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Axtel Announces Results for Fourth Quarter 2015Axtel (News - Alert), S.A.B. de C.V. ("AXTEL" or "the Company"), a leading Mexican fixed-line integrated telecommunications company, announced today its unaudited fourth quarter results ended December 31, 2015(1). Highlights:
Revenues from operations Revenues from operations totaled Ps. 2,832 million in the fourth quarter of year 2015 from Ps. 2,383 million for the same period in 2014, an increase of Ps. 449 million or 19%. Revenues from operations totaled Ps. 10,150 million in the twelve month period ended December 31, 2015, compared to Ps. 10,597 million in the same period in 2014, a decrease of Ps. 447 million, or 4%. Sources of Revenues Note: Due to the Telecommunications Reform, as of January 1st, 2015, domestic long distance charges were eliminated. Therefore, since the first quarter this year, revenue services previously reported under "local" and "long distance" categories have been re-grouped under two new categories: "rents" and "voice services". Please see Note 2 for more information and 2014 figures for these new categories. Rents. Monthly rents revenues totaled Ps. 541 million in the fourth quarter of 2015, compared to Ps. 616 million for same period in 2014, representing a 12% decrease related to a 13% decrease in the average number of customers. For the twelve month period ended December 31, 2015, rents revenues decreased 8% due to, among others, a 7% decline in the average number of lines in service. Voice services. Revenues amounted to Ps. 294 million in the fourth quarter of 2015, compared to Ps. 372 million in the same period in 2014, a 21% decrease. More than half of this decline is explained by decreases in revenues of domestic long distance calls to both fixed and mobile lines due to the elimination of domestic long distance charges in 2015. For the twelve month period ended December 31, 2015, voice revenues totaled Ps. 1,135 million compared to Ps. 1,587 million registered in 2014, a 28% decline also due to the elimination of domestic long distance charges in 2015. Internet & Video. Quarterly revenues totaled Ps. 386 million, compared to Ps. 353 million in the same period in 2014, a 9% increase driven by a 39% increase in the pay-tv service and a 1% increase in mass market internet services revenues. During the twelve month period ended on December 31, 2015, internet and video services revenues totaled Ps. 1,482 million from Ps. 1,337 million registered in 2014, an increase of Ps.145 million, or 11%, due to increased penetration of video services within the FTTH client base. Data & Network. Data and network revenues amounted to Ps. 504 million in the fourth quarter of 2015, compared to Ps. 494 million in the same period in 2014, a 2% or Ps. 10 million increase driven by a 14% increase in private lines, partially mitigated by a 3% decrease in dedicated internet to the enterprise segment. During the twelve month period ended on December 31, 2015, data and network services revenues totaled Ps. 2,018 million from Ps. 1,898 million registered in 2014, a 6% increase. Integrated Services & Equipment Sales. Quarterly revenues totaled Ps. 1,032 million in the fourth quarter of 2015, from Ps. 257 million in the same quarter of previous year, a 300% increase due to revenues flowing from existing and new projects closed during the last four quarters with both enterprise and government entities and an extraordinary high level of equipment sale during the quarter. For the twelve month period ended December 31, 2015, revenues totaled Ps. 2,800 million from Ps. 1,779 million registered in 2014, a 57% increase. International traffic. In the fourth quarter of 2015, international traffic revenues totaled Ps. 27 million, a decrease of Ps. 149 million or 85% versus the same quarter of previous year, explained mainly by declines in volume and prices of mobile calls and the elimination of high-priced transit traffic, or traffic that terminates in other countries and not in Mexico. For the twelve month period ended December 31, 2015, revenues from international traffic totaled Ps. 274 million from Ps. 1,234 million in the same period in 2014, a 78% decrease also explained by a decline in volume and prices of mobile traffic and the elimination of transit traffic. Other services. Quarterly revenues from other services totaled Ps. 49 million in the fourth quarter of 2015, from Ps. 115 million in the same quarter of previous year, a 57% decrease due to an extraordinary high level of interconnection revenues last year. For the twelve month period ended December 31, 2015, revenues totaled Ps. 237 million from Ps. 364 million registered in 2014, a decrease of Ps. 127 million, or 35%. Revenues by segment *(Excludes International Traffic) Mass Market. Revenues totaled Ps. 804 million in the fourth quarter of 