Megacable Hldgs Sab Ord

Good morning, and welcome to Megacable's first quarter 2023 earnings conference call. With us this morning from Megacable, we have Mr. Enrique Yamuni, CEO, Mr. Raymundo Fernandez, Deputy CEO, and Mr. Luis Zetter, CFO. Let me remind you that the information discussed in today's earnings call may include forward-looking statements on the company's future financial performance and prospects. which are subject to risks and uncertainties. Megacable undertakes no obligation to update or revise any forward-looking statement. I will now turn the call over to Mr. Enrique Yamuni. Sir, you may begin.

Thank you very much. Good morning, everyone, and thank you for joining us today. The special study that we have outlined in the company's determination to keep performing in a competitive market have led us to start this year with a stronger pace in net ads than that of the previous year. Recording the highest quarterly figures of net additions in unique subscribers in RGU's in the last two years. This quarter we have entered into seven new territories and expanded our network coverage to more than 900,000 additional homes, on track to meet our goal of 2.5 million homes for the full year, thus sustaining the growth in subscribers for the coming periods. The expansion strategy is now consistently being reflected in the number of kilometers we activate which during this quarter also reached a record high figure in the company's history. I want to highlight that following the announcement of this ambitious initiative at the end of the third quarter of 2021, we have effectively activated more than 16,000 new kilometers of fiber network and added nearly 3.2 million new homes passed. Also, during this period, we have already incorporated nearly 440,000 new subscribers, including a big portion in the new territories. We believe that these results are quite encouraging, especially considering that 80% of those subscribers signing up in the last nine months. We are thrilled about it and we are thrilled also of what we can achieve in the next periods. Also, very relevant, the company's balance has remained at a very healthy level despite the investment we have carried out. The company leverage remains well below when compared to other players in the industry thus providing Megacavali with flexibility to carry out its investment plans. The significant investments made to reach new markets and modernize our network has played a significant role in subscriber growth, which has occurred in the midst of a competitive environment. Our legacy territories have continued to grow on the back of a unique value of our product offering. Both territories have contributed to the subscriber growth we have achieved, which, as said, is the largest figure in the last two years. We have always been committed to providing our service through state-of-the-art technology in order to meet the growing connectivity and video needs of our subscribers. Such is the case of our video service, which, thanks to our integrated XView and XView Plus platforms, has positioned itself as the best in the market with unmatched integration capabilities. We are now certain that our customers recognize and value our service, which continues to have excellent feedback as well as user metrics. As of quarter end, XView is recording more than 90 million interactions on a monthly basis. And that is considering only the native content that Megacablet provides to its subscribers. On top of that, we have all the content coming from the other OTPs that can be integrated into our service, which at quarter end accounts for more than 670,000 users. Regarding the MVNO business, During the quarter, we were able to revert the trend we saw during 2022. The active lines growth is now more visible, and it should rise at a faster pace in the next periods. It is also important to highlight that MVNO articles have become one of the highest in the industry due to the business's focus on postpaid services. Despite the company's expansion during this quarter, we managed to reach another record high EBITDA figure, which proves that even in this investment scenario, we have not lost focus on efficiencies and cost savings, which has been part of the company's DNA since the beginning. As we continue to increase the penetration in new territories, we expect margins to recover in the coming period. Before concluding, I would like to announce that at the General Ordinary Shareholders Meeting held yesterday, the shareholders approved a dividend payment of 2.5 billion pesos representing 20% of the consolidated EBITDA for 2022. The payment will be carried out in one installment on May 25th. Wrapping up, our results continue to improve in line with the expectations driven by a strong execution of our strategy. Despite persistent economic headwinds, our financial strength and disciplined capital allocation have provided the flexibility to accelerate critical investment projects and save high return growth opportunities while growing our shareholders' future value. I will turn the call over to Raimundo to discuss our operational performance. Raimundo, please go ahead.

