Market Overview

Axtel Announces Results for Third Quarter 2016

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SAN PEDRO GARZA GARCIA, Mexico--(BUSINESS WIRE)--

Axtel, S.A.B. de C.V. ("Axtel" or "the Company"), a Mexican information and communications technology company, announced today its unaudited third quarter results ended September 30, 2016(1). Axtel is a subsidiary of Alfa S.A.B. de C.V. ("ALFA").

Highlights:

  • The Company's operating performance continued improving as reflected in an 11% EBITDA sequential growth driven by the positive revenue trend from enterprise and FTTx mass-market segments. Revenue from government, which has been underperforming this year, started to recover as contracts signed in the first semester are now contributing to the Company's results.
  • As of the end of the third quarter, Axtel has captured run-rate EBITDA synergies representing 65% of the run-rate target, resulting in a cumulative benefit of approximately Ps. 300 million.
  • The Company continues to experience a stronger demand for its IT and Telecom managed solutions from enterprise customers, as the new expanded portfolio of services and more robust network have become a competitive strength of the combined Company.
  • Consistent with Axtel's IT strategy, we recently launched the "Alestra Cloud Collaboration" service with Cisco technology, a solution that enhances communication while improving productivity for our customers.
  • Felipe Canales added "Third quarter results show a considerable growth of 11% in EBITDA compared to the previous quarter. This is explained by the positive performance of the enterprise business, in particular the IT segment, and the FTTx Mass Market segment. Merger synergies in expenses have also contributed to the improvement of the results. It should be noted that the growth in the enterprise segment has been influenced by the higher level of interest in our managed services by corporate clients. The expanded portfolio of services and a more robust network and data center platform represents a competitive advantage for Axtel. We are confident that this positive trend in our results will continue the rest of the year and in the long run."

Note: Figures shown throughout the document include Alestra S. de R.L. de C.V. and its subsidiaries ("Alestra") as of February 15, 2016. However, in order to explain variations, reference is also made to pro forma figures, as if the merger had occurred at the beginning of each period.

Sources of Revenues

Mass Market:

Quarterly revenues decreased 5%:

FTTH. FTTH revenues totaled Ps. 499 million in the third quarter of 2016, compared to Ps. 427 million for same period in 2015, representing a 17% increase in line with a 20% increase in customers. Voice revenues increased 11% due to a 24% increase in monthly rent revenues mitigated by a 66% decline in mobile revenues due to lower billed fix-to-mobile minutes and prices. Internet and video revenues increased 15% and 31% respectively, mainly due to increases in internet and video subscribers.

Wireless. Revenues amounted to Ps. 279 million in the third quarter of 2016, compared to Ps. 394 million in the same period in 2015, a 29% decrease explained by a 31% decline in customers. Voice revenues decreased 32% mainly explained by a 27% decline in monthly rents and a 64% decline in mobile revenues due to less billed fix-to-mobile minutes. Internet revenues decreased 20% due to a decline in internet subscribers.

Telecom:

Quarterly revenues totaled Ps. 2,491 million, compared to Ps. 1,337 million in the same period in 2015, an 86% increase. On a pro forma basis, revenues decreased 5%, mainly due to declines in voice revenues. Voice revenues decreased 20% due to declines fix-to-mobile revenues, toll-free (800s) revenues and a 77% decline in international traffic revenues explained by declines in volume. Data and Internet revenues increased 9% strong demand for dedicated internet services from enterprise customers. Managed networks revenues decreased 2%.

IT:

IT revenues amounted to Ps. 568 million in the third quarter of 2016, compared to Ps. 201 million in the same period in 2015, a 182% increase. On a pro forma basis, revenues increased 5% due to strong increases in cloud services and hosting revenues due to better performance in hosting, cloud and system integration services related to government segment projects.


Mass Market Operating Data

Customers. As of September 30, 2016, customers totaled 467 thousand, a reduction of 70 thousand from the same date in 2015 due to the continued decline in Wireless customers. Total customers declined 9 thousand on a sequential basis. ARPU for FTTH and wireless customers is Ps. 811 and Ps. 415, respectively.

RGUs(9). As of September 30, 2016, RGUs (Revenue Generating Units) totaled 1,059 thousand. During the third quarter of 2016, there were less than 1 thousand net disconnections, compared to 29 thousand net disconnections in the third quarter of 2015 due to stronger FTTH additions in 2016.

Voice RGUs (lines in service). As of September 30, 2016, lines in service totaled 529 thousand, composed of 266 thousand for FTTH segment and 263 thousand for wireless segment. Lines in service in the third quarter of 2016 decreased 3 thousand, compared to a decrease of 20 thousand in the same period of 2015, due to continued decline in wireless customers.

