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Axtel Announces Results for Second Quarter 2016Axtel (News - Alert), S.A.B. de C.V. ("Axtel" or "the Company"), a Mexican information and communications technology company, announced today its unaudited second quarter results ended June 30, 2016(1). Axtel is a subsidiary of Alfa S.A.B. de C.V. ("ALFA"). Highlights:
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 3%: FTTH. FTTH revenues totaled Ps. 494 million in the second quarter of 2016, compared to Ps. 415 million for same period in 2015, representing a 19% increase in line with a 17% increase in customers. Voice revenues increased 11% due to a 26% increase in monthly rent revenues mitigated by a 73% decline in mobile revenues due to lower billed fix-to-mobile minutes and prices. Internet and video revenues increased 20% and 36% respectively, mainly due to increases in internet and video subscribers and higher ARPU. Wireless. Revenues amounted to Ps. 313 million in the second quarter of 2016, compared to Ps. 419 million in the same period in 2015, a 25% decrease explained by a 30% decline in customers. Voice revenues decreased 27% mainly explained by a 22% decline in monthly rents and a 56% decline in mobile revenues due to less billed fix-to-mobile minutes. Internet revenues decreased 17% due to a decline in internet subscribers. Telecom: Quarterly revenues totaled Ps. 2,201 million, compared to Ps. 1,497 million in the same period in 2015, a 47% increase. On a pro forma basis, revenues decreased 19% due to declines in managed networks and voice revenues. Voice revenues decreased 17% due to declines fix-to-mobile revenues, toll-free (800s) revenues and a 82% decline in international traffic revenues explained by both volume and price declines. Data and Internet revenues increased 12% due to an increase in services to existing Alestra customers. Managed networks revenues decreased 42% mainly due to an extraordinary level of revenues in the same quarter last year and a cancellation of a provision from a government project during this quarter. IT: IT revenues amounted to Ps. 471 million in the second quarter of 2016, compared to Ps. 211 million in the same period in 2015, a 123% increase. On a pro forma basis, revenues increased 4% due to strong increases in system integration and hosting revenues related to new projects mainly from the government segment. Mass Market Operating Data Customers. As of June 30, 2016, customers totaled 476 thousand, a reduction of 80 thousand from the same date in 2015 due to the continued decline in Wireless customers. Total customers declined 18 thousand on a sequential basis. ARPU for FTTH and wireless customers is Ps. 841 and Ps. 424, respectively. RGUs(8). As of June 30, 2016, RGUs (Revenue Generating Units) totaled 1,060 thousand. During the second quarter of 2016, there were 20 thousand net disconnections, compared to 42 thousand net disconnections in the second quarter of 2015 due to stronger FTTH additions in 2016. Voice RGUs (lines in service). As of June 30, 2016, lines in service totaled 532 thousand, composed of 247 thousand for FTTH segment and 285 thousand for wireless segment. Lines in service in the second quarter of 2016 decreased 14 thousand, compared to a decrease of 25 thousand in the same period of 2015, due to continued decline in wireless customers. Internet RGUs (internet subscribers). Broadband subscribers decreased 11% year-over-year totaling 408 thousand as of June 30, 2016. During the second quarter of 2016, broadband subscribers' net disconnections totaled 10 thousand compared to 17 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 June 30, 2016, wireless broadband subscribers reached 195 thousand, compared to 277 thousand a year ago, while AXTEL X-tremo, or FTTH customers, totaled 213 thousand compared to 179 thousand a year ago. Broadband penetration has increased from 75% in June 2015 to 77% in June 2016. Video subscribers. As of June 30, 2016, video subscribers reached 119 thousand compared to 99 thousand a year ago, a 20% increase. Video penetration within the FTTH broadband subscriber base increased from 55% a year ago to 56% in June 2016. Cost of Revenues and Operating Expenses Cost of Revenues. For the three month period ended June 30, 2016, the cost of revenues represented Ps. 585 million, an increase of 3% or Ps. 16 million, compared to the same period of year 2015. On a pro forma basis, costs decreased 28% mainly due to Telecom costs. Mass market costs declined 17% due to declines in wireless segment voice costs, which compensated an increase in FTTH segment video costs. Telecom costs declined 38% mainly due to a strong decline in Managed Networks associated to lower revenues. IT segment costs decreased 2%. Gross Profit. Gross profit is defined as revenues minus cost of revenues, excluding depreciation costs. For the second quarter of 2016, the gross profit accounted for Ps. 2,893 million, 47% higher than the same period in year 2015. On a pro forma basis, gross profit decreased 10% due to the decline in Telecom revenues. The gross profit margin increased from 79.7% to 83.2% year-over-year, mainly due to increases in IT and Managed Networks projects' margins. Operating expenses. In the second quarter of year 2016, operating expenses totaled Ps. 1,729 million, 48% higher than the Ps. 1,169 million recorded in the same period in 2015. On a pro forma basis, operating expenses remained unchanged, due to declines in personnel and rents derived from the merger synergies, mitigated by the increase in a one-time maintenance expense. Other income / (expense), EBITDA, Operating income (loss) Other income (expense). For the three month period ended June 30, 2016, other expenses reached Ps. 25 million, compared to Ps. 332 million in the same quarter of 2015, a decrease of Ps. 307 million. On a pro forma basis, net other expenses declined from Ps. 293 million in the second quarter 2015 to Ps. 25 million in the same period of 2016. Other expenses in the second quarter of 2016 include severance expenses related to the post-merger integration process. In the second quarter of 2015 other expenses include the agreement between Axtel and Telefonica (News - Alert) Mexico to terminate disputes related to interconnection tariffs for the period 2005-2011. EBITDA(6). For the second quarter of 2016, EBITDA reached Ps. 1,139 million, a 142% increase from the same period in 2015. On a pro forma basis, EBITDA declined 3% compared to the same period in 2015. EBITDA margin increased from 29.3% to 32.8%. Operating income (loss). In the second quarter of 2016, operating income totaled Ps. 155 million, compared to an operating loss of Ps. 135 million. On a pro forma basis, operating income was Ps. 321 million in the second quarter of 2015, representing a decrease of Ps. 166 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. 