good control of the operation, and we have the migration of subscribers on that part. The second question, Luis, was related to CAPEX for next year, if I can recall.

Yes, correct. View on the CAPEX for the 2023. We have not given any type of guidance for the future, but as you recall, we established that for the project, we were going to keep the CAPEX as a percentage of revenue around the mid-30s. during the period of the expansion, and that continues to be. We have made no change in that projection already.

You can expect the same, because the expansion will come in 2022 and 2023. So, nothing changed. What is going to change is that finally we're going to have kilometers activated for expansion. And even though it takes longer, it is faster to build than to bring in subscribers, of course. But we're working on that one, and we will dedicate the next 18 months for you to see that we're improving in those cities that were activated as we are speaking. The majority of those kilometers will come at the end of third quarter and fourth quarter of this year and, of course, 2023. So you can expect the same amount of compas for the next year as well.

Understood. So if I understand correctly, you are guiding more or less mid-30s CapEx to sales for next year, correct, Luis? Mid-30s. Yes, mid-30s. Mid-30s is okay.

Okay.

And one final question, if I may. Of course, we saw this record number of new homes passed in the second quarter. And I'm wondering if something changes structurally that is allowing you to build so many new homes per quarter. In other words, if you actually increase your capacity, your ability to build more homes structurally, or if the second quarter was just some sort of timing of prior build out and which allowed in the second quarter to grow as much? Or is this kind of a new structural recurring growth for home staff? And is this what you're expecting, so many new homes expected for coming quarters?

No, this is a consequence, Andres, of a regular build out. When you build a high property building, The first thing that you see on the foundation, you don't see anything. Then you see the first floor, the second, the third, and the fourth in two weeks and you say, wow, they already have 50% of the buildings in one week. It's not like that. I mean, we started working since we announced the project last year. third quarter that that means bringing the materials bringing the permits bringing the hops the size the operational debate for operations and employees from those cities we finally were able to bring those 430 000 home parts at the second part second half of this quarter this past quarter what you can expect is that that machine continues to work and improve in the quarters to come. That's the normal part. The amount of compass should increase in third quarter and fourth quarter, according to what I said before. That's our plan. It is online right now. I don't see why we could not meet that goal. And that's what you should expect in the quarters to come, and of course, 2023 as well.

Very clear. Thank you very much. It's an engine that is escalating the sites, and you will see that in the future.

Okay. Our next question comes from Marcelo Santos with JP Morgan. Please proceed.

Hi, good morning. Sorry for earlier. I got disconnected. Thanks for taking my question again. I wanted to ask about the comment you made on your prepared remarks. You said you are all positioned to reach the annual growth target in terms of subscribers, revenues, and EBITDA. Could you discuss a bit, give some color on what those targets are? That would be the first question. And the second question is regarding the mobile strategy. You have been adding flats and have been adding no subscribers or almost no subscribers in the last couple of quarters. Do you plan to stick with Altamira? Do you have other plans that you could execute in mobile? Thank you.

Sure, Marcelo.

Thank you very much for the question. Yes, we're happy with the results of revenue and evidence. That 10% revenue growth that we have, the 8% for a company of ours in these economic conditions is remarkable. At least we think that on that part. So that one comes from some efforts on our part that affects subscribers. That's what we described. Probably you were disconnected from that. And let me tell you our view of what happened on that part. We increased rates. We need to increase rates coupled with inflation. And every time that we have an increase in rates, coupled with the economic situation, with the post-pandemic effects and the competition in some of the of the market, and all the markets mostly on that part, it does affect the insurance. So we did not have an increase in the subscriber significant, in the subscriber base, because we have an increase in insurance due to the increasing rates and the economic situation. The good thing is that, as you can say, the gross ads did increase because we increased our capacity of selling in new and existing markets, both of them. What can you expect in the future? Well, we hope the short will decrease slightly on the part, and we couple that with increasing gross ads, and that will bring the remaining expansion plan and subscriber growth in the future coming from the gross ads. As I said, great margins, good dividend and good revenue. That's why we're happy about the results. And the message of the subscriber was, On March, we increased rates. We have a top April and May, and we have a great June. So if you look at that trend, it looks OK to me. That's what I can tell you without going any further on that. Now, the mobile industry, as you said, as you know, because we went on the last quarter, we took and write off some numbers of subscribers because of the prepaid approach that they have. We don't like the prepaid. We are a postpaid company. We like subscriptions on that part. So we're rethinking our strategy of prepaid. That's why we slowed down the increase of additions. We're strongly on the postpaid. And you can expect on that strategy to continue to be with Altan in some markets. But we're adding AT&T. We haven't been able to launch AT&T. AT&T will bring to us more cities that Altan doesn't have. more CPEs of cellular phones that we cannot connect because they are not compatible with 28 frequency that Altan has. So we're still going for the MVNO. We haven't quit that part. On the other side, we are launching that strongly with AT&T and the contract that we have. And we expect to recover the growth that we have in the past for third quarter and fourth quarter as well. Those will be my answers, Marcelo.