Internet RGUs (internet subscribers). Broadband subscribers decreased 9% year-over-year totaling 406 thousand as of September 30, 2016. During the third quarter of 2016, broadband subscribers' net disconnections totaled 2 thousand compared to 12 thousand in the same period of 2015, due to continued disconnections of wireless subscribers and an increase in FTTH net additions this quarter. As of September 30, 2016, wireless broadband subscribers reached 182 thousand, compared to 258 thousand a year ago, while AXTEL X-tremo, or FTTH customers, totaled 225 thousand compared to 186 thousand a year ago. Broadband penetration has increased from 75% in September 2015 to 77% in September 2016.

Video subscribers. As of September 30, 2016, video subscribers reached 123 thousand compared to 103 thousand a year ago, a 20% increase. Video penetration within the FTTH broadband subscriber remained flat at 55% compared to September 2015.


Cost of Revenues and Operating Expenses

Cost of Revenues. For the three month period ended September 30, 2016, the cost of revenues represented Ps. 869 million, an increase of 96% or Ps. 424 million, compared to the same period of year 2015. On a pro forma basis, costs decreased 2% mainly due to Telecom segment costs. Mass market costs increased 17% due to increases in FTTH segment video costs, which was compensated by a decrease of 37% in voice costs. Telecom costs declined 11% mainly due to a strong decline in Data an Internet associated to lower revenues. IT segment costs increased 6%.

Gross Profit. Gross profit is defined as revenues minus cost of revenues, excluding depreciation costs. For the third quarter of 2016, the gross profit accounted for Ps. 2,968 million, 55% higher than the same period in year 2015. On a pro forma basis, gross profit decreased 4% due to the decline in Telecom revenues. The gross profit margin remained flat at 77% year-over-year.

Operating expenses. In the third quarter of year 2016, operating expenses totaled Ps. 1,703 million, 54% higher than the operating expenses recorded in the same period in 2015. On a pro forma basis, operating expenses amounted Ps. 1,697 million in the third quarter of 2015, very similar to third quarter 2016. The declines in personnel, outsourcing, and marketing mitigated the increase in non-recurring merger expenses and maintenance expense which resulted from a larger number of customer-related maintenance contracts and the impact of the peso devaluation on the Company's IT and network maintenance contracts.


Other income / (expense), EBITDA, Operating income (loss)

Merger and Integration Expense. For the three month period ended September 30, 2016, expenses related to the Axtel-Alestra merger totaled Ps. 59 million pesos. In the previous quarter, merger-related expenses totaled Ps. 28 million. For the twelve month period ended September 30, 2016, pro forma merger expenses totaled Ps. 863 million the most relevant being merger-related expenses categories are severance payments, a one-time non-cash pension relate charge and consulting fees.

EBITDA(6). For the third quarter of 2016, EBITDA reached Ps. 1,265 million, a 57% increase from the same period in 2015. Pro forma EBITDA in the third-quarter of 2015 was Ps. 1,399 million, a decline of 10%, summarized as the result of a 4% decline in revenues and a 32 bps decline in margin of contribution. EBITDA margin decreased from 35.1% to 33.0%.

Operating income (loss). In the third quarter of 2016, operating income totaled Ps. 339 million, compared to an operating income of Ps. 132 million. On a pro forma basis, operating income was Ps. 466 million in the second quarter of 2015, representing a decrease of Ps. 127 million for 2016 period mainly due to a higher level of depreciation.


Comprehensive Financing Result, Debt, Cash and Capital Investments

Comprehensive financing result. The comprehensive financing cost reached Ps. 829 million in the third quarter of 2016, compared to a cost of Ps. 1,184 million in the same period of 2015, or Ps. 1,598 million on a pro forma basis. The reduction in pro forma comprehensive financing result is explained by lower interest and FX losses during the third quarter of 2016 compared to the third quarter of 2015.

Debt. At the end of the third quarter 2016, total debt increased Ps. 7,178 million in comparison with third quarter 2015, mostly explained by (i) the new a Ps. 16,010 14,763 million increase related to the new Syndicated Credit Facility which refinanced Ps. 11,996 million of 2017, 2019 and 2020 Notes, (ii) an increase of Ps. 3,601 3,210 million related to Alestra's debt and (iii) a Ps. 1,751 million non-cash increase caused by the 13 15% depreciation of the Mexican peso.

Cash. As of the end of the third quarter of 2016, the cash balance totaled Ps. 906 million, compared to Ps. 3,194 million pro forma a year ago, and Ps. 1,279 million at the beginning of the quarter. The cash balance at the end of the quarter includes restricted cash of Ps. 152 million.