2015, an 11% decrease compared to the same quarter in 2014. This was mainly due to continued disconnections in wireless (or legacy technology) customers and elimination of domestic long distance charges which translated into 14% and 44% decreases in rent and voice revenues. The decline was partially compensated by an 8% increase in internet and video revenues. For the twelve month period ended December 31, 2015, revenues totaled Ps. 3,316 million, a 7% decrease compared to the same period in 2014, also due to declines in rent and national long distance revenues and decline in mobile traffic prices. Enterprise (including Government). Revenues for this segment amounted to Ps. 1,813 million in the three month period ended December 31, 2015, an increase of 66% versus the same period in 2014. This is mostly explained by a 309% increase in integrated services and equipment sales revenues, partially mitigated by an 18% decline in voice revenues mainly due to the elimination of national long distance charges. For the twelve month period ended December 31, 2015, revenues increased 15% due to a higher level of integrated services and equipment sales revenues during 2015. Interconnection, Public Telephony and Carriers. Revenues for this segment totaled Ps. 188 million in the fourth quarter 2015, a 10% decrease mostly due to an extraordinary high level of interconnection revenues in the fourth quarter of 2014. For the twelve month period ended December 31, 2015, revenues reached Ps. 740 million, an increase of 4% compared to the same period in 2014 due to an increase in private lines revenues. Consumption Local Calls. Local calls totaled 366 million in the fourth quarter of 2015, compared to 396 million calls for the same period in 2014, representing an 8% decrease. Billed local calls increased 26% due to certain volume of domestic long distance calls now being billed as local calls since the beginning of 2015. Local calls included in commercial offers decreased 16% and represented 73% of total calls in the fourth quarter of 2015. For the twelve month period ended December 31, 2015, local calls decreased 6% compared to the same period in 2014, due to a decrease in calls included in commercial offers. Cellular ("Calling Party Pays"). Minutes of use of calls completed to a cellular line amounted to 389 million in the three month period ended December 31, 2015, compared to 368 million in the same period in 2014, a 6% increase. This was mainly due to a 10% increase in billed minutes related to 045 cellular minutes due to the elimination of long distance charges. Billed cellular minutes represented 85% of cellular minutes in the fourth quarter of 2015, compared to 83% in the year-earlier quarter. For the twelve month period ended December 31, 2015, cellular minutes increased 24% compared to the same period in 2014, mainly due to a 17% increase in billed 045 cellular minutes. Operating Data RGUs(8) and Customers. As of December 31, 2015, RGUs (Revenue Generating Units) totaled 1,371 thousand. During the fourth quarter of 2015, there were 29 thousand net disconnections, compared to 16 thousand net disconnections in the fourth quarter of 2014 due to a greater number of wireless disconnections in 2015. As of December 31, 2015, customers totaled 521 thousand, a decline of 84 thousand from the same date in 2014. Total customers declined 23 thousand on a sequential basis. Voice RGUs (lines in service). As of December 31, 2015, lines in service totaled 815 thousand. During the fourth quarter of 2015 and fourth quarter 2014, gross additional lines totaled 41 and 42 thousand respectively. Disconnections in the fourth quarter 2015 totaled 62 thousand compared to 56 thousand in the year-earlier quarter. Lines in service in the fourth quarter of 2015 decreased 21 thousand, compared to a decrease of 14 thousand in the same period of 2014. As of December 31, 2015, residential lines represented 53% of total lines in service. Broadband RGUs (broadband subscribers). Broadband subscribers decreased 12% year-over-year totaling 446 thousand as of December 31, 2015. During the fourth quarter of 2015, broadband subscribers' net disconnections totaled 14 thousand compared to 9 thousand in the same period of 2014, due to larger disconnections of wireless subscribers this quarter. As of December 31, 2015, wireless broadband subs reached 241 thousand, compared to 330 thousand a year ago, while AXTEL X-tremo, or FTTH customers, totaled 206 thousand compared to 179 thousand a year ago. Broadband penetration has remained at 55% during the past year. Video subscribers. As of December 31, 2015, video subscribers reached 109 thousand compared to 94 thousand a year ago, a 16% increase. Line equivalents (E0 equivalents). We offer from 64 kilobytes per second ("KBps") up to 200 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 December 31, 2015, line