America Móvil B de C : Q3 2023 Transcript

FINAL

Bloomberg Transcript

Company Name: America Movil SAB de CV

Company Ticker: AMXB MM Equity

Date: 2023-10-18

Q3 2023 Earnings Call

Company Participants

Carlos Garcia Moreno, Chief Financial Ofcer

Daniel Hajj Aboumrad, Chief Executive Ofcer

Daniela Lecuona, Head of Investor Relations

Oscar Von Hauske, Chief Fixed Line Operations Ofcer

Other Participants

Alejandro Azar, Analyst

Alejandro Lavin, Analyst

Andres Cardona, Analyst

Cesar Medina, Analyst

John Ho, Analyst

Marcelo Santos, Analyst

Phani Kanumuri, Analyst

Soomit Datta, Analyst

Unidentifed Participant

Victor Tomita, Analyst

Walter P. Piecyk, Analyst

Presentation

Operator

Good morning. My name is Daisy and I'll be your conference operator today. At this time, I would like to welcome everyone to the America Movil Third Quarter 2023 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Now I will turn the call over to Ms. Daniela Lecuona to begin, Head of Investor Relations. Please go ahead.

Daniela Lecuona {BIO 15302125 }

Thank you so much. Good morning, everyone. We're very happy to -- to host this call this morning to discuss our third quarter fnancial and operating results. We have in the room Mr. Daniel Hajj, CEO; Mr. Carlos Garcia Moreno, CFO; and Mr. Oscar Von Hauske, COO.

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FINAL

Bloomberg Transcript

Company Name: America Movil SAB de CV

Company Ticker: AMXB MM Equity

Date: 2023-10-18

Daniel Hajj Aboumrad {BIO 1898715 }

Hi, good morning. Thank you, Daniela. Thank you for being in this third quarter fnancial and operating report. And Carlos is going to make a summary of the results.

Carlos Garcia Moreno {BIO 1713687 }

Thank you, Daniel. Good morning, everyone. Well, buoyed by -- by strong US economic data, particularly on employment levels and recently also on consumer spending and lingering infation concerns, 10-year dollar interest rates shot up by approximately 80 basis points over a 10-week span in the third quarter to 4.6% at the end of September, driving another bout of dollar strengthening. By the end of the quarter, there was practically no more hope that interest rates would decline in the latter part of the year and there was instead preoccupation that the Fed was still not done raising interest rates. As you can see in the market, the rates have continued to go up through today and they are about to close to -- to reaching 5% on the 10-year-- on the 10-year tenure.

We added nearly 3 million wireless subscribers in the third quarter of which 2 million were postpaid clients, 1.2 million in Brazil, 460,000 in Austria, which includes IoT devices from A1 Digital, 104,000 from Colombia, and 93,000 from Mexico. On our prepaid platform, we had net additions of 950,000 clients during the period. Eastern Europe led with 210,000 clients, followed by Brazil with 193,000, Colombia with 173,000, Argentina with 93,000, and Mexico with 81,000. In the fxed line segment, we gained 223,000 broadband accesses with 65,000 each from Argentina and Brazil. Voice lines and PayTV units decreased by 160,000 and 58,000, respectively.

At the end of September, our subscriber base totaled 306 million wireless subscribers, of which 119 million were postpaid clients. Additionally, we had 73 million fxed-line RGUs, which includes 32 million broadband accesses, 13 million PayTV clients, and 29 million landlines. Year-on-year, our postpaid base increased 3.7%, prepaid 0.7%, and fxed broadband accesses 3.2%, with fxed voice lines falling 2.6%, as you can see in the slide.

Third quarter revenue reached MXN204 billion, a 3.3% year-on-year reduction in Mexican peso terms, with service revenue falling 4.3%. As has been the case throughout several quarters, these fgures refect the appreciation of the Mexican peso versus all other currencies in our region of operations, reducing the Mexican peso value of our international revenue. At constant exchange rates, service revenue growth expanded 3.8% and EBITDA 5%, which refects among all things, the efect of tower sales in Mexico and Peru that took place in the period and one-of events in Austria. Correcting for these, adjusted EBITDA was up 3.9% just about the same rate as service revenue as you can see on the slide.

