Q3 2019 Earnings Call

Good morning, and welcome to the corporate America airports third quarter 2019 earnings call.

Slide presentation that accompanies today's webcast and is available in the Investor section of Corporate America airports Investor Relations Web site at H.P.T. P. Calling for flash forward Slash investors Dod Corporation.

<unk> airports dotcom.

As a reminder, today all participants will be in listen only mode.

There will be an opportunity to ask questions at the end of today's presentation.

As a reminder, this call is being recorded.

At this time I would like to turn the call over to get out, but we'll see other investor Relations. Please go ahead.

Thank you good morning, everyone I'm thinking for getting activate it begins to they called me Mike you don't make yen acutely you'd be looking three Franklin, our chief financial officer, well, we'd have to they eat okay. That's fine that's anemone manorcare Oh, it would be available until they get any fiction.

Before we go to <unk> I'd like to make before that we think I would say Nick.

Well, we can think.

Paid me and I think they fell under the significant okay. I mean, clearly I mean, I think you'd be anything yet no obligation IBW bites any forward looking statements boy, if youre change either [laughter].

For comparison purposes, I know their understanding of younger laying there for my he never think they think they would be stepping because it really tightly fixing like I was thinking like anything there.

Became effective July 2018.

The current information equal, making would be indicating a little many if any ninth and he found the Afghan these people now and it didn't sound like well over to our CEO , Mike you own again.

Thank you Yeah, Hello, everyone and thank you for doesn't agree it's a pleasure to work of you'd look what else you know mitigate airports dirt work. There's some good ideas earnings conference call.

I will definitely be today, we've got an overview of the highlights of the water and then the only.

Good for my notes that were sold.

Afterwards, I will provide enough they were used to segment.

Review for the remainder of the year.

We'll then open the goal your questions.

Beginning with say three or more unfavorable market conditions in Argentina, Oh that just market and to a lesser extent in the city continues to even bucket outperformance this quarter.

Well I can just traffic was up slightly over one person. We don't we're going to 2 million passengers, but I really would be lower you could do airports in the quarter.

Domestic and