equivalents totaled 1,251 thousand, a 21% increase. Cost of Revenues and Operating Expenses Cost of Revenues. For the three month period ended December 31, 2015, the cost of revenues represented Ps. 803 million, an increase of 59% or Ps. 298 million, compared with the same period of year 2014, explained by an increase in integrated services and equipment sale costs, partially mitigated by a decrease in international traffic costs due to the elimination of transit traffic in 2015. For the twelve month period ended December 31, 2015, cost of revenues reached Ps. 2,300 million, a 26% decrease in comparison with the twelve month period ended December 31, 2014, mainly due to declines in fixed to mobile termination costs and in international traffic costs due to the elimination of transit traffic, or traffic that terminates outside of Mexico. Gross Profit. Gross profit is defined as revenues minus cost of revenues. For the fourth quarter of 2015, the gross profit accounted for Ps. 2,029 million, 8% higher than the same period in year 2014. The gross profit margin decreased from 78.8% to 71.6% year-over-year, mainly due to the increase in integrated services and equipment sale revenues which have lower margins. For the twelve month period ended December 31, 2015, our gross profit totaled Ps. 7,851 million, compared to Ps. 7,500 million recorded in year 2014, an increase of Ps. 351 million or 5%, due to a higher level of internet and video, integrated services and data and network revenues. Operating expenses. In the fourth quarter of year 2015, operating expenses totaled Ps. 1,265 million, Ps. 174 million or 16% higher than the Ps. 1,091 million recorded in the same period in year 2014, explained mainly by increases in outsourced maintenance expenses related to enterprise projects, in rents and maintenance expenses denominated in dollars due to the peso devaluation and in personnel-related expenses due to the annual salary increase and higher number of employees allocated to integrated services projects. For the twelve month period ended December 31, 2015, operating expenses totaled Ps. 4,720 million, 5% higher than the Ps. 4,477 million of the same period in 2014. Personnel represented 41% of total operating expenses in the twelve month period ended December 31, 2015. Adjusted EBITDA, D&A and Operating Income Adjusted EBITDA(5). The Adjusted EBITDA totaled Ps. 764 million for the three month period ended December 31, 2015, a 3% decrease compared to Ps. 787 million for the same period in 2014. As a percentage of total revenues, Adjusted EBITDA margin represented 27.0% in the fourth quarter of 2015, 605 bps lower than the margin recorded in the year-earlier quarter. For the twelve month period ended December 31, 2015, Adjusted EBITDA amounted to Ps. 3,131 million, compared to Ps. 3,023 million in year 2014, a 4% increase. Depreciation and Amortization(9). Depreciation and amortization totaled Ps. 642 million in the three month period ending on December 31, 2015 compared to Ps. 918 million for the same period in year 2014, a Ps. 276 million decrease due to lower capital investments in recent years and also to a larger proportion of investments in fiber which increases the average life of our assets. Depreciation and amortization for the twelve month period ended December 31, 2015 reached Ps. 2,619 million, 24% lower than the Ps. 3,435 million registered in the same period in year 2014. Operating Income (loss). In the three month period ended December 31, 2015, the Company recorded an operating loss of Ps. 206 million compared to an operating loss of Ps. 154 million registered in the same period in year 2014, resulting from a positive effect of lower depreciation and amortization, but negatively impacted by non-recurrent merger-related expenses. For the twelve month period ended December 31, 2015, operating income reached Ps. 609 million when compared to the operating loss of Ps. 500 million in the same period of year 2014, an increase of Ps. 1,109 million mainly explained by the agreement with America Movil in the first quarter of 2015 and a lower level of depreciation and amortization in year 2015. CFR, Indebtedness, Cash, Investments and Derivative Instruments Comprehensive financing result. Net interest expense for the fourth quarter 2015 increased Ps. 34 million due to the impact of the peso devaluation in our interest expense. During the fourth quarter of 2015, the peso depreciated 1% against the U.S. dollar generating a FX loss of Ps. 122 million; lower than the FX loss of Ps. 834 million during the fourth quarter of 2014 due to a 9% peso depreciation. Concerning variations in the fair value of financial instruments, these are partly explained by 10% increase and a 14% decrease in the price of AXTELCPO during the fourth quarter of 2015 and 2014 respectively, which affected the valuation of AXTEL's