Axtel, S.A.B. de C.V. Reports 1Q10 Results
SAN PEDRO GARZA GARCIA, Mexico--(BUSINESS WIRE)-- Axtel, S.A.B. de C.V. (“AXTEL” or “the Company”), a leading Mexican fixed-line integrated telecommunications company, announced today its unaudited first quarter results ended March 31, 2010(1).
Highlights:
- AXTEL’s business forecast contemplated a relatively soft first quarter; however, due to a significant reduction in international traffic revenues, the Company experienced weaker than expected results. The temporary external circumstances which affected international traffic revenues have mostly receded.
- To improve its financial performance, AXTEL is reinforcing its productivity measures. Among others, the Company is reducing its workforce and implementing efficiency initiatives related to rents and outsourcing activities that will contribute to reduce operating expenses by 15 to 20 million pesos per month starting in May.
- Consistent with AXTEL’s prudent financial policy, the Company reopened its 2019 Senior Notes program for US$190 million in March. Net proceeds were mostly used to prepay the amortizing term loan and to refinance short term debt. AXTEL successfully priced the transaction at a lower yield than the original $300 million dollar transaction and extended the average life of debt beyond 8 years.
Revenues from operations
Revenues from operations totaled Ps. 2,467 million in the first quarter of year 2010 from Ps. 2,795 million for the same period in 2009, a decrease of Ps. 328 million, or 12%.
Revenues from operations totaled Ps. 10,641 million in the twelve-month period ended March 31, 2010, compared to Ps. 11,520 million in the same period in 2009, a decrease of Ps. 879 million, or 8%.
Sources of Revenues
Local services. Local service revenues excluding our largest wholesale customer totaled Ps. 952 million in the first quarter of 2010, compared to Ps. 965 million for same period in 2009, representing a decrease of Ps. 12 million, or 1%. This decline is explained by price reductions provided to customers reflecting our better costs and by an increase in the number of local calls and cellular minutes included in flat-fee commercial packages being partially compensated by a PS. 42 million increase in monthly rents. For the twelve month period ended March 31, 2010, local revenues totaled Ps. 3,892 million excluding our largest wholesale customer, compared to Ps. 4,053 million registered in the same period in 2009, a Ps. 161 million, or 4%, reduction. Revenues coming from monthly rents and value-added services represented 63% of local revenues during the three-month period ended March 31, 2010.
Long distance services. Revenues excluding our largest wholesale customer totaled Ps. 267 million in the first quarter of 2010, compared to Ps. 303 million for same period in 2009, representing a decrease of Ps. 36 million, or 12%. The reduction is mostly explained by a decline in overall traffic and an increase in minutes free of charge included in flat-fee commercial offers. Revenue per minute for billed traffic marginally declined from Ps. 0.77 to Ps. 0.75 year-over-year. For the twelve month period ended March 31, 2010, long distance revenues totaled Ps. 1,132 million excluding our largest wholesale customer, compared to Ps. 1,249 million registered in the same period in 2009, a Ps. 117 million, or 9%, reduction.
Data & Network. Data and network revenues amounted to Ps. 608 million in the first quarter of 2010, compared to Ps. 641 million in the same period in 2009, a decrease of Ps. 33 million explained by price and volume pressures on dedicated Internet and VPN services to business customers. Dedicated Internet and VPNs represented 89% of data & network revenues during the quarter. For the twelve month period ended March 31, 2010, data and network services revenues totaled Ps. 2,419 million from Ps. 2,522 million registered in the same period in 2008, an decrease of Ps. 103 million.
International traffic. In the first quarter of 2010, international traffic revenues totaled Ps. 240 million, decreasing Ps. 59 million or 20% versus same quarter of previous year explained by the 11% appreciation in the average peso/US$ exchange rate and by reduced unit prices intended to mitigate blocking practices being carried out by the incumbent during the quarter. For the twelve month period ended March 31, 2010, revenues increased 21% compared to the same period in 2009 explained by the 7% increase in traffic and by the change in the mix of on- and off-net traffic.