On the fxed-line platform, service revenue remained on trend, increasing 2.2% year-on- year, having risen from the 0.2% pace seen in the second half of last year, whereas on the mobile platform it rose 4.8%. Brazil attained a positive fxed-line service revenue growth of 0.1%. In Mexico and Colombia, fxed-line revenue decelerated, remaining stable in Austria and surging in Eastern Europe to 21% and in Central America to 5%. In both cases, it was the most rapid pace in at least one year.

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FINAL

Bloomberg Transcript

Company Name: America Movil SAB de CV

Company Ticker: AMXB MM Equity

Date: 2023-10-18

The slowdown in Mexico from 5.6% to 3.6% had to do with corporate network services. In fact, broadband revenue actually accelerated to 8.2% which is its best showing in a decade. In several countries, Brazil, Peru, Colombia, and Central America, we had among the highest, if not the highest, net broadband additions in the past three years. Others including Mexico, Austria, Peru and Central America posted their most rapid broadband revenue growth in at least one year, that can be seen in the chart with Brazil and Eastern Europe sustaining strong growth rates. This led to our consolidated broadband revenue expanding at the fastest rate in more than two years, which was 6.4%.

On the mobile platform, revenue growth decelerated in Mexico from 6.4% to 4.6%, picked up in Central America to 9.5% from 8.8% with Brazil's adjusting to a normal pace after a hump following the incorporation of Oi mobile clients in second quarter of 2022. This is something that you can see here in the -- on the slide. But going back to -- to fxed, it's important to note that revenue from corporate network services has been gaining share within our revenue base. This quarter it became the second most important revenue line within the fxed-line platform after broadband services with the consolidated fgure rising 6.5%. It already accounts for 19% of fxed-line services overall with this share reaching 39% in Austria, 30% in Eastern Europe, and 25% in Mexico.

Our operating proft stood at MXN42 billion in the quarter, a 6.7% year-on-year reduction in Mexican peso terms which partly stems from the EBITDA decline mentioned before, but also from a 17% increase in depreciation of rights of use associated with tower leases. Most of this efect had to do with successful renegotiation a year before of certain lease agreements in Brazil that reduced Claro's obligations to a tower company.

Our comprehensive fnancing cost totaled MXN30 billion, including an MXN8.8 billion net interest expense which was 3.9% lower than that registered a year before. Under other fnancial expenses, there is a MXN4.7 billion charge associated with the partial impairment of our stake in Claro Chile, our joint venture with Liberty Latin America pursuant to the fair value of the new JV for which under IFRS rules had to be defned within a year after its closing.

Finally, our comprehensive fnancing costs also include a MXN12 billion foreign exchange loss in the quarter, resulting principally from a 3.8% depreciation of the Mexican peso versus the dollar in the third quarter. Net income amounted to MXN2 billion. It was equivalent to MXN0.03 per share or $0.04 per ADR. Year-to-date, our net income totaled MXN58 billion. Through September, our net income totaled MXN58 billion, 2.9% lower than that registered year before.

Capital expenditures came in at MXN100 billion in the nine months to September where distributions to shareholders reached MXN34 billion. These include share buybacks in the amount of MXN7.7 billion and dividends of MXN16 billion and were partly funded by MXN3.7 billion in dividend income. To cover all of these expenditures, but also labor obligations in the amount of MXN10 billion, we resorted to our operating cash fow of MXN115 billion and to net fnancing in the amount of MXN12 billion in the quarter -- in the period with MXN5 billion coming in mostly from the payment of an earn-out on the Claro's [ph] platform.