Thanks, Enrique, and good morning, everyone. During this period, key operational metrics show faster growth than previous quarters, reflecting the solid pace of additions in both new and existing markets, as well as the attractive value proposal of our portfolio of solutions. even in the face of a challenging inflation environment and increased competition. As Enrique mentioned, we remain focused on expanding our coverage, which is already consistently reflected in the kilometers of network that we have added in recent quarters. We will continue to work to ensure that this growth can be replicated in the same dimension in subscribers and revenues growth for the company. Both of them will grow at a higher pace in the next period. Unique subscribers growth has been outstanding. We are truly very happy about it. In the organic territories, mega cabling not only retained the highest market share with a very strong penetration, but also managed to increase subscribers. While for the expansion cities, we are already achieving close to 20% of market share, with some of the old neighborhoods even higher. Our strategy is based upon great quality of construction, outstanding product based on the XView platform with the Android TV interface, and operation efficiencies. Furthermore, the market perception and our research studies validate the increase of our NetFlow model score among existing subscribers, recognizing speed migration and XView usage. I would like to highlight that, in line with the current footprint expansion, but also supported by the growth achieved on the existing footprint, the figure of gross ads for the quarter was a record high in the company's history for the three services in the mass segment. We continue to apply a very aggressive sales strategy, focusing on highlighting the benefits of our services and the value proposition we offer to our customers. Moving into results, unique subscribers for the quarter increased 9% year-over-year, the highest figure in the last two years, reaching 4.5 million with 361,000 net additions, including 142,000 that corresponded to this period. By segment, internet subscribers grew 10% compared to the first quarter of 2022, totaling 4.3 million. resulting in 392,000 net additions, out of which 147,000 correspond to this period. We are aware of the bandwidth consumption trends, which will require higher speeds for a satisfying navigation experience. Therefore, we continue to do speed increases in all of our bundles. At Quaternion, 65% of our subscriber base has speeds of 50 megabits or higher. compared to a little above 50% in the same period of last year. At quarter end, 52% of our subscribers already received their service through an FPTH network as a result of the deployment of fiber in new territories, but also deconversion we continue to carry out in other HFC territories that we consider necessary. Currently, 50% of our network is already FPTH. Video subscribers reached 3.8 million, growing 6% and adding nearly 220,000 versus the first quarter of 2022. In the sequential comparison, it gained 86,000 net ads. Our XView Plus platform maintained a solid growth rate, going from 2.5 million subscribers at the end of the first quarter of 2022 to 3.7 million this period. an increase of 46% or more than 1.1 million net additions. The telephony segment recorded 3.6 million subscribers, growing 16% compared to the first quarter of 2022, representing 489,000 net additions, of which 174,000 corresponded to this period. The MVNO services totaled 377,000 subscribers, Down year-over-year, but up 6% against last quarter, with 20,000 net additions. As we stated in the previous quarter, the growth in terms of new lines is now visible, considering that we have already concluded the clean-up strategy. We are proud of the subscriber mix that we have achieved, including mostly post-paid services, with a very attractive revenue contribution. thus making us one of the companies with the higher ARPU among the MVNOs and also MNOs. Shown rates improved on an annual basis, with broadband at 1.9%, video at 2%, and telephony at 2.1%. In this line, it is worth noting that despite the entry to new territories, the shown rate for this quarter remained below first quarter 2022. At the end of the quarter, REU totaled 11.6 million, 10% more than the 10.5 million for the first quarter of 2022, supported by a stronger growth of subscribers, mainly derived from our expansion and reflected in the REU's per unit subscribers, which went from 2.52 in the first quarter of 2022 to 2.56 this period. Both metrics are expected to steadily grow over the next quarter as infrastructure development advances in new markets. ARPU per unique subscriber was 420.4 pesos, remaining stable compared to past quarters. This is mainly due to successful marketing campaigns that have offset the promotional bundling fees we are offering in the new markets, which are temporary. so we can expect their full contribution to the company's revenues in the following months. Turning to ARCO by segment, broadband remained practically unchanged compared to the first quarter of 2022. Video rose by 2%, telephony decreased 17%, and MVNO increased 40% as a result of the customer-based optimization. Regarding the corporate telecom segment, Revenues for the quarter grew 17% when compared to the same quarter of the previous year, with Metro Carrier, OLA, and MCM recording annual growth rates of 17%, 24%, and 14% respectively. This was mainly due to better revenue coming from the corporate and government segments in Metro Carrier and OLA respectively. I want to highlight that the company is not only focused on the expansion initiative, but we are also committed to reinforce the value proposition in our existing territories, as we continue with the network conversion and strengthening of the HFC network. Our vision remains to have the best technology and network infrastructure, so our conversion plan remains in its course. To conclude, I would like to emphasize that the company's strategy remains oriented toward providing an attractive value offering, featured by its quality of technological edge, all the above leverage on operating efficiency through the execution of our expansion plan and the migration of existing territories and the continuous development of our video service. 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. During the first quarter of 2023, consolidated revenues rose 9% year over year to 7.2 billion pesos. Driven by the solid performance recorded our three mass services, coupled with the double-digit growth in the corporate segment. The mass segment revenues for the quarter was 5.8 billion pesos, increasing 7% year over year. Revenues for broadband, video, and mobile services posted annual growth rates of 9, 8, and 26% respectively, reflecting the stronger subscriber growth in new markets as well as in our existing footprint. Meanwhile, telephone revenue fell since its use is further declining as customers opt for internet and mobile services. The corporate segment revenues totaled more than 1.3 billion pesos, up 17% compared to the first quarter of 2022, with Metro Carrier, OLA, and MCM growing at 17, 24, and 14% respectively. It is important to note that all our revenues for this period is normalized since the previous quarter was exceptionally high. In the same line, revenues for PCTB increased 15.7% when compared to the same period of last year. As a result of all the above, the company revenue mix was 81% coming from mass market and 19% coming from corporate. Cost of services reached 2 billion pesos, up 17% year-over-year, while SG&A rose 15%, on the same comparison amounting 1.9 billion pesos. The aforementioned was mainly derived from the undergoing expansion of the company, coupled with a higher labor cost as a result of the increase in the minimum wage and the operations in the corporate segment with lower margin contribution. Quarterly consolidated EBITDA went up 1% year over year, amounting to nearly 3.3 billion pesos. EBITDA margin for the quarter stood at 45.7%, implying an expansion of 230 basis points, compared to 43.4% in the fourth quarter of 2022. In the same line, quarterly EBITDA for cable operations reached 3.1 billion pesos with a margin of 47.3%. The performance of these metrics is consistent with the expected pressure and cost related to the expansion into new territories. Net income decreased compared to first quarter of 2022, amounting to 797 million pesos, due to the high depreciation resulting from the substantial investments made over the last few years, as well as the higher financial expenses derived from the interest rate hike and additional debt taken to accelerate growth projects. Nevertheless, it is worth mentioning that the net income on a sequential basis hiked 43% from fourth quarter of 2022. Moving into the balance sheet, as of March 31, 2023, net debt was 14.4 billion pesos, compared to 4.8 billion pesos recorded at the same period of last year. The increase comes from the issuance of long-term local notes for 7 billion pesos in July 2022. An additional debt arranged to accelerate our expansion plan. Nevertheless, net debt to EBITDA and interest coverage ratios stood at 1.12 and 7.2 times respectively, remaining at the sound level and still providing us with a wide flexibility to fund our growth plans. As for CAPEC, the figure totaled 2.2 billion pesos, representing 31% of quarterly revenues and the majority are located towards geographic expansion and network modernization. The current level of CAPEX is below the 40% mark as the investment deployment is usually slower at the first month of the year. So we remain with the same target for CAPEX deployment for the full year, rounding 40% of revenues. With this, I conclude my remarks. Let me turn back the call to the operator to open the line for Q&A.