position held in its own stock through the financial (zero-strike call) instruments. The Ps. 2,695 million comprehensive financing loss for year ended in December 2015, compared to a Ps. 1,954 million loss for year ended in December 2014, is mainly explained by the increase in interest expense due to the step-up scheme in the 2020 Senior Secured Notes and the higher FX loss during 2015 due to a 15% depreciation of the peso against the U.S. dollar. Debt. At the end of the fourth quarter 2015, total debt increased Ps. 1,986 million in comparison with fourth quarter 2014, explained by (i) a Ps. 154 million decrease related to the conversion of some 2020 Secured Notes, (ii) an increase of Ps. 261 million in leases and other financial obligations mostly related to a Ps. 386 million increase in a capacity lease (IRU), (iii) a Ps. 26 million increase related to the notes' discount, issuance and deferred financing costs, (iv) a Ps. 51 million increase related to the implicit derivative instrument embedded in the Senior Secured Convertible Notes and (v) a Ps. 1,801 million non-cash increase caused by the 15% depreciation of the Mexican peso. Cash. As of the end of the fourth quarter of 2015, the cash and equivalents balance totaled Ps. 2,575 million, compared to Ps. 2,698 million a year ago, and Ps. 2,492 million at the beginning of the quarter. As of the end of the quarter, 71 percent of the cash balance was maintained in dollars, the rest in pesos. Capital Investments. In the fourth quarter of 2015, capital investments totaled Ps. 473 million, or $28 million, compared to Ps. 758 million, or $55 million, in the year-earlier quarter. For the twelve month period ended December 31, 2015, capital investments totaled Ps. 2,011 million, or $127 million, compared to Ps. 2,837 million, or $213 million, for 2014. Other Investments. As of December 31, 2015, the Company maintained an economic position equivalent to 43.5 million AXTELCPOs in ZSC. Financial Instruments. The following table summarizes the Company's financial instruments position as of December 31, 2015.
At the end of the quarter, the Company's balance sheet recorded a liability of Ps. 65 million to reflect an implicit derivative instrument embedded in its Senior Secured Convertible Notes, per applicable accounting standards. Financial Statements Information as of December 31, 2015 compared with information as of December 31, 2014 Assets As of December 31, 2015, total assets summed Ps. 21,929 million compared to Ps. 20,985 million as of December 31, 2014, an increase of Ps. 944 million, or 4%. Cash and equivalents. As of December 31, 2015, we had cash and cash equivalents of Ps. 2,575 million compared to Ps. 2,698 million in the same date of year 2014, a 5% decline. Accounts Receivable. As of December 31, 2015, the accounts receivable were Ps. 2,893 million compared with Ps. 2,426 million in the same date of 2014, an increase of Ps. 467 million or 19%, due to a higher level of sales to the enterprise and government segment in 2015. Property, plant and equipment, net. As of December 31, 2015, the net of depreciation value of property, plant and equipment was Ps. 13,216 million compared with Ps. 12,962 million as of December 31, 2014, an increase of Ps. 255 million or 2%. The property, plant and equipment without adjusting for the accumulated depreciation, was Ps. 43,657 million and Ps. 40,885 million as of December 31, 2015 and December 31, 2014, respectively. Liabilities Total liabilities were Ps. 17,809 million as of December 31, 2015 compared to Ps. 15,279 million as of December 31, 2014, an increase of Ps. 2,529 million or 17% mainly driven by the non-cash increase in debt related to the 14% peso depreciation against the US dollar. Accounts payable & accrued expenses. On December 31, 2015, the accounts payable and accrued expenses were Ps. 2,677 million compared with Ps. 2,347 million on December 31, 2014, an increase of Ps. 330 million or 14%. Stockholders' Equity On December 31, 2015, the stockholders equity of the Company was Ps. 4,120 million compared with Ps. 5,706 million as of December 31, 2014, a decrease of Ps. 1,586 million, or 28%. The capital stock was Ps. 6,862 million as of December 31, 2015 compared to Ps. 6,728 million as of December 31, 2014, this increase is due to the conversion of some of the Company's Senior Secured Convertible Notes due 2020. 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. Additionally, and subject to (i) market conditions, (ii) our liquidity position and (iii) contractual obligations, from time to time, we might acquire senior secured and unsecured notes in the open market or in privately negotiated transactions. 