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FINAL

Company Name: America Movil SAB de CV

Company Ticker: AMXB MM Equity

Date: 2023-10-18

As of September, our net debt excluding leases totaled MXN390 billion and was equivalent to 1.4 times last 12 months EBITDA. As you can see on the -- on the chart, it was fairly fat leverage ratio. It was MXN8.3 billion higher than the fgure at the end of December.

Okay. Well, thank you. And I will pass the foor back to Daniel for the Q&A session.

Daniel Hajj Aboumrad {BIO 1898715 }

Thank you, Carlos. We can start.

Questions And Answers

Operator

Thank you. (Operator Instructions) Our frst question today comes from Victor Tomita from Goldman Sachs. Victor, please go ahead. Your line is open.

Bloomberg Transcript

Q - Victor Tomita

Hello, good morning all and thanks for taking our questions. Two questions from our side. The frst one is on capital allocation. Given your healthy leverage position and cash fows, even considering your increased CapEx budget, do you have any plans to in anyway further increase cash deployments? So maybe by further increasing CapEx on fber or by further increasing equity stakes in specifc businesses as you did in Austria or by carrying out further M&A or even by increasing buybacks following the recent decline in share prices and seeing that you already seem to have increased buybacks based on the third quarter?

The second question from our side would be on corporate networks. You highlighted that there was an increase in relevance of corporate networks in your global revenue mix. Could you give us a bit more color on which types of corporate oferings have been driving that growth and on what their economics and margin profle is like compared to the more traditional consumer-focused telecom oferings? Thank you very much.

A - Carlos Garcia Moreno {BIO 1713687 }

Thank you. Thank you, Victor. Well, on the allocation of -- of resources, there is really nothing we are -- we are looking at on the M&A front as we have mentioned before. I think we're not looking at increasing anything more our CapEx certainly this year. And I think we will make some comments later regarding our budget for next year. But as regards the distributions, as you point out, we have been accelerating our -- our buybacks. I've been reiterating on various calls that our free cash fow is very cyclical and we basically tend to get most of our free cash fow in the -- in the last three, four months of the year. So that's typically when we would want to -- to increase our share buybacks.

If you look at the distribution or share buyback so far this year, we -- we spent about US$100 million in the frst quarter and $50 million in the second quarter, $272 million in

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FINAL

Company Name: America Movil SAB de CV

Company Ticker: AMXB MM Equity

Date: 2023-10-18

the third quarter. And so far this month, we've increased an additional $70 million. So, basically $350 million between the end of June and until so far in October. So still to go.

Obviously, in addition to this, we have already paid US$200 million of dividends and we have another payment of the same magnitude that we will be expecting in the middle of November. But -- so, again, some -- we can say something on -- on CapEx budget for next year.

A - Daniel Hajj Aboumrad {BIO 1898715 }

I can -- what we discussed and we have been saying in the last year is that we have a budget of $24 billion for three years, that's '23 -- '22, '23, and '24. And so we are on that budget. We increased a little bit the CapEx this year. We haven't fnished our budget for next year, but I think we are going to accomplish with that. So what we increased this year, maybe we are going to reduce that the next year. So that's more or less what we're thinking. We don't have anything extra on CapEx for 2024. So, we are on budget and we think we can do that.

On the corporate network, I think that's a segment that we are doing well. We are increasing in all the countries. And Oscar can talk a little bit about what are the new products and the products -- what we're looking is to have and to manage the networks of the customers and that's more or less what we're aiming for. And Oscar can -- can tell you a little bit more on that.

Bloomberg Transcript

A - Oscar Von Hauske {BIO 2053819 }

Yeah. Thank you, Daniel. As you say, the frst step is how do we manage the network of the customers. And there is the SD-WAN technology that allow us to do this in an easiest way. So when we move the customer through SD-WAN, we are trying to bring security, cloud services as well bundled in the services. And as well we are ofering what we call horizontal solutions. We are selling data lake as a services. We are selling AI as a services in our cloud. We develop what we call cloud broker that we -- we are agnostic as the type of cloud that the customer wants. If the customer want hyperscaler or one over cloud, they have a dashboard that could manage both clouds in a easy -- in a easy way. And as well, we are getting into the private wireless network.