Thank you. Thank you. Ladies and gentlemen, if you have a question, please press star 1 on your telephone keypad. If you would like to remove your question, please press star 2. Our first question comes from Marcelo Santos with JP Morgan. Please proceed with your question.

Good morning, Henrique, Raimundo, Alois. Thank you for taking my questions. I have two. One is if you could provide a bit of what has been the competitive response in the new areas that you are entering, how has been the environment in these areas? And the second, if you could comment a bit on the price increase you conducted or you will conduct, I think, in May, how much of an impact could there be? What kind of magnitude are we talking about? Thank you very much.

Sure, Marcelo. This is Raymundo. Thank you for your question. As I stated in my remarks, we are very pleased about the results of the new territories, regardless of competition. targeting to a price war, but more of a quality of the product and the XView platform. We have very aggressive promotional campaigns, but not really below too much of what we have in the existing territories of Mega Cable in that part. Right now, we can tell you that we have around 13% penetration of those markets, regardless of the 950,000 new home paths. That tells you that in some of the territories, we already achieved 20% penetration. And when we go to market share, we're very happy to have, our goal was to have one fourth of the share, trying to hit for more than that. We're getting that after pretty much three quarters of what we have of the expansion program. If you can go to our numbers, we added less than 500,000 home paths in the second quarter of that year, as well as the third quarter. And we increased to 900,000 in fourth quarter, and again, 900,000 in this quarter. So pretty much, even though we announced the expansion program at the end of 2021, we really start performing at second half and at the end of 2022. So right now, our market share and penetration, it is really well achieved on that part. We have a much more better market share still because we bundle very efficiently with our XView platform, which not only the speed and the quality of construction of our new network is one of the reasons, but also the way we are very efficient in how we commercialize, we do the go-to-market, and also the product of the XView platform. In those existing territories, we can tell you that truly the majority of our subscribers, as you can see, people play packages. So one of our main advantages is also, of course, video. How our competitors are reacting, as I said, is not a matter of prices. They are focusing on their existing subscribers and trying to retain them. But, well, our job is to be very creative and see how we can do that go to market. The main goal for us right now is not only to build those homepads, but having the organization ready to meet now the capacity to have to sell. That's where organization and management is focusing right now to speed up the process. As you can see for our results, we increased the number of gross ads that were very happy about that. It is incredible, a big challenge to go from, let's say, 140,000 gross ads per month to almost 180,000 gross ads per month that we have to do in the territory on that part. And we need to increase that number. That's where we're focusing. So we're very pleased to the results in the competitive in the new areas, regardless whether there is fiber or not fiber from the existing competition, whether it's Telmex, Total Play, or Televisa. We've been very successful so far as we are in the existing territories. Remember that in our existing territories, we hold the majority and the main market share that we have. Regardless of the price increase, we are targeting, well, we are very close to the beginning of May. It will depend on the market and the package that you have. Some of them will have a 30 pesos, and other ones will have a 40 pesos increase. So you cannot, not only subscriber base will have that increase. So the contribution will not be what we are expecting is to have a contribution of three points pretty much on the revenue coming from the price increase. You have to take into consideration that as we continue to increase gross ads, the number of gross ads has a promotional fee that is below our average. That's why ARP doesn't go more. So expect that every ad will grow. Yes, in the coming periods to come on that part, as we are more efficient, and also because of price increases. But consider that we have a negative impact for the number of gross ads with a promotional fee. I will assume that that will answer your two questions, Marcelo.

No, it's very comprehensive. Just one clarification on the first. You said that you have 13% penetration in some of the new markets in the average. In some markets, you got 20. And then you said the goal is to have, and then I didn't get the number of the goal.

Remember that when we launched and we announced the market, our goal was to achieve 20%. 20% and having pretty much one-fourth of the new territories. That was what we forecast and we planned as our, let's say, conservative or base goal. What I can tell you right now is that with only two quarters or three quarters in there, we are already in average having 13% penetration. But in some of the neighborhoods, neighborhoods, not system or markets, we have already achieved 20% penetration in some of them, which please us very much about that.

Perfect.

Very clear. Thank you very much.

Thank you.

Our next question is from Carlos de la Gareta with Itao. Please proceed with your question.

Hi, thank you. Good morning. Thank you for taking the questions. I guess you already addressed this, Luis, but on the CAPEX side, I was a little surprised to see it coming down here every year, despite the fact that, as you mentioned, you added a record number of homes passed and kilometers. So, I mean, I'd love to understand better the relationship between this, but I guess you did address that for the full year you continue to expect a similar number, no?

Yeah, sure. And you have to take in consideration that a lot of our investment, and we mentioned several times, that we place orders ahead of time, and that was part of our inventory during the last year. And a lot of them were used to build network kilometers that we have been activating also during this year. So there was a backlog of kilometers there. and home spots that were activated in this period. And that trend continues. We still have inventory or warehouse cut, let's say, that is in the peak right now. And that shows the materials that we have ready to be deployed. And we are building new kilometers, and you will see them activated on second quarter. And in the second quarter, and especially in the second half, you will see a higher consolidation of CAPEX. Remember that CAPEX becomes CAPEX only when we activate kilometers.