Capital Investments. In the third quarter of 2016, capital investments totaled Ps. 942 million, or $50 million, compared to pro forma Ps. 865 million, or $44 million, in the year-earlier quarter.


Financial Statements

Information as of September 30, 2016 (including Alestra) compared with information as of September 30, 2015

Assets

As of September 30, 2016, total assets summed Ps. 32,381 million compared to Ps. 22,695 million as of September 30, 2015, an increase of Ps. 9,686 million, or 43%.

Cash and equivalents. As of September 30, 2016, we had cash and cash equivalents of Ps. 754,412 compared to Ps. 2,491 million in the same date of year 2015, a 69% decline.

Accounts Receivable. As of September 30, 2016, the accounts receivable were Ps. 6,795 million compared with Ps. 5,597 million in the same date of 2015, an increase of Ps. 1,198 million or 21%.

Property, plant and equipment, net. As of September 30, 2016, the net of depreciation value of property, plant and equipment was Ps. 19,769 million compared with Ps. 13,357 million as of September 30, 2015, an increase of Ps. 6,412 million or 48%. The property, plant and equipment without adjusting for the accumulated depreciation, was Ps. 63,224 million and Ps. 43,174 million as of September 30, 2016 and September 30, 2015, respectively.

Liabilities

Total liabilities were Ps. 27,396 million as of September 30, 2016 compared to Ps. 18,047 million as of September 30, 2015, an increase of Ps. 9,350 million or 52% mainly driven by the inclusion of Alestra's debt and a non-cash increase in debt related to the 15% peso depreciation against the US dollar.

Accounts payable & accrued expenses. On September 30, 2016, the accounts payable and accrued expenses were Ps. 3,592 million compared with Ps. 2,780 million on September 30, 2015, an increase of Ps. 812 million or 29%.

Stockholders' Equity

On September 30, 2016, the stockholders equity of the Company was Ps. 4,985 million compared with Ps. 4,649 million as of September 30, 2015, an increase of Ps. 336,342, or 7%. The capital stock was Ps. 10,362 million as of September 30, 2016 compared to Ps. 6,800 million as of September 30, 2015, this increase is due to the merger between Axtel and Alestra in February 15, 2016.

Liquidity and Capital Resources

Historically we have relied primarily on vendor financing, the proceeds of the sale of securities, internal cash from operations and the proceeds from bank debt to fund our operations, capital expenditures and working capital requirements. Although we believe that we will be able to meet our debt service obligations and fund our operating requirements in the future with cash flow from operations, we may seek additional financing with commercial banks or in the capital markets from time to time depending on market conditions and our financial requirements. We will continue to focus on investments in property, systems and infrastructure and working capital management, including the collection of accounts receivable and management of accounts payable.

Cash Flow Statement

For the three month period ended September 30, 2016 (including Alestra since February 15, 2016) compared with the three month period ended September 30, 2015

Net resources used by operating activities were Ps. 907 million for the three month period ended on September 30, 2016 compared to resources provided by operating activities of Ps. 783 million recorded in the same period of year 2015.

Net resources (used in) provided by investing activities were Ps. (911) million for the three month period ended on September 30, 2016 compared to Ps. (527) million recorded in the same period of year 2015. These flows primarily reflect investments in fixed assets of Ps. 901 million and Ps. 515 million, respectively.

Net resources (used in) provided by financing activities were Ps. (381) million for the three month periods ended on September 30, 2016 and Ps. (689) million for 2015.

As of September 30, 2016 and 2015, the ratios of net debt to proforma EBITDA of the company were 4.2x and 1.7, respectively.

                             
     

Q3

 

Q2

 

Q3

 

(%) 3Q16 vs.

 

LTM

 

LTM

Million Pesos

     

2016

 

2016

 

2015

 

2Q16

 

3Q15

 

sep-16

 

sep-15

Revenues(2)

3,836 3,478 2,360 10%   63% 12,986 9,701

EBITDA(6)

1,265 1,139 807 11% 57% 3,199 3,556
EBITDA Margin 33.0% 32.8% 34.2%

+ 0 bps

-4% 24.6% 36.7%
Net (loss) Income -451 -952 -768 53% 41% -3,134 -2,157
Capital Expenditures 942 794 515 19% 83% 3,652 2,963
Net Debt 19,693 19,039 10,929 3% 80%

Nebt Debt / EBITDA(7)

                          4.2x   1.7x
 

Source of Revenues

                     
           

(%) 3Q16 vs.