I'm talking about vertical solutions for mining, for retail, for manufacturing and have been well received in the market. We see a big opportunity in this -- in this segment because it improves the efciency of the customers, brings productivity. And, you know, we are all on digital transformation and these products support that evolution. That's why we -- we see that market has a very good trend in the near future. So, all overall, on summary, we're not ofering only the classic and connectivity products that it's broadband or fxed or wireless or prepaid or postpaid or -- we're ofering all these new services to all the B2B customers.

A - Carlos Garcia Moreno {BIO 1713687 }

Another is that we are fully convergent. So in our ofering, we ofer as well mobile and fxed altogether to the customers.

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FINAL

Company Name: America Movil SAB de CV

Company Ticker: AMXB MM Equity

Date: 2023-10-18

Q - Victor Tomita

Very clear. Thank you very much.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Thank you.

A - Carlos Garcia Moreno {BIO 1713687 }

Thank you.

Operator

Bloomberg Transcript

Thank you. Our next question is from Eduardo Ruby [ph] from UBS. Eduardo, please go ahead. Your line is open.

Q - Unidentifed Participant

Hi, everyone. Thank you very much for taking our question. I would like to know if you could provide an update on the Mexican regulatory environment, discuss the (inaudible) revision? And if there is an additional regulatory risk for AMX, particularly on the concession given what happened in airports? And another one, if you could discuss also the spectrum prices, if you see any additional risk there too? Thank you very much.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Well, on the regulatory side, I think, to make a little history, we have been having 10 years of having these regulatory measures, 10 years accomplished all the measures that IFETEL has been forcing us. And -- and not too much to say. Only, I think that we expect and we think that these regulatory measures should relax in the future. At the end of the day, what the markets need is investment and what the customer wants is quality, price, a coverage that you attend the customer in a good way. So all these things you cannot put measures on that. So that is what is happening in the last 10 years. And I think in Mexico, in a lot of our products, we have the preference of our customers. And we hope that the IFETEL take a very deep revision on what is happening on the market and we like the measures that we have. So that's more or less. We don't know nothing more on that, but we hope that we have that.

Q - Unidentifed Participant

Sure. That's clear. Thank you very much.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Thank you.

Operator

Thank you. Our next question is from Walter Piecyk from LightShed. Walter, please go ahead, your line is open.

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FINAL

Bloomberg Transcript

Company Name: America Movil SAB de CV

Company Ticker: AMXB MM Equity

Date: 2023-10-18

Q - Walter P. Piecyk {BIO 1510511 }

Thanks. Hey, Daniel. And if I look at Mexico, obviously you had good unit growth and ARPU was also very strong in '21 and '22 obviously, maybe somehow the pandemic had some impact on that. But this quarter this shows a little moderation there. Is that just kind of coming out of the pandemic or is there economic issues that we need to think about in terms of Mexico? Obviously, ARPU is still growing and service revenue is still growing, wireless service revenue specifcally. I'm just curious kind of what are your thoughts on some of the moderation of that growth and how we should think about that going into future quarters?

A - Daniel Hajj Aboumrad {BIO 1898715 }

Well, I think what you are saying is right, it's moderation. We -- we are still growing our -- our revenues in Mexico. I think the moderation is more on the prepaid than on the postpaid. So maybe it has to be a little bit with this acceleration of the economy. I don't know. We don't know exactly what it will be, but I can tell you that we have very good 5G network, good coverage. We are working very hard on control cost platform all around. And I think also could be a little bit on -- on the market. Our competitors could be doing some promotion.

So I still feel very comfortable on -- on what we're doing in the mobile products. And by far, we have the best perception to the costumers in terms of coverage, quality and price, attendance, digitalization. So all these things will help us a lot on how the customer is taking the decision. As I said the -- the moderation that we're having is more on the prepaid side than on the postpaid side. So that's what we have been seeing.