1,563 million in the second quarter 2016, compared to a cost of Ps. 571 million in the same period of 2015, which on a pro forma basis is Ps. 708 million. On a pro forma basis, the comprehensive cost of financing increased Ps. 855 million mostly explained by the higher FX loss during the second quarter of 2016 compared to the second quarter of 2015. Debt. At the end of the second quarter 2016, total debt increased Ps. 7,618 million in comparison with second quarter 2015, explained by (i) a Ps. 13,913 million increase related to the new Syndicated Credit Facility, (ii) a Ps. 11,004 million decrease related to the prepayment of the 2017, 2019 and 2020 Notes, (iii) an increase of Ps. 2,962 million related to Alestra's debt, (iv) a Ps. 177 million decrease in leases and other financial obligations, (v) a Ps. 2,362 million non-cash increase caused by the 18% depreciation of the Mexican peso, and (vi) a Ps. 439 million decrease in accrued interests. Cash. As of the end of the second quarter of 2016, the cash and equivalents balance totaled Ps. 1,279 million, compared to Ps. 3,651 million pro forma a year ago, and Ps. 845 million at the beginning of the quarter. Capital Investments. In the second quarter of 2016, capital investments totaled Ps. 794 million, or $44 million, compared to pro forma Ps. 990 million, or $65 million, in the year-earlier quarter. This decrease is partly due to Capex synergies resulting from the merger between Axtel and Alestra. Financial Statements Information as of June 30, 2016 (including Alestra) compared with information as of June 30, 2015 Assets As of June 30, 2016, total assets summed Ps. 32,470 million compared to Ps. 22,699 million as of June 30, 2015, an increase of Ps. 9,771 million, or 43%. Cash and equivalents. As of June 30, 2016, we had cash and cash equivalents of Ps. 1,128 million compared to Ps. 2,772 million in the same date of year 2015, a 59% decline. Accounts Receivable. As of June 30, 2016, the accounts receivable were Ps. 6,597 million compared with Ps. 5,540 million in the same date of 2015, an increase of Ps. 1,057 million or 19%. Property, plant and equipment, net. As of June 30, 2016, the net of depreciation value of property, plant and equipment was Ps. 19,693 million compared with Ps. 13,424 million as of June 30, 2015, an increase of Ps. 6,269 million or 47%. The property, plant and equipment without adjusting for the accumulated depreciation, was Ps. 62,287 million and Ps. 42,593 million as of June 30, 2016 and June 30, 2015, respectively. Liabilities Total liabilities were Ps. 27,035 million as of June 30, 2016 compared to Ps. 17,301 million as of June 30, 2015, an increase of Ps. 9,733 million or 56% mainly driven by the inclusion of Alestra's debt and a non-cash increase in debt related to the 18% peso depreciation against the US dollar. Accounts payable & accrued expenses. On June 30, 2016, the accounts payable and accrued expenses were Ps. 3,342 million compared with Ps. 2,636 million on June 30, 2015, an increase of Ps. 707 million or 27%. Stockholders' Equity On June 30, 2016, the stockholders equity of the Company was Ps. 5,435 million compared with Ps. 5,398 million as of June 30, 2015, an increase of Ps. 37 million, or 1%. The capital stock was Ps. 10,362 million as of June 30, 2016 compared to Ps. 6,781 million as of June 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 June 30, 2016 compared with the three month period ended June 30, 2015 Net resources used by operating activities were Ps. 1,523 million for the three month period ended on June 30, 2016 compared to resources provided by operating activities of Ps. 121 million recorded in the same period of year 2015. Net resources (used in) provided by investing activities were Ps. (766) million for the three month period ended on June 30, 2016 compared to Ps. (470) million recorded in the same period of year 2015. These flows primarily reflect investments in fixed assets of Ps. 794 million and Ps. 570 million, respectively. Net resources (used in) provided by financing activities were Ps. (358) million for the three month periods ended on June 30, 2016 and Ps. (148) million for 2015. As of June 30, 2016, the ratios of net debt to EBITDA and interest coverage of the company were 4.3x and 2.2x, respectively. As of June 30, 2015, the ratios of net debt to EBITDA and interest coverage, were 2.9x and 3.3x, 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) 2015 and 1Q16 revenues (include Alestra as of February 15, 2016) under the new segmentation:
3) Pro forma 2015 and 1Q16 revenues (include Alestra as of the beginning of each period) under the new segmentation:
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) EBITDA is defined as operating income (loss) plus depreciation and amortization, plus impairment of assets. 7) Net Debt to EBITDA: Ratio of net debt at the end of the period divided by the respective LTM pro forma EBITDA. 8) 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. 9) 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.
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
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