Axtel, S.A.B. de C.V. ("AXTEL" or "the Company"), a leading Mexican fixed-line integrated telecommunications company, announced today its unaudited third quarter results ended December 31, 2009(1).
Highlights:
- During the fourth quarter, AXTEL increased lines in service by 22 thousand, which combined with the 26 thousand net additions in the third quarter, represented 48 thousand net-adds in the second half of 2009, compared to a decrease of 36 thousand in the second half of 2008.
- WiMAX subscribers totaled 177 thousand at year-end, an increase of 147 thousand for 2009. During 2009, broadband penetration increased from 10% to 17%.
- During the fourth quarter, AXTEL hedged coupon payments until call date on the 2019 Senior Notes.
- During 2009, AXTELCPO's liquidity continued to improve, advancing from 27th to 24th place among the most active stocks on the Bolsa Mexicana de Valores. This progress allowed AXTEL to maintain its position in the BMV's IPC Index(10). In January 2010, AXTELCPO was the 20th most active stock on the Mexican Stock Exchange
Revenues from operations
Revenues from operations totaled Ps. 2,697 million in the fourth quarter of year 2009 from Ps. 2,933 million for the same period in 2008, a decrease of Ps. 236 million, or 8%.
Revenues from operations totaled Ps. 10,969 million in the twelve-month period ended December 31, 2009, compared to Ps. 11,572 million in the same period in 2008, a decrease of Ps. 604 million, or 5%.
Sources of Revenues
Local services. Local service revenues totaled Ps. 1,120 million for the three-month period ending on December 31, 2009, representing a decrease of Ps. 127 million, or 10%, compared to the same quarter in 2008. The effect of our largest wholesale customer explains Ps. 110 million of this figure. Excluding this customer, the Ps. 17 million decline is mostly explained by reduced unit prices of cellular revenues partially offset by an increase in monthly rent in absolute and per line basis. For the twelve month period ended December 31, 2009, local revenues totaled Ps. 4,649 million compared to Ps. 5,243 million registered in the same period in 2008, a Ps. 593 million reduction of which Ps. 378 million, or 64%. is attributable to the effect of our largest wholesale customer. Monthly rents, measured service and value-added services revenues represented 71% of local revenues during the twelve-month period ended December 31, 2009.
Long distance services. Long distance service revenues totaled Ps. 279 million in the quarter ending December 31, 2009, compared to Ps. 293 million for the same quarter in 2008. The reduction is mostly explained by a decline in long-distance revenues per minute from Ps. 0.72 to Ps. 0.65 year-over-year, which is attributable to an increase in wholesale traffic and commercial offers including national and international minutes within a monthly rent. For the twelve month period ended December 31, 2009, long distance revenues declined to Ps. 1,189 million from Ps. 1,286 million registered in the same period in 2008.
Data & Network. Data and network revenues amounted to Ps. 593 million in the fourth quarter of 2009, compared to Ps. 646 million in the same period in 2008, a decrease of Ps. 53 million explained by price and volume pressures on dedicated Internet and VPN services to business customers. Dedicated Internet and VPNs represented 90% of data & network revenues during the quarter. For the twelve month period ended December 31, 2009, data and network services revenues totaled Ps. 2,452 million from Ps. 2,500 million registered in the same period in 2008, an decrease of Ps. 48 million.
International traffic. In the fourth quarter of 2009, International traffic revenues totaled Ps. 346 million, increasing Ps. 12 million or 4% versus same quarter of previous year. This is explained by 6% increase in traffic and a change in the mix of on- and off-net traffic. For the twelve month period ended December 31, 2009, international traffic revenues totaled Ps. 1,324 million from Ps. 983 million registered in the same period in 2008, an increase of Ps. 341 million or 35% explained by a 3% increase in traffic, an increase in peso revenues due to the Mexican peso devaluation and by a change in the mix of on- and off-net traffic.
Other services. Revenue from other services recorded Ps. 359 or 13% of total revenues in the fourth quarter of 2009, compared to Ps. 413 million registered in the same period in 2008. This is mostly explained by a decrease in equipment sales, interconnection revenues and activation fees. For the twelve month period ended December 31, 2009, other services revenues totaled Ps. 1,355 million from Ps. 1,560 million registered in the same period in 2008, a decrease of a Ps. 205 million of which Ps. 75 million is attributable to the effect of our largest wholesale customer.