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 December 31, 2015 compared with the three month period ended December 31, 2014 Net resources provided by operating activities were Ps. 701 million for the three month period ended on December 31, 2015 compared to Ps. 1,031 million recorded in the same period of year 2014. Net resources (used in) provided by investing activities were Ps. (473) million for the three month period ended on December 31, 2015 compared to Ps. (779) million recorded in the same period of year 2014. These flows primarily reflect investments in fixed assets of Ps. 473 million and Ps. 758 million, respectively. Net resources (used in) provided by financing activities were Ps. (158) million for the three month periods ended on December 31, 2015 and Ps. (198) million for 2014. For the twelve months ended December 31, 2015 compared with twelve months ended December 31, 2014 Net resources provided by operating activities were Ps. 3,120 million for the twelve month period ended on December 31, 2015 compared to Ps. 3,126 million recorded in the same period of 2014. Net resources (used in) provided by investing activities were Ps. (1,925) million for the twelve month period ended on December 31, 2015 compared to Ps. (2,847) million recorded in the same period of year 2014. These flows primarily reflect investments in fixed assets of Ps. 2,011 million and Ps. 2,837 million, respectively. Net resources (used in) provided by financing activities were Ps. (1,565) million for the twelve month periods ended on December 31, 2015 and Ps. 970 million for 2014 due to the US$150 million reopening of the 2020 Senior Notes. As of December 31, 2015, the ratios of net debt to Adjusted EBITDA and interest coverage of the company were 3.3x and 2.5x, respectively. As of December 31, 2014 the ratios of net debt to Adjusted EBITDA and interest coverage, were 2.7x and 3.4x, respectively. Other important information 1) We are presenting financial information based on International Financial Reporting Standards (IFRS) in nominal pesos for the following periods:
2) Revenues are derived from: i. Rents. Revenues are generated from the provision of connectivity to AXTEL's infrastructure which can deliver voice, data and video services to its customers. Services are provided through bundled commercial offers or, in some instances, as stand-alone or add-on services. ii. Voice services. The Company may charge customers a per call fee for local calls ("measured service"), a per minute usage fee for CPP calls, a per minute usage fee for international long distance completed calls and for services related to 800s numbers for the enterprise segment. iii. Internet & video. We generate revenues by providing "on demand" Internet access and video (Pay-TV) services. iv. Data & network. We generate revenues by providing data, dedicated Internet and network services, such as virtual private networks and private lines, to the enterprise and government segments. v. Integrated Services & equipment sale. We generate revenues from managed telecommunications services provided to corporate customers, financial institutions and government entities and the sale of customer premises equipment ("CPE") necessary to provide these services.
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 and towers 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 axtel.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 97,750,656 and 9,358,389,500, respectively, as of December 31, 2015. 7) Net Debt to Adjusted EBITDA: The figure comes from dividing the net debt at the end of the period by the respective LTM Adjusted EBITDA. 8) Revenue Generating Unit, or RGU, represents individual service subscriber who generates recurring revenue for the Company. Total RGUs include the sum of all lines in service, broadband service customers and video subscribers. 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) Subject to market conditions, the Company's liquidity position and its contractual obligations, from time to time, the Company may acquire its senior secured and unsecured notes in the open market or in privately negotiated transactions. Analyst Coverage: The analysts mentioned below currently cover Axtel S.A.B. de C.V.
About Axtel Axtel is a Mexican telecommunications company with a significant growth in the broadband segment, and one of the leading companies in information and communication technologies solutions in the corporate, financial and government sectors. The Company serves all market segments -corporate, financial, government, wholesale and residential with the most robust offering of integrated communications services in Mexico. Its world-class network consists of different access technologies like fiber optic, fixed wireless access, point to point and point to multipoint links, in order to offer solutions tailored to the needs of its customers. AXTELCPO trades on the Mexican Stock Exchange since 2005. 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 axtel.mx
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