Other services. Quarterly revenue from other services declined Ps. 110 million, or 30%, mostly explained by revenues of integrated services contracts that concluded in the first quarter of 2009. For the twelve month period ended March 31, 2010, other services revenues totaled Ps. 1,245 million from Ps. 1,567 million registered in the same period in 2009, a decrease of a Ps. 322 million of which Ps. 46 million is attributable to the effect of our largest wholesale customer.
Consumption
Local Calls. Local calls excluding our largest wholesale customer totaled 418 million in the first quarter of 2010, compared to 412 million for same period in 2009, representing an increase of 7 million, or 2%. An increase in the average number of lines in service and further penetration of commercial offers including local calls free of charge explain this year-over-year increase. For the twelve month period ended March 31, 2010, local calls totaled 1,716 million excluding our largest wholesale customer, compared to 1,740 million registered in the same period in 2009, a 24 million, or 1%, reduction.
Cellular (“Calling Party Pays”). Minutes of use of calls completed to a cellular line excluding our largest wholesale customer amounted to 146 million in the three-month period ended March 31, 2010, compared to 133 million in the same period in 2009, an increase of 10% equivalent to 14 million minutes due to further penetration of commercial offers including cellular minutes within the monthly rent. For the twelve month period ended March 31, 2010 and excluding our largest wholesale customer, cellular minutes increase 30 million, or 5%, from 549 million registered in the twelve-month period ended March 31, 2009, to 579 million in the same period in 2010.
Long distance. Outgoing long distance minutes amounted to 447 million for the three-month period ended March 31, 2010 from 461 million in the same period in 2009, a 14 million minute decrease, mostly explained by a decline in wholesale traffic. Domestic long distance minutes represented 96% of total traffic during the quarter. For the twelve month period ended March 31, 2010, outgoing long distance minutes amounted 1,783 million, compared to 1,718 million registered in the same period in 2008, an increase of 65 million of minutes, or 4%, mostly explained by further penetration of mass-market offers including national and international long distance minutes within a monthly rent.
Operating Data
Lines in Service. As of March 31, 2010, lines in service totaled 984 thousand, an increase of 67 thousand from the same date in 2009. During the first quarter of 2010, gross additional lines totaled 84 thousand compared to 50 thousand in the first quarter of 2009. Disconnections in the first quarter of 2010 were 11% lower than the disconnections recorded in the first quarter of 2009. Net adds for the quarter totaled 22 thousand. As of March 31, 2010, residential lines represented 67% of total lines in service.
Line equivalents (E0 equivalents). We offer from 64 kilobytes per second (“kbps”) up to 100 megabytes per second (“Mbps”) dedicated data links in all of our thirty-nine existing cities. We account for data links by converting them to E0 equivalents in order to standardize our comparisons versus the industry. As of March 31, 2010, line equivalents totaled 454 thousand, a decrease of 24 thousand from the same date in 2009.
Internet subscribers. As of March 31, 2010, Internet subscribers totaled 198 thousand, an increase of 64%, from 121 thousand recorded on the same date in 2009. Broadband subscribers increased 78%, totaling 186 thousand as of March 31, 2010. During the first quarter of 2010, broadband subscribers increased 24 thousand compared to 12 thousand in the same period of 2009. This growth is attributable to the marketing campaign recently launched, the new commercial offers introduced during the quarter and the functionality and bandwidth capacity available in our WiMAX network. The increase in broadband subscribers comes from new customers as well as up-selling existing subscribers from non-data or dial-up service to broadband access solutions.
Cost of Revenues and Operating Expenses
Cost of Revenues. For the three-month period ended March 31, 2010, the cost of revenues represented Ps. 693 million, a decline of Ps. 135 million, compared with the same period of year 2009, mostly due to lower long distance termination rates and reduction in fixed-to-mobile interconnection costs associated with lower traffic. For the twelve month period ended March 31, 2010, the cost of revenues reached Ps. 2,852 million, a reduction of Ps. 700 million in comparison with the same period in year 2009 due primarily to Ps. 381 million and Ps. 364 million reductions in fixed-to-mobile interconnection and long distance termination costs, respectively.