Consumption
Local Calls. Local calls totaled 505 million in the three-month period ended December 31, 2009, a decrease of 40 million, or 7%, from 544 million recorded in the same period in 2008. Calls from our largest wholesale customer declined 48 million, partially compensated by an increase of 8 million calls from the rest of the customers. For the twelve month period ended December 31, 2009, local calls decreased to 2,107 million from 2,383 million registered in the same period in 2008, a decrease of 276 million calls or 12% of which 83% is explained by the decline of our largest wholesale customer .
Cellular ("Calling Party Pays"). Minutes of use of calls completed to a cellular line amounted to 253 million in the three-month period ended December 31, 2009, compared to 305 million in the same period in 2008, a decrease of 17% equivalent to 52 million minutes. Lower cellular traffic from one of our largest wholesale customers explains this reduction. Cellular traffic from the rest of the customers increased 10 million minutes in the fourth-quarter 2009 compared to fourth-quarter 2008 due to further penetration of commercial offers including cellular minutes within the monthly rent. For the twelve month period ended December 31, 2009, cellular minutes decrease 189 million, or 15%, from 1,293 million registered in the twelve-month period ended December 31, 2008, to 1,105 million in the same period in 2009. Cellular traffic from our largest wholesale customer declined 207 million minutes while cellular traffic from the rest of the customers increased 18 million minutes.
Long distance. Outgoing long distance minutes amounted to 430 million for the three-month period ended December 31, 2009 from 409 million in the same period in 2008, a 21 million minute increase, mostly explained by growth in wholesale traffic and further penetration of residential offers including national and international minutes within a monthly rent. Domestic long distance minutes represented 95% of total traffic during the quarter. For the twelve month period ended December 31, 2009, outgoing long distance minutes amounted 1,797 million, compared to 1,668 million registered in the same period in 2008, an increase of 128 million of minutes, or 8%.
Operating Data
Lines in Service. As of December 31, 2009, lines in service totaled 962 thousand, an increase of 26 thousand from the same date in 2008, compared to an increase of 3 thousand lines in 2008. During the fourth quarter of 2009, gross additional lines totaled 84 thousand compared to 46 thousand in the fourth quarter of 2008. Disconnections in the fourth quarter of 2009 were 5% lower than the disconnections recorded in the fourth quarter of 2008. The number of line disconnections in the fourth quarter of 2009 represented the lowest number since second-quarter 2008. Net adds for the quarter totaled 22 thousand. As of December 31, 2009, residential lines represented 66% of total lines in service, and bundled offers represented 44% of total lines in service, compared to 29% on the same date in 2008.
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 December 31, 2009, line equivalents totaled 452 thousand, an decrease of 23 thousand from the same date in 2008.
Internet subscribers. As of December 31, 2009, Internet subscribers totaled 174 thousand, an increase of 55%, from 112 thousand recorded on the same date in 2008. Broadband subscribers increased 75%, totaling 162 thousand as of December 31, 2009. During the fourth quarter of 2009, broadband subscribers increased 15 thousand compared to 3 thousand in the same period of 2008. This growth is explained by the commercial efforts of the Company and the 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 December 31, 2009, the cost of revenues represented Ps. 726 million, a decline of Ps. 149 million, compared with the same period of year 2008, due to lower long distance termination rates and reduction in fixed-to-mobile interconnection costs. For the twelve month period ended December 31, 2009, the cost of revenues reached Ps. 2,987 million, a reduction of Ps. 718 million in comparison with the same period in year 2008 due primarily to a reduction in fixed-to-mobile interconnection costs and also to lower long distance termination rates.
Gross Profit. Gross profit is defined as revenues minus cost of revenues. For the fourth quarter of 2009, the gross profit accounted for Ps. 1,970 million, a decrease of Ps. 88 million compared with the same period in year 2008. The gross profit margin increase from 70.2% to 73.1% year-over-year is mostly due to improved cellular margins and domestic long distance costs. For the twelve month period ended December 31, 2009, our gross profit totaled Ps. 7,982 million, compared to Ps. 7,868 million recorded in the same period of year 2008, a gain of Ps. 114 million or 1%.