Great. Thank you. And secondly, I guess thinking about financing and given the dividend that your shareholders meeting just approved, I suppose you're going to go for more debt. If you can talk about how those negotiations are going, that would be helpful.

Okay. Well, yes, and that's right, your right point. And we are going to get additional debt within this month and the month of June. We are going to have additional debt with banks. We already signed and we are – disposing or getting the money on April. And you will see that on further information. We are getting ready for all the investment and all the disbursements that are ahead of us. So, yes, we are on top of that and it's all rearranged and we don't see any trouble on that. And we see, of course, that our net debt ratio is going a little bit up. but we are still on healthy levels. And it's part of the plan.

But are you going to do that only through banks, or are you going to continue with the bond program?

The bond program is targeted for next year. So remember that next year also we have due with bank credits, so we have to refinance that, and we will do through the bonds an additional cash for CAPEX for the next year. So the bond is targeted for next year.

This is Enrique. You know, everything is going according to what we have planned, the financial plans, the subscriber position, the CAPEX, we have been exercising. And on top of that, we have been more efficient in our CAPEX than what we had planned. And also, the number of homes passed that we are reaching is larger. So we are happy with the results and the execution the equipment here has been doing.

And exchange rate has given us some help as well. Thank you, guys.

I appreciate the comments. Thank you.

Thank you. Our next question is from Andres Galeo with Scotiabank. Please proceed with your question.

Yes. Hello. Good morning. Thank you for taking my question. The first one is on the corporate segment, a very good growth there, 17% revenue growth, but with very low margins. Apparently, the margin there is 30.8% in the first quarter. So why is the margin so much lower than residential? And perhaps if you can give us a long-term view on margins for the business segment. And I have another question. Thank you.

Yep, Andres, and basically when the mixing revenues incorporate or the mix is more on equipment, of course you cannot charge a large portion of margin on those. And Ola was one of the biggest drivers in the corporate segment. So that is also mixed. together with some reduction in the margins of MCM, that that's also seasonal. And our expectation, as I've mentioned by business, is that margins for metro carrier will be around 40%, 45%, which is the highest. Then MCM gets margins between 30% to 35%. OLA is really on the 13% to 15% most of the time. PCTB is basically flat or margins of 3% to 5%, which their goal is not to be a high-margin entity. So those are basically the drivers. And, of course, mobile is also lower. lower margins than the other massive market services.

For that one, Andres, regardless, the margin that we have, as you're aware, for MCM and metro car is higher. The one that Luis is explaining to you is OLA, that is the one that has more projects related to infrastructure. That's when you hit pretty much around 15% to 20%, close to 20% of margin. The other ones, Even in the corporate segments, the margin that we have close to the 45%, MCM with 43, and Metro Carrier higher, are even higher than the peers in the massive market. So we're doing very well in corporate as well. And consider that every time we talk about margins in this company, we are really talking about full Corporate margins, too. It does include any corporate that we have in Mega Cable. It's included on the margins that you're receiving for every business unit. So it is a pretty good margin what we have incorporated in that one. Metro Carrier will continue to grow. Right now, our revenue, if you can see, there was some years ago where I was dreaming to get to $4 billion in corporate sales. Now we are above $5 billion a year in that part. Just this quarter, we sold $1.2 billion in revenues incorporated. So we're growing every year, every year, 15% to 20%, that segment. And I particularly, Raimundo, am very happy of what we have been doing in the segment where it's very competitive with some margins. We manage also to keep efficiency as well as in the massive markets.

Okay, that was very clear. Thank you.

And my second question is going to be on strategy. Hello? Yeah. My second question is on strategy. You know, if I look at total play, total play revenues are now 40% bigger than yours, and last year I invested twice your capex. And I'm asking this question because when I see your coverage maps, for example, in Tijuana, when I see... Monterey, when I see Cancun, do you still think that overlaps with almost 100%? And also with Telenex, almost 100%. These are to be worth following. They cover an area, and then you go and cover the same area. So I'm just wondering, going forward, with the rest of your expansion plan, will you continue to cover areas where the other competitors are present in order to gain customers from them? Or are you looking to go into areas where nobody is present? And again, if you can just confirm to us why there is such a, almost 100% overlap in these major cities with total clean and also with telethonics and with television also in other cases.

Sure, Andres, and it's a very good question on that part. As I said, those markets that you mentioned, Tijuana, Cancun, those markets, we're going with full FTPH, and we're going to areas where there is total play, EC and Telmex. In some of the areas, Telmex is already with Fiber. The majority of the network on that farm from EC is coming from HFCs. DOCSIS 3.0 or DOCSIS 3.1. And then we have total play with fiber. But our strategy is to be very efficient the way we build. We are building to a much more better ratio of compass over kilometers. That means our drops are shorter. We are very tight on the quality and the way we authorize and we operate that. And we're coming with the XView platform. In those areas where we are, we have a better proposition in price. Total Play has a much more higher price than what we have on that area. That's why we've been very successful in bringing subscribers to where we are. uh we we need to bring or we want to bring much more higher pace we will do that as long as we have the structure the organizational structure not the product only to do that in product i believe our 19 million reproduction of xq plus a just in our platform like enrique was saying his remarks it proved that it's a very well received video products that Telmex doesn't have, it is way better than what our competition has, both easy and total play in that area. And our net promoter score in those areas is the highest among all the peers. What we're working strongly is having those people in those markets to get to know the brand mega which is, of course, for them, it's a new company. That's what is taking effort from our marketing department to get on the go to market. But as I said, we're very pleased of the results in the markets where we already have. The penetration that I told Carlos in his question, before yours, we have to be very clear that we're reaching that penetration, of course, not of the whole area, let's say of the Tijuana market, for example, but in the area where we build. So we are still growing subscribers as long as we continue to build kilometers in the areas that we open at the second half of 2022. So that's our study, and we're not going to move away from that book. It's, again, efficiency, good service, the good product that we have, and a good quality of the network to be built. And, yes, we are going to be the national footprint network with HFC, with FTTH. We're going to double the amount of what we have.