Gross Profit. Gross profit is defined as revenues minus cost of revenues. For the first quarter of 2010, the gross profit accounted for Ps. 1,773 million, a decrease of Ps. 193 million compared with the same period in year 2009. The gross profit margin increase from 70.4% to 71.9% year-over-year is mostly due to improved cellular margins and reduced domestic long distance costs. For the twelve month period ended March 31, 2010, our gross profit totaled Ps. 7,789 million, compared to Ps. 7,969 million recorded in the same period of year 2009, a decrease of Ps. 180 million or 2%.
Operating expenses. For the first quarter of year 2010, operating expenses totaled Ps. 1,095 million compared to Ps. 1007 million for the same period in year 2009. The Ps. 88 million increase is explained by sales commissions generated by the larger number of gross additional lines acquired in the first quarter of 2010 compared to first-quarter 2009, by inflation-adjusted maintenance costs and by increased advertizing expenses. For the twelve month period ended March 31, 2010, operating expenses totaled Ps. 4,231 million, coming from Ps. 3,887 million in the same period in 2009, adjusted for the non-cash Ps. 135 million benefit due to a change in the uncollectable reserves accounting method for corporate customers recorded in the fourth quarter of 2008. Personnel represented 46% of total operating expenses in the twelve month period ended March 31, 2010.
Adjusted EBITDA(5). The Adjusted EBITDA totaled Ps. 679 million for the three-month period ended March 31, 2010, compared to Ps. 960 million for the same period in 2009. As a percentage of total revenues, Adjusted EBITDA represented 27.5% of revenues in the first quarter of 2010, 682 bps lower than the margin recorded in the year-earlier quarter. For the twelve-month period ended March 31, 2010, Adjusted EBITDA amounted to Ps. 3,558 million, compared to Ps. 4,082 million in the same period in year 2009.
Depreciation and Amortization(9). Depreciation and amortization totaled Ps. 709 million in the three-month period ending on March 31, 2010 compared to Ps. 795 million for the same period in year 2008, a decrease of Ps. 86 million or 11% reflecting lesser capital expenditures made in the twelve-month period ended March 31, 2010 compared to investments made in the same period in year 2009. Depreciation and amortization for the twelve-month period ended March 31, 2010 reached Ps. 2,980 million, from Ps. 2,949 million in the same period in year 2009, an increase of Ps. 30 million, or 1%.
Operating Income (loss). In the three-month period ended March 31, 2010, the Company recorded an operating loss of Ps. 30 million compared to an operating income of Ps. 164 million registered in the same period in year 2009. For the twelve month period ended March 31, 2010 our operating income reached Ps. 578 million when compared to the result registered in the same period of year 2009 of Ps. 1,267 million, a decline of Ps. 689 million.
Comprehensive financial result. The comprehensive financial gain was Ps. 125 million for the three-month period ended March 31, 2010, compared to a loss of Ps. 666 million for the same period in 2009. The Ps. 360 million FX gain recorded in the first quarter of 2010 is explained by the 5% peso appreciation against the U.S. dollar compared to a 6% depreciation recorded in the first quarter of 2009 that generated the Ps. 463 million FX loss. The Ps. (39) million result in the change in fair value of derivative instruments in the first-quarter of 2010 is explained by the non-cash Ps. 24 million positive fluctuation of certain hedging instruments and by a Ps. (63) million change in the valuation of the zero-strike-calls. The reduced comprehensive financial loss for the twelve month period ended March 31, 2010, compared to 2009, is mostly explained by the 13% Mexican peso appreciation in the 2010 period, compared to a 34% depreciation for the twelve month period ended March 31, 2009.
Debt. The increase in total debt is mostly explained by (i) Ps. 6,107 million from the 2019 bond issuance, (ii) Ps. (4,951) million prepayment of 2012 Term Loan and 2013 Senior Note, and (iii) by the non-cash effect of the Mexican peso appreciation against the US dollar affecting favorably the valuation of our debt denominated in foreign-currency.
Cash. As of the end of the first quarter of 2010, our cash and equivalents balance totaled Ps. 1,433 million, compared to Ps. 1,064 million a year ago. Sixty-eight percent of the cash balance is maintained in dollars, the rest in pesos. During the first quarter of 2010, our cash balance was affected by the drawdown of a US$34 million guarantee by Telefonos de México S.A.B. de C.V. No regulatory or judiciary order supported this arbitrary action and we are currently evaluating the actions to be taken.