On the fxed side, -- yeah, Carlos want to add something (multiple speakers).

A - Carlos Garcia Moreno {BIO 1713687 }

Just to add something here, Walter. It's -- the ARPU growth in Mexico was 1.5% year-on- year. And -- but if you look at postpaid, it was actually strong, it was 3.1%. So this is what Daniel said, the moderation was a little bit more on the prepaid side. And the postpaid, it remains quite frm, not very diferent from what we have seen in prior quarters.

A - Daniela Lecuona {BIO 15302125 }

And you said also (multiple speakers)

Q - Walter P. Piecyk {BIO 1510511 }

And you think -- and Daniel -- and Daniel, apology, you said that -- that you think -- if you just looked at prepaid, you think that might be more the promotions of the competitors may be impacting prepaid than necessarily some sign of the economy reducing the usage of some of those? Yeah.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Yes, I think so. That's what I think. Yes.

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FINAL

Bloomberg Transcript

Company Name: America Movil SAB de CV

Company Ticker: AMXB MM Equity

Date: 2023-10-18

Q - Walter P. Piecyk {BIO 1510511 }

Okay. Okay. Just -- just a similar question. If you look at the equipment revenue line, that actually looked stronger, meaning -- like if you do the math on it, looks like maybe people in Mexico are buying more expensive phones. Is there anything you can tell -- I mean, because that -- that would -- that would suggest that the economy is pretty good, that people are buying or upgrading phones. So just curious on any thoughts you have on, on your equipment revenue line? And why that -- that might show, you know, some decent growth? Yeah.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Yeah, I think on the equipment revenue, we're doing good. I -- what is happening is not only Telcel, the ones, I think we have been having a lot of imports of -- of handsets. And this has been thus accelerating a little bit. Some brands does not like -- like, let's say, Samsung does not like that Samsung phones will gain not through their ofce in Mexico, through other country. So I think that's a little bit on that. And I think they are cutting and -- and -- and reducing these imports. So that's why you are seeing that there is more sales on -- on -- on equipment this month.

Q - Walter P. Piecyk {BIO 1510511 }

Got it. And then just -- just one fnal question. There is a line on the cash fow statement that I believe you call payments of lease liabilities. This is where some of the payments, I think primarily to tower companies exist. I'm just -- just curious how we should think about that going forward. Are there -- are there normal escalators that should -- that should take that? And for this quarter, I think the number was MXN9.7 billion. So I'm just curious if that's -- that line item on the cash fow statement, is that something that should -- should grow at a similar rate that it has in recent years, I think it's about 10%. Or is there any opportunity to moderate as you've kind of completed a lot of the 5G deployment in a lot of these markets?

A - Daniel Hajj Aboumrad {BIO 1898715 }

Yeah, I think you are right. I don't think in 5G, we're going to need the same amount of towers that we need in 3G or 4G. The new tower should be more on coverage than on capacity. And that's more or less what we have been seeing. So I think that will moderate in the future.

Q - Walter P. Piecyk {BIO 1510511 }

Great. Thank you very much.

A - Daniel Hajj Aboumrad {BIO 1898715 }

Thank you. Thanks.

Operator

Thank you. Our next question today comes from Marcelo Santos from J.P. Morgan. Marcelo, please go ahead, your line is open.

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FINAL

Company Name: America Movil SAB de CV

Company Ticker: AMXB MM Equity

Date: 2023-10-18

Q - Marcelo Santos {BIO 17186991 }

Hi, good morning. Thanks for taking my question. I have two. The frst question is about Colombia. If you could please comment on the competitive environment on the fxed market? We saw that you started adding broadband subscribers again, so it was a very strong result. So a comment there would be very helpful.

And the second question is if you could provide us an update on the joint venture with Liberty Latin America in Chile and the outlook on -- on potential capital injections that operation might need. Thank you very much.