And, Raymond, let me ask you, do you think you have better quality than TotalPlate? Do you have any data to support that you are delivering a better product than TotalPlate?

Well, right now what is being shown in the markets, total placers have good quality of perception. They are in the markets where we have. The data is still very, very young to tell you because we're opening. The data that we have is that for the subscribers that we have, they are very pleased. And the net promoter score that we have is outstanding for the customers that we have. We believe that we have a very service. And the data is coming from our results on this market and some research that we do.

Andrea, this is Enrique. For obvious reasons, we don't like to compare us with other players for ethical reasons. But our main goal is to have an excellent service that gives the subscriber the best value or the market the best value out there for their services. In some... in some articles in the press or the media, says that we do not have the best speed, which we think is a distortion news, because the speed depends on what's the speed that the customer buys or the customer gets, not what the customer gets, what he buys, what he's paying for. Our subscribers, as Raimundo explained, have been getting higher and higher speeds. And about, what percentage is over 50 megabits now? 65%. 65% is over 50 megabits. The rest is under 50 megabits yet. They will move to higher speeds, obviously. In some cases, we do it without price increases. In some cases, they have to pay a higher fee. So if they don't get higher speed, it's because they feel they don't need them. Maybe they are not a subscriber of a streaming service. They are okay with the... streaming service that we provide, the own megacablet streaming service that has over 15,000 hours of content. It's a VOD that has movies and series and news and a lot of things. They can do the reverse video where they can go back 48 hours in most of our live channels. So the subscriber... A lot of times, they don't feel they need to pay for a higher speed. That's why our subscribers pay a lower tariff, let's put it that way. But if they need a higher speed, they can get it. And they can get it very efficiently and with very good quality. That's what I would like to explain. The market gets from us what they want and what they need.

And also look at the penetration of the companies in that part. As Victor says, we internally are very pleased, Andres, that we get above 40% penetration. Historically, Megacable, above 40%. We're the only company that is above 40% of that part. Now, we... and the highest market share. That market penetration, not only market close-up, market share is way above 50%. In the areas where we are with FTTH and HSE, now we are 36. After building so many, we have 12.5 million home paths that we increased coming from 9.5. So we have three more coming from organic and expansion of our network to those 12.5 million companies. We're still below the 17 or 19 that other companies have, and of course, way below what Telman has. Look at the penetrations that they have in their markets, how they split, and look at the penetration that it is in megacable markets, even with total play been in some of our markets for more than five or six years. Total play penetration is at 25%. Ours is at 30%. With a mix of HFC and FPTH, and as I say, 55%, just 55% is FPTH. That proves that the other 45% of the HFC is very good, and we will increase that. by N of 20, 23 to 70% of FTTH in the whole network of megabit. So those are our results. We should be doing something good in terms of product quality and go-to-market that make us get that market share. And we're based on, like Enrique said, external information and our information, and that's our position right now.

That is very clear. Thank you. Thanks to you.

Thank you. Our next question is from Fani Kanemuri with HSBC. Please proceed with your question.

Thank you for taking my questions. My first one is regarding leverage. I understand that you expected the leverage to increase to the current levels, but where do you see the leverage trending, let's say, in 2023 and 2024? uh because it's like you know the a bit the ramp up would probably take more time but uh your cap expense will be very high so i'm just trying to understand i mean if not exact number the range uh where you expect the leverage to be net leverage you know of 2023 and 2024 that's the first question

You get that, Luis? I didn't get the beginning of the question. Bami is asking about the leverage of debt, if I could understand the question on that part, and how we are overseeing, how do we see 2024 in terms of what the leverage that we're going to have and when EBITDA is going to revamp and provide that. It is, like Enrique said, Bami, our plan is Our expansion plan and company studies is going according to it. I mean, we're over there. We always target to increase leverage. Leverage is going to be increased this year and next year. And next year, that's for sure. Still, we believe and we will look at our net debt ratio at around 1.5 below that, if we can. It is a very healthy world ratio. But We look at EBITDA to continue to grow, and by the end of this year, we expect EBITDA in the expansion plan not to be negative, but to be positive, which is something that is affecting us in this result, because we're still doing the go-to-market. 2024 is going to look completely different in that part. We will take that on that to continue to expand. the home paths, and the construction. But we will have EBITDA positive coming from the expansion areas that we have. And if you look at this company from 2024 to 2025 and 2026, it is a really, really good view at the end of the tunnel. I like to say that. Our EBITDA, for sure, we have no doubt in that, will continue to grow, and our free cash position will start repaying interest that is coming. So our EBITDA less capex that we will maintain and go and not maintain, maintaining the same levels that we have, but the percentage of revenue is going to decrease. We will have a really, really good position in the next two years. after we stopped taking the debt and finished the build-up of the expansion plan. The expansion plan calls for 50,000 kilometers. That's what we announced when we have both coming from expanding territories and also from the existing ones we have that we will continue to grow as we always do year over year. That will put us in a company with 17 to 18 million home paths, a really good size of EBITDA with the very low capex that we have, and bringing down the net debt ratio to below 0.5. You know, a very, very, very healthy net debt ratio once we repay interest or for whatever we want to do in two years. We will decide. So that's how we view and how we manage the board to agree to these business plans. And we're very pleased management that is going according to expectations. And I hope you think the same.