Operating expenses. For the fourth quarter of year 2009, operating expenses totaled Ps. 1,062 million compared to Ps. 820 million for the same period in year 2008. Operating expenses for the fourth quarter 2008 reflect a 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; otherwise, expenses would have been Ps. 955 million. The Ps. 107 million increase is explained by sales commissions generated by the 83% larger gross additional lines acquired in the fourth quarter of 2009 compared to 2008, by increased advertizing expenses and by uncollectable provisions. For the twelve month period ended December 31, 2009, operating expenses totaled Ps. 4,143 million, coming from Ps. 3,657 million in the same period in 2008, an increase of Ps. 351 million excluding the non-cash Ps. 135 million benefit recorded in the fourth quarter of 2008. Personnel represented 47% of total operating expenses in year 2009.
Adjusted EBITDA(5). The Adjusted EBITDA totaled Ps. 908 million for the three-month period ended December 31, 2009, compared to Ps. 1,103 million for the same period in 2008. As a percentage of total revenues, Adjusted EBITDA represented 33.7% of revenues in the fourth quarter of 2009, 391 bps lower than the margin recorded in the year-earlier quarter. For the twelve-month period ended December 31, 2009, Adjusted EBITDA amounted to Ps. 3,839 million, compared to Ps. 4,075 million in the same period in year 2008.
Depreciation and Amortization(9). Depreciation and amortization totaled Ps. 734 million in the three-month period ending on December 31, 2009 compared to Ps. 715 million for the same period in year 2008, an increase of Ps. 19 million or 3%. The increased quarterly depreciation is mostly explained by the significant capital expenditures incurred in recent years. Depreciation and amortization for the twelve-month period ended December 31, 2009 reached Ps. 3,066 million, from Ps. 2,856 million in the same period in year 2008, an increase of Ps. 210 million, or 7%.
Operating Income (loss). Operating income totaled Ps. 174 million in the three-month period ended December 31, 2009 compared to an operating income of Ps. 523 million registered in the same period in year 2008, a decrease of Ps. 348 million or 67%. For the twelve month period ended December 31, 2009 our operating income reached Ps. 773 million when compared to the result registered in the same period of year 2008 of Ps. 1,355 million, a decline of Ps. 582 million.
Comprehensive financial result. The comprehensive financial gain was Ps. 72 million for the three-month period ended December 31, 2009, compared to a loss of Ps. 1,733 million for the same period in 2008. Net interest expense in fourth quarter 2009 contains a non-recurring Ps. 18 million charge for the premium paid on the 2013 Senior Notes early redemption. The Ps. 266 million FX gain recorded in the fourth quarter of 2009 is explained by the 3% peso appreciation against the U.S. dollar compared to a 25% depreciation recorded in the fourth quarter of 2008 that generated the Ps. 1,595 FX loss. The Ps. 31 million result in the change in fair value of derivative instruments in fourth-quarter 2009 is mostly explained by the accounting effect of the hedging instrument on the dollar-tranche of our term loan and by an Ps. 47 million increase in the valuation of the zero-strike-calls. Net interest expense in year 2009 contains a non-recurring Ps. 120 million charge for the premium paid on the tender offer and early redemption of the 2013 Senior Notes. The reduced comprehensive financial loss for full-year 2009 compared to 2008 is mostly explained by the 25% Mexican peso depreciation against the U.S. dollar in 2008 compared to a 4% peso appreciation registered in 2009.
Debt. The increase in total debt is explained by (i) Ps. 3,918 million from the US$300 million 2019 bond issuance, (ii) Ps. 199 million in net incremental lease obligations, (iii) a Ps. 233 million decrease in notes premium and change in the fair value of the syndicated loan, (iv) Ps. 3,363 million decrease from the prepayments of the US$85 million and $162.5 million Term Loan and 2013 Senior Notes, respectively, and (v) Ps. 238 million decreased due to the non-cash effect of the Mexican peso appreciation against the US dollar affecting favorably the valuation of our debt denominated in foreign-currency.
Capital Investments. In the fourth-quarter of 2009, capital investments totaled Ps. 830 million, compared to Ps. 1,024 million in the year-earlier quarter. Accumulated for the twelve-month period ended December 31, 2009, capital investments totaled Ps. 2,674 million. Access represented close to 60% 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 fourth quarter of 2009. AXTEL paid an average option premium of $8.53 pesos for the 26.1 million zero-strike-call options.
Cash. As of the end of the fourth quarter of 2009, our cash and equivalents balance totaled Ps. 1,402 million, compared to Ps. 1,106 million a year ago. Sixty-four percent of the cash balance is maintained in dollars, the rest in pesos.
Financial Statements
For the three Months Ended December 31, 2009 Compared with Three Months Ended December 31, 2008
Assets
As of December 31, 2009, total assets sum Ps.21,603 million compared to Ps.21,569 as of December 31,2008, an increase of Ps. 34 million.