Million Pesos      

Q3 2016

 

Q2 2016

  Q3 2015  

Q2 2016

 

Q3 2015

MASS MARKET

778

806

822

-4%

 

-5%

FTTH

499

494

427

1%

17%

Wireless

279

313

394

-11%

-29%

TELECOM

2,491

2,201

1,337

13%

86%

Voice

717

707

519

1%

38%

Data and Internet

858

849

232

1%

270%

Managed Networks

916

645

586

42%

56%

IT      

568

 

471

 

201

 

21%

 

182%

TOTAL      

3,836

 

3,478

 

2,360

 

10%

 

63%

 

Other important information

1) We are presenting financial information based on International Financial Reporting Standards (IFRS) in nominal pesos for the following periods:

  • Consolidated income statement information for the three month periods ending on September 30, 2016 and 2015, and June 30, 2016; and twelve month period ending on September 30, 2016 and 2015, and
  • Balance sheet information as of September 30, 2016 and 2015; and June 30, 2015.

2) 2015 and 1Q16 revenues (include Alestra as of February 15, 2016) under the new segmentation:

                         
Million Pesos       Q1 2015   Q2 2015   Q3 2015   Q4 2015   Q1 2016
MASS MARKET       856   834   822   804   771
FTTH 391 415 427 437 447
Wireless 465 419 394 367 324
TELECOM 1,430 1,497 1,337 1,603 1,756
Voice 526 465 519 470 579
Data and Internet 214 231 232 234 549
Managed Networks 689 801 586 899 628
IT       130   211   201   425   313
TOTAL       2,416   2,542   2,360   2,832   2,840
 

3) Pro forma 2015 and 1Q16 revenues (include Alestra as of the beginning of each period) under the new segmentation:

                         
Million Pesos       Q1 2015   Q2 2015   Q3 2015   Q4 2015   Q1 2016
MASS MARKET       856   834   822   804   771
FTTH 391 415 427 437 447
Wireless 465 419 394 367 324
TELECOM 2,654 2,729 2,624 2,863 2,402
Voice 920 850 895 778 755
Data and Internet 741 760 791 812 831
Managed Networks 993 1,118 939 1,273 815
IT       296   452   540   822   447
TOTAL       3,805   4,015   3,986   4,489   3,620
 

4) Costs 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.

5) Operating expenses include costs incurred in connection with general and administrative matters which incorporate compensation and benefits, the costs of leasing land and towers related to our operations and costs associated with sales and marketing and the maintenance of our network.

6) Adjusted EBITDA is calculated as operating income (loss) plus depreciation and amortization, plus impairment of assets and further adjusted for extraordinary or non-recurring income and expenses.

7) EBITDA is defined as operating income (loss) plus depreciation and amortization, plus impairment of assets.

8) Net Debt to EBITDA and Net Debt to Adjusted EBITDA: Ratio of net debt converted to dollars at the end of the period divided by the respective LTM EBITDA and Adjusted EBITDA converted to dollars. For the ratio, pro forma LTM EBITDA and Adjusted EBITDA is used.

9) Revenue Generating Unit, or RGU, represents individual service subscriptions who generates recurring revenue for the Company. Total RGUs include the sum of all lines in service, broadband service and video subscriptions.

10) Total debt includes accrued interests as of the end of each period. Net debt is calculated as total debt minus cash and cash equivalents, which include non-current restricted cash.

Analyst Coverage: The analysts mentioned below currently cover Axtel S.A.B. de C.V.

  • Bank of America-Merrill Lynch
  • BBVA Bancomer
  • BTG Pactual
  • Casa de Bolsa Banorte Ixe, Grupo Financiero Banorte
  • Credit Suisse Securities
  • GBM Grupo Bursátil Mexicano
  • Itaú BBA
  • Scotiabank Inverlat

About AXTEL

Axtel is a Mexican Information and Communication Technology Company that serves the enterprise, government, and residential markets with a robust portfolio of offers through its brands Alestra (Enterprise and government services) and Axtel (residential and small businesses). With a network infrastructure of over 39 thousand kilometers and more than 6 thousand square meters of data center, Axtel enables organizations to be more productive and bring people together to improve their quality of life. As of February 15, 2016, Axtel is a subsidiary of ALFA, which owns 51% of its equity.

Axtel shares, represented by Ordinary Participation Certificates, or CPOs, trade on the Mexican Stock Market under the symbol "AXTELCPO" since 2005.

Visit AXTEL's Investor Relations Center at axtelcorp.mx

Enterprise and Government services website: alestra.mx

Mass Market services website: axtel.mx

Axtel, S.A.B. de C.V.
Adrian de los Santos, +52 (81) 8114-1128
Investor Relations Officer and Corporate Finance Director
ir@axtel.com.mx


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