Just to make clear, this is Enrique again. The company plan is going according to what we forecasted. Our debt ratio will never go up above two times EBITDA. It will never go up. Yeah, in the worst case, you will never go above that, which is a very healthy level. And very, very healthy compared to the telecom market fears that we have. And everything is going according to our plan. By the end of 2026, the leverage ratio is going to be extremely low. And the EBITDA is going to be much higher than what we have now. And we will have one problem, what to do with the cash. That's it. Thank you very much.

Thank you. That's very clear. So my second question is regarding your PUPO subscriber. So once your expansion plan is done and you reach, let's say, your targets by 2026, 2027, where do we expect that ARPU per subscriber to trend? So if you can give us what your expectations are, that would be great.

The ARPU, the trend of the ARPU for the following... Once we reach 25, 26 subscriber base normalized.

The ARPU will continue to increase on that part. It did not increase in this quarter because the number of gross ads from the new territories and those new subscribers has a promotional fee during the first months to attract subscribers. That's very normal in the industry. So as long as the number of gross ads compared to the base of mega cable, Let's say if you are adding gross ads and selling 150, 160, 170 over the 4.5, if you continue to do that in the future over a much more higher base, the contribution of that low ARPU subscriber will be lower to the whole existing company. so you can expect the output to continue to increase it's going to come that increase because we're going to do rate increases because our output is the lowest in the industry because we continue to increase the adoption of xview plus and apps Right now we have around 650,000 apps, which is not part of the, it's not the ex-view, but it's third-party apps on that part. We grow 10% just in one part compared to what we have before, and that's contributed to the increase in the output. So as long as we stabilize that, you can bet our output is going to increase.

Thank you. Very clear. Thank you, Fanny.

Thank you. Our next question is from Raul Fernandez with Interactivo. Please proceed with your question.

Hi. My question has been answered in the previous comments. Thank you.

Thank you, Raul. Thank you, Raul.

Our next question is from Luca Brendam with Bank of America. Please proceed with your question.

Hi. Good afternoon, everyone. Thank you for taking my question. So my question is regarding margin expansion on cable. The dividend margin had a little bit of a decline in the last two quarters, so I just wanted to get more color on what have been the drivers for that. I know that was the expansion plan and also expansion in mobile. I wanted to know if there was something else to consider here. And also looking forward, how we can think about those margins going forward. If more expansion, margins should be pressured even further, and also with mobile growing more, this could also affect it. Thank you. Good question, Luca. Luis, go ahead and compliment.

Yeah, Luca, you're right on point. Basically, the... Cause for the reduction in margin in cable operations comes from the expansion plans. As we have less efficient territories, on the territories we are just static. We are not really expected to have the same number of subscribers per kilometer since day one. There are some fixed costs and fixed expenses of salaries that we have to pay since day one for those territories, and that hits the margin overall on the cable operations. And as you also mentioned, the mobile services have lower margins, and as they grow, they will pressure a little bit the margins. And there were also some non-recurrent things that came on Q4 mainly that impacted, but most of the impact comes from the expanding territories. And Raymond?

Let me compliment what Luis is telling you. He has, of course, all the details on that part. What we see is that those levels that we have before of 49 were great levels. We would like to go back to those. It's going to be tough to get to that 49 back again. What we, and you can see on your numbers, is that we took a four-point decrease in margin because of the expansion. Now we are pretty much three points below to where we are. We feel for everything that Luis is telling you, corporate segment, growth of MVNO, different pressures that we have in OPEX, whatever. We feel that we're going to continue to have, you can bet on that, the best margin in the industry, and it will be between 47 to 48 percent. That's what we feel. Of course, I will tell you closer to 48. Instead of the 49.3, 42, Luis is killing me. But that's how we see that. You know, we see that the main expansion and the hit that we have in 2022 second half was to build all the infrastructure not the variable kilometers of network, but to build warehouses, warehousing, operational offices, getting the organization in place to be able to sell. Now it's variable kilometers on that part. We should be much more efficient in order to bring that and those areas continue to increase penetration. So our margin in those areas will continue to increase. The margin was hit because of the expansion, not because of megacable in that part. So you can expect the levels that we have right now because of the expansion, but we'll come back close to where we were after we finish the expansion part of the project.

Very clear. Thank you. Thanks to you.

Thank you. Our next question is from Alejandro Azar with GBM. Please proceed with your question.

Hi. Good morning, Enrique, Raimundo, Luis. First, just a follow-up on questions on CAPEX. If I recall, is CapEx is going to go back to the 40% to sales over the rest of the year? And Raimundo, you mentioned the price increase was going to have an impact of three percentage points on revenues. That's the first one. And the second one is on competition. What are you seeing on competition in your expansion plan? Because we're hearing from other players that they are you know, being more careful on user growth. And the last one is, and I don't know if you have already answered this, but on cost and margins, you mentioned operating leverage will take you to better margins in the next couple of quarters and years. But as new promotions get, this hurts your ARPU momentarily. So when do you think is this 24 or 25 when the company has a more robust operating leverage and we could see a higher EBITDA growth. Thank you.