Cash and equivalents. As of December 31, 2009, we had cash and cash equivalents of Ps. 1,402 million compared to Ps. 1,106 million in the same date of year 2008, an increase of Ps. 297 million or 27%. The increase is mainly due to the senior note for US$300.0 million issued on September 22, 2009.
Accounts Receivable. As of December 31, 2009, the accounts receivable were Ps. 2,052 million compared with Ps.2,591 million in the same date of 2008, a decrease of Ps. 538 million.
Property, plant and equipment, net. As of December 31, 2009, property, plant and equipment, net, were Ps.15,211 million compared with Ps.15,306 million as of December 31, 2008, a decrease of Ps. 96 million. The property, plant and equipment, net, without discounting the accumulated depreciation, was Ps. 29,074 million and Ps. 26,452 million as of December 31, 2009 and December 31, 2008, respectively. The increase in property, plant and equipment is due to a higher investment during this period.
Liabilities
Total liabilities was Ps.13,402 million as of December 31, 2009 compared to Ps.13,638 million as of December 31, 2008, a decrease of Ps.236 million or -2 %.
Accounts payable & accrued expenses. On December 31, 2009, the accounts payable and accrued expenses were Ps.2,052 million compared with Ps.2,591 million on December 31, 2008, a decrease of Ps.538 million or-21 %.
Stockholders Equity
On December 31, 2009, the stockholders equity of the Company was Ps.8,201 million compared with Ps.7,931 million as of December 31, 2008, an increase of Ps.270 million or 3 %. The capital stock remained unchanged at Ps.7,562 million as of December 31, 2009 and December 31, 2008.
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 would 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 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 equipment (fixed assets) and working capital management, including the collection of accounts receivable and management of accounts payable.
Net resources provided by operating activities were Ps.1,193 million for the three-month period ended on December 31, 2009 compared to Ps.63 million recorded in the same period of year 2008.
Net resources used in investing activities were Ps. (1,074) million for the three-month period ended on December 31, 2009 compared to Ps. (1,006) million recorded in the same period of year 2008. These flows primarily reflect investments in fixed assets of Ps. 830 million and Ps. 1,024 million, respectively.
Net resources (used in) provided by financing activities were Ps. (644) million and Ps. (56) million for the three-month period ended on December 31, 2009 and 2008, respectively.
As of December 31, 2009, the ratio of net debt to Adjusted EBITDA and the ratio of interest coverage of the company was placing in 2.3x and 4.1x, respectively. As December 31, 2008 the ratio of net debt to Adjusted EBITDA and interest coverage, was 2.1x and 5.1x, respectively.
Since the beginning of operations of the Company, AXTEL has invested Ps.29,074 million in infrastructure. The Company expects to do more investments in the future, according to the expansion of the network in other geographical areas of Mexico in order to gain market and to maintain its current infrastructure and network.
Liquidity and Capital Resources
For the Twelve Months Ended December 31, 2009 Compared with Twelve Months Ended December 31, 2008
Net resources provided by operating activities were Ps.3,450 million for the twelve-month period ended on December 31, 2009 compared to Ps.2,841 million recorded in the same period of year 2008.
Net resources used in investing activities were Ps.3,004 million for the twelve-month period ended on December 31, 2009 compared to Ps.4,020 million recorded in the same period of year 2008. These flows primarily reflect investments in fixed assets of Ps.2,674 million and Ps.4,001 million, respectively.
Net resources (used in) provided by financing activities were Ps.131 million and Ps.(891) million for the twelve-month period ended on December 30, 2009 and 2008, respectively.
Other important information
1) Figures in this release are presented based on Mexican financial reporting standards (FRS). According to Mexican FRS, the restatement of financial reports into constant pesos was suspended as of December 31, 2007, the last date in which inflationary accounting for the financial reports was applied. For comparative purposes, all financial reports of prior periods are presented in constant pesos as of December 31, 2007. Financial information of years 2008 and 2009 is presented in nominal pesos.
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.
For a full version of this release, please visit AXTEL's Investor Relations Center on www.axtel.com.mx.
Contacts:
Axtel, S.A.B. de C.V.
Investor
Relations:
Adrian de los Santos, +52(81)8114-1226
IR@axtel.com.mx
OR
Media
Relations:
Jose Manuel Basave, +52(81)8114-1144
contacto@axtel.com.mx