Thank you for the questions. Thank you very much.

Thank you. At this time, we will continue to ask for our web questions. Please proceed.

Thank you. We have the first one from Compass Group. How can you maintain margins high in a market with more country players?

Well, because we're adding ARQs, we have a great XQ Plus project that brings us an increasing ARQ when everybody is recording or increasing. We're bringing more ARQ and increasing revenue than we have in subscribers and keeping the base of the subscribers. We're increasing the speed of our subscribers and also because our ARQ is low. So, we have a low ARPU because we have a high penetration and we continue to be aggressive to look for subscribers, but we will always look to have increasing rates in the market that is allowed. Also, we did migrate and invest everything, some cities to Fiverr and Fiverr did with the HFC splitting the nodes. and migrated to the F2 platform at higher speed. So all together that's how we are able to do that. If you see the number of RUs per unique subscriber continues to increase. So all together we will continue to give us a good... On the other hand, management will... we have always been tied to look for a reduction in cost as much as we can. We continue to invest not only in the last mile, but we continue to invest in the long haul. We are one of the largest infrastructure companies in terms of fiber. So we're building everything to the border with the U.S. Better catching, or catching, better CDN, better infrastructure close to our subscribers. So we decrease. If you can see, our margin of broadband continues to increase because where we put That capex for broadband, we also put it for the cost of long haul and bringing IT services to our subscribers. So it's a mix of everything. We try to put better... sales channels with a lower commission cost than just the door-to-door sales that we have. So altogether, that's what we do. We have a good cost structure. That's why we have the largest margin in the industry. And we have had that for a long period of time. And even though we have pandemic and no pandemic and now economic situation, we still keep the 49% margin. That's how. Next one.

Okay, the next one. Regarding the 200 calls per home connected, is that a subscriber or a home pass?

Just clarify it again that that code was for home connected. Remind you that... Homes connected, it means a subscriber.

Okay, the next one comes from JP Morgan. Can you remind us of your 2022 goals, maybe HPs, revenue growth, so we can understand how to keep track of your progress for this year? Is it fair to assume a similar number of homes passed the following two quarters? I believe we have answered this already to Marcelo. Okay, the next one is how many months or quarters is the lag between passing new homes and getting to your target penetration levels in new markets?

Well, we expressed since the beginning that there was a maturity for every segment that is activated. Every new kilometer that is activated has a maturity period. Of course, we get subscribers since the beginning, but we expect to... a new territory to mature within the following 24 months.

Okay, the next one from CKO Advisor. Are there any early signs of customer receptivity in the cities that they have just entered in late June, early July? Are customers responding as expected?

It is too early to say, and we cannot do any comments on July, but I'm pretty sure they will be positive.

Okay, and the next one from Patrick Brennan. Megastock loads nearly uncompromisingly undervaluated on nearly any conceivable valuation metric. especially considering your growth plans with the fiber rollout and the continued growth in your existing footprint. In the past, you have said that you were not interested in share repurchases, nothing stock liquidity concerns, and or some aversion to even modest levels of leverage used by cable companies around the world, including those in emerging markets. As the shareholder purchase will appear to be widely attractive to long-term value creation at current prices, has there been any change in your thinking on this type of capital allocation?

Not really. As of today, we continue to put all our efforts for the expansion. We continue to think what's best for shareholders, that's for sure. But right now, what we believe is the best is to double the size of the company. We can deliver that, and that's where we're focused on.

We also update our figures regarding the stock purchase, repurchase, and we communicate that to the board and just to keep it present. We have our next board meeting by late August, and we will have an update on that by that time.

We have another one from Timujit. For MC24, what is the cost per home passed?

What was it? No, but we don't disclose the cost per home passed. We have kept that. You can make your own numbers, but we keep that for us.

Okay, that's the last one. We have no more questions, so I'll turn it over to Mr. Yamoni for final remarks.

Okay. Hello? Yeah, Willis. Okay, final remarks. As always, it was a pleasure to discuss our results with you. Please contact the Investor Relations Department if you have any questions or concerns. regarding the company. Have a wonderful day and expect, as always, better and improving results from Mayor Cable, as always, for the next quarter. Thank you very much and have a nice week, rest of the week. Bye-bye. Thank you, everyone, for the question.

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

Thank you very much.