A - Carlos Garcia Moreno {BIO 1713687 }

As you mentioned in Colombia problem, on the third quarter, we did it pretty good. And what we did is that we really changed the way that we go to the market. We did (inaudible) 3G network station [ph], focus in the area that we have a lot of competition. So we started winning share on both -- on both areas. We upgraded the network. And as you know, we are building fber as well in Colombia. So we believe the third quarter is the trend that we are going to see in the next quarters in fxed broadband. And as well, we improved all the quality of services to the customers, time to deliver, time to repair. So we really focus on the third quarter to really change all the structure to go to market for fxed broadband in Colombia.

Bloomberg Transcript

A - Daniel Hajj Aboumrad {BIO 1898715 }

And on Chile, well, I think Chile is a very important market for us. And we have a program -

• synergy program since we get together with Liberty. And we're doing well. We're advancing our -- our synergies and our revenues and sales are going much better. So we think that we're going to really focus on creating value on Chile. And that's more or less, we still think that Liberty will be our partner in the future. We hope so. It's a very good partner. And -- and we're focusing to really get everything, all the cost control, reducing expenses and moving in the market. We're also putting more coverage, better quality and we're -- we're really focusing in making Chile a much stronger company for the future. So that's more or less what we -- what we're doing there.

Q - Marcelo Santos {BIO 17186991 }

So could we say that it's on track? You think it's on track or it's above expectations versus what you hoped?

A - Daniel Hajj Aboumrad {BIO 1898715 }

No, I think we are on track. We don't have a -- a synergy program for six months. I think we have a synergy program for two years, very strong, very focused. And we are on track and we are doing very well. We are -- we are happy the way the company is evolving. We're growing -- we have been losing some customers in peaks in the last quarter, we're growing customers. So, we are improving and improving and improving every day.

Q - Marcelo Santos {BIO 17186991 }

Great. Thank you very much.

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FINAL

Bloomberg Transcript

Company Name: America Movil SAB de CV

Company Ticker: AMXB MM Equity

Date: 2023-10-18

A - Daniel Hajj Aboumrad {BIO 1898715 }

Thank you.

Operator

Thank you. Our next question is from John Ho from Mizuho. John, please go ahead, your line is open.

Q - John Ho {BIO 15026858 }

Hey, good morning and thank you for taking my question. Just to get further clarifcation on the previous -- the previous question regarding the joint venture in Chile. Have you -- has America Movil contributed anymore capital during third quarter for the Chile operations? And then one thing to -- to note, the joint venture partner Liberty did admit on its 2Q call that America Movil has been making most of the contributions to date. Are we to expect that going forward?

And more from the perspective of America Movil's plans. Right now the -- I know you mentioned in the -- that your previous statements are that you said the JV is 50-50 and you like Liberty, but considering America Movil has been making most of the contributions and what you've been doing, would you look to assume control in the future, would that be a possibility?

And lastly, would it be possible to get the Chilean JVs management maybe increase communication regarding what's going on there because since for bondholders, since the JV has been closed last October, communication has been very low. So we'd like to see an increase if there is -- if we can get it if possible. Thank you.

A - Carlos Garcia Moreno {BIO 1713687 }

Well, thank you. Let me begin with -- with the last part of your comments or question. I think we've heard some of these comments to the efect that maybe the company should improve a little bit its visibility that it provides to the market. We are already talking to the partners so that together we can see to it that from here now on we can provide a bit more color than is strictly necessarily from the -- from the perspective of the -- of the guidelines of the bonds. But we can provide a bit more color on the -- on the operations themselves, okay. So I think we will be tending to your comments and those for the investors to make sure that you have a clearer view of the developments of the Chilean operation, okay, which I think (multiple speakers)

Q - John Ho {BIO 15026858 }

We would appreciate that. And I thank you for that.

A - Carlos Garcia Moreno {BIO 1713687 }

Yeah, yeah. So I would expect that probably before the end of this month, we can provide the fnancial statements for the -- through September. And that in the context of this release, that we can provide also more color, more information on the actual operations. In

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