Capital Investments. In the first-quarter of 2010, capital investments totaled Ps. 677 million, compared to Ps. 660 million in the year-earlier quarter. Accumulated for the twelve-month period ended March 31, 2010, capital investments totaled Ps. 2,691 million, compared to Ps. 3,847 million in the same period in year 2009. Access represented approximately 56% of this figure.
Other Investments. The Company maintained an economic position equivalent to 26.1 million AXTELCPOs in fully-funded “zero-strike-calls” (ZSC), settlement in cash, with a strike price of 1 cent, during the first quarter of 2010. AXTEL paid an average option premium of $8.53 pesos for the 26.1 million zero-strike-call options.
Other important information
1) Figures in this release are presented based on Mexican financial reporting standards (FRS).
2) Revenues are derived from:
i. Local services. We generate revenue by enabling our customers to originate and receive calls within a defined local service area and by providing offers with Internet access included in the monthly rent. Customers are charged a flat monthly fee for basic service, a per call fee for local calls (“measured service”), a per minute usage fee for calls completed on a cellular line (“calling party pays,” or CPP calls) and value added services. Customers also acquire flat monthly fee packages including limited or unlimited local calls, value added services and Internet access.
ii. Long distance services. We generate revenues by providing long distance services (domestic and international) for our customers’ completed calls from AXTEL lines.
iii. Data & network. We generate revenues by providing data, Internet access and network services, like virtual private networks and private lines.
iv. International traffic. We generate revenues terminating international traffic from foreign carriers.
v. Other services. Include among others, activation fees, customer premises equipment (‘‘CPE’’) sales and revenues generated from integrated telecommunications services provided to corporate customers, financial institutions and government entities.
3) Cost of revenues include expenses related to the termination of our customers’ cellular and long distance calls in other carriers’ networks, as well as expenses related to billing, payment processing, operator services and our leasing of private circuit links.
4) Operating expenses include costs incurred in connection with general and administrative matters which incorporate compensation and benefits, the costs of leasing land related to our operations and costs associated with sales and marketing and the maintenance of our network.
5) Adjusted EBITDA is defined as net income plus interest, taxes, depreciation and amortization, and further adjusted for unusual or non-recurring items. For additional detail on the Adjusted EBITDA Reconciliation, go to AXTEL’s web site at www.axtel.com.mx
6) Earnings per CPO are calculated dividing the net income by the average number of Series A and Series B shares outstanding during the period divided by seven. The number of outstanding Series A and Series B shares was 96,636,627 and 8,672,716,596, respectively, as of December 31, 2009.
7) Net Debt to Adjusted EBITDA: The figure comes from dividing the net debt, including cash and cash equivalents and mark-to-market of derivative instruments, at the end of the period by the annualized, if applicable, run-rate Adjusted EBITDA.
8) 802.16e WiMAX is a new IP-based voice and data wireless technology designed to deliver voice and data solutions, under fixed, portable, nomadic and mobile environments, to residential and business customers.
9) Depreciation and amortization includes depreciation of all communications network and equipment and amortization of pre-operating expenses and cost of spectrum licenses, among others.
10) Information provided by the Mexican Stock Exchange.
About AXTEL
AXTEL is a Mexican telecommunications company that provides local and long distance telephony, broadband Internet, data and built-to-suit communications solutions in 39 cities and long distance connectivity to business and residential customers in over 200 cities. AXTEL provides telecommunications services using a suite of technologies including FWA, WiMAX, copper, fiber optic, point to multipoint radios and traditional point to point microwave access, among others.
AXTELCPO trades on the Mexican Stock Exchange and is part of the IPC Index. AXTEL’s American Depositary Shares are eligible for trading in The PORTAL Market, a subsidiary of the NASDAQ Stock Market, Inc.
Visit AXTEL’s Investor Relations Center on www.axtel.com.mx
CONTACT:
Axtel, S.A.B. de C.V.
Adrian de los Santos, +52(81) 8114-1226
IRO & Corporate Finance Director
KEYWORDS: United States Mexico North America Central America New York
INDUSTRY KEYWORDS: Technology Data Management Internet Networks Telecommunications Other Technology Mobile/Wireless
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