Thank you, Alejandro. Yes, like Luis said, we're still going and targeting that 40% cap. We want to build the rest of the 2.5 million home paths that we have for this year. That one where we are, and the capital will come also from subscriber CPE equipment, not only from network. So as long as we grow, we have that pressure. Yes, as I said internally, those subscribers were aiming three basis points of the price and the rate increase that we have, but that's not going to be the main reason for growth in the evidence. That's going to compensate the new subscribers that has a lower ARPA. So you cannot account that the 3% is going to hit straight to the revenue because some, or the ARPA, because some, or the majority, all the new subscribers will come with a lower ARPA. And as you know, we're increasing those items. So what I'm trying to explain is as long as the gross ads continue to increase, they will contribute with a lower ARPU to the existing one. So you have to compensate ARPUs in between subscribers with low, because they are new, in promotional, with rate increases, and also with the sales of ads and the takeoff on ARPUs per unit subscriber. That's how we're trying.

In terms of competition... Would you remind us the promotional period, is that three months, six months?

The majority of the market will have that for six months.

Okay.

Which is pretty much what the competition does in other parts. I mean, we're below competition. Competition runs in some parts with 12 months in the majority, and in some more conservative, six months. We believe we don't have to go to 12 months. We can stay in six months on that part. That's our strategy, and that's how we reached the 147,000 growth or increase in broadband subscribers in the world, which was the highest among the peers by far. And we did that still with the lowest amount of compass compared to our peers. So check of penetration and the growth that we have compared to Compass, and again, we're very, very pleased of the results. Competition, you say, is careful about what they see into the future. Well, some of them announced they are not going to expand Compass, and other ones are expanding one-third, one-fourth of what we're doing in our plan. We're not planning to move to where we are because of the good results and the product that we have on that area. And what they say about the margins is the margins are going to continue to be pressure. Okay. In these coming quarters, because of the expansion program, the huge amount of kilometers have gone past and subscribers coming on the quarters to come. I did not say that it's going to be a rebound in the next quarter or two quarters to come. I'm saying that it's going to come in the quarters to come. I will tell you that 2024, it will look way much more better in terms of margin. For me, it would be more important to tell you that we went down to 44% margin in the last quarter. Now we're up to 45%. So that's a level only three points below to what we have before, regardless of getting a company that goes from 9.5 million compas and it's going to get to 17 or 18 million compas. Regardless of that big growth, we only took 380.4, and still way above our peers. So that's where we will continue to focus in having efficiency. Regardless of what I'm telling you, we continue to look into ways to improve efficiency in terms of cost and expenses. All that is ready. I would like to keep it to ourselves. You know, we're very tight in cost, but still we're looking for better productivity of our employees and better automatization of the operation that will bring us. So that's our view of the company, Alejandro.

Thank you. Very clear, Raimundo. One more, if I may, to Luis. Thinking perhaps 2026, 27, how would the capex ratio to sales look without growth? What is the maintenance, you know?

Right.

Sure. And we consider that our margins are going to be, sorry, our capex to revenues is going to be rounding 20%. and maybe below that. Below that.

Yeah, because that 20 includes still growth, right? Boxes, new clients, but purely maintenance, would that be like 15 or lower?

Not below 15.

That will include, of course, the few kilometers that will be built after that. We will still be building new kilometers As the cities grow, we will include them, of course. So it's tricky to specifically yet get to 15%, as you mentioned. So we will say that it will be between 18%, 20% overall, and including some growth at the end when we are done with the new cities.

Let me justify why we believe that, too. The conversion of the network in terms of going from FTTH 2.5 gigs, that's what we have right now, to 10 giga for FTTH, that is the way that will come on the migration in years to come, not now. I'm telling you, in years to come. It's really cheaper because you don't have to do anything to the external LAN. You don't have to change any passive part of the network, not fiber, not fast, not everything, where the customer is connected. Besides that, our CPEs, all the OTTs, AV1 CPEs that we have with 4K capability, will not have to be replaced, in our opinion, in years to come. in some years to come. So our investment in CPs also is cheaper to what we have between 2020 and 2022. Our capex will sure get between 15 to 20, and that's where we're targeting, with margins of evidence of 47 or 48%. So if we look at doubling the size, as we said, or increasing the number of kilometers and home passes, and sure get to the penetration rate of subscribers, we sure will look very good into 26 and 27.

Very clear, Armando and Luis. Thank you.

Thank you very much. You're welcome.

Thank you. Our next question is from Alejandro Callostra with BBVA. Please proceed with your question.

Hi. Good morning.

I have a question about pricing. You've mentioned multiple times that you're putting discounts in order to gain traction in new territories, but could you tell us what the discount that you're offering in these new territories and how these prices with and without discounts compare to the prices of your competitors, and how are you that sure that you will not initiate a price war? And also, I also would like to know what's been your churn experience in these territories once the discounts ended.

Sure, Alejandro. I can tell you, for example, in terms of the double play that we have, we have good speed and work target below what other companies have. For example, Telmex in that part, our double play pays at 350 pesos with 50 megabits. It's very competitive. It's the same price that we have in the existing territories. Our triple play is below what the competition has. Subscribers of Total Play and Easy has an ARPU the output is public, you can see the output that they have. So we're targeting below that and we do that in every market that we have because our output in organic is below what they have in their existing territories without them having our competition. That's why we manage to have the penetration that we have coupled with the product and the network that we have over there. Right now we're selling at 400 and 500 pesos. whether it's double or triple, whether you put a credit card or you don't put. Those part of the little details, I can tell you that we are below the output that they have by around 10%.

That's with the discount, Raimondo?

With the discount, you take 50 pesos less than what I'm telling you.

So we are below over 10%.

Over 10%. On the discount. On the discount. Once they finish to have that, okay, after the six months, we are only 30 pesos, 20 pesos, 50 pesos below competition looking into different territories. We don't want to start the price war. We want to continue to have our existing pricing structure when we finish the promotional rate. What I can tell you is when they finish that period, they pay the same that we have in organic, pretty much. So some of the research that you can see out there shows that mega cable subscriber targets to the lowest price That's why we have the highest penetration, the lowest income in the house. And that's why we're below competition across all the different systems that we have. So we don't make any big difference. Once we finish the promotional period, they will have an ARPU very similar of what we have in our existing territories, which, of course, tries to increase with ARPs and rate increases. The second part you asked about the churn. The churn, when you start a very aggressive campaign, has two components. One component is from people that take the promotion and disconnect in the first 60 to 90 days. We have that very clear and identified. But what I can tell you is that when we pass that promotion from those sales that we do, which is normal. It's part of the scratch that we do in the first 60 days of something that is coming from the market. When we have that, churn is below to what we have right now, slightly below to what we have right now. So it is very, very good, the level of churn in the expansion territory.

OK, that's great to know. Thank you. So it's my understanding that once these counts end, the pricing will not be that different from your competitors. So how do you plan to differentiate your product from the rest?

As I told you, we have the three axes of our strategy. I mean, we have a great, great network already built. In our existing territories, we convert our network in that part. I said that 55% of the network is It's FTPH and 70% by the end of the year. Regardless when we have the, also in HFC, the best plan in HFC because all our nodes are at 125, HomePath, 250, and 500. You can count that it's way better than in the United States. So one is network. The other one is product. Our product XQ Plus platform is way better than the competition in that part. That's proven by the 90 million reproductions that we have in the existing subscribers and growing across. And the other one is company efficiency. Our net model score is increasing. Our margin is good. That's how we managed to keep those prices below competition. We will continue to have that strategy, I think.

Okay, understood. Thank you. Second question, if you may, very quickly. Despite all the answers you've given during the call, I still don't have clear when you expect EBITDA growth to accelerate. I believe Enrique said that probably at the end of this year, most probably in 2024, but I'd like you to be more specific. When do you expect EBITDA growth to accelerate? And I would also like to understand if EBITDA growth acceleration should come mainly from this recovery in prices once these counts stabilize or end, or if the growth should come mostly from efficiencies? Thank you.

So, well, first of all, Alejandro, let me tell you, we are increasing new kilometers, and that will be the case for the following seven, eight quarters. we will be increasing the number of subscribers for the following same number of quarters and beyond that. Once the subscriber base is kind of stabilized, then you would see the EBITDA margins to grow and to go up and also, of course, the EBITDA. We still have negative EBITDA in the new territories and it's going to be, you know, slowly improving These are going to be improving, but it's not something that you're going to see in Q4 or Q3 this year. This is going to be going to zero or positive EBITDA creation, but it's going to be slow. So for 2025, definitely you're going to see a change as Raimundo established, and that's going to be shown even before 2025, so second half of 2024, you're going to see the EBITDA acceleration in the peaking. And, of course, the cap is reduction, and that's when we are going to see the cash flow, second half of 2024, cash flow going up like crazy.

Increasing EBITDA for 20 years. The increase, Alejandro, in EBITDA for 2023 is going to be a shift for sure compared to 2022. There's going to be a growth in EBITDA for sure. You just have to count what the EBITDA of the first quarter, the efficiencies that we have, and the growing of subscribers for the next quarter to come. So the trend of growing EBITDA, it is real.

Okay, very clear now. Thank you very much.

Thank you, Alejandro.

Our next question is from Andres Coelho with Scotiabank. Please proceed with your question.

Thank you for the follow-up. It's going to be a quick one. Are you still in conversations with Televisa? Is that still going on, the pressure of EC and Medicaid? Is that still going on, or there are no ongoing negotiations?

Thank you. I couldn't understand, sorry.

There are still conversations with Televisa. Ah, oh, no, no.

The answer is no, yeah.

Next question, please. This is from Marcelo Santos with JP Morgan. Please proceed with your question.

Thank you for the follow-up as well. Very quickly, when you said the maximum leverage that you would not surpass, was it three times net debt EBITDA?

No, no, no, no, no. I mentioned two, and everyone here made faces to me. The expansion plan doesn't consider going up over 1.5 times EBITDA. The number that I mentioned is that... That is going to be in 2024. 2024. So we're still a year to reach that in the 1.4 or below, 1.5 times. But we don't know what new opportunities or what new things could arise. So we just want to have room to go above that. But the expansion plan doesn't consider anything over 1.5. Yeah.

No, it was very clear.

Yeah, thank you for asking, Marcelo.

I mean, it's just- Clarifying. Clarifying.

Thank you. I'd like to turn the floor back over to management for web platform questions.

Okay, we have one from Citi. The financial reports reported at the BMV When looking at investing flow, there is a near 2 billion expense. Can you please share some details about what is this about?

Yeah.

Some of the flows are coming from some financial funding tools, temporary financial tools, and those will be repaid before the end of the year, so it's a short term.

We have no more questions, so I'll turn it over to Mr. Yamuni for final remarks.

Okay, thank you very much. And as a final remark, please, as always, it is a pleasure to discuss our results with you. Please contact our Investor Relations Department if you have any questions or concerns regarding the company. Have a wonderful day, and in Mexico, have a wonderful long weekend. Next Monday is a holiday here. Thank you very much, and We are at your request if you have any questions. Thank you very much.

Yeah, we're very, very pleased, and we appreciate all your questions, regardless of what expansion plan and the company. It really was a very good session, and as Enrique said, have a very nice weekend, and we're open to any questions that you may have in the individual.

Thank you. Thank you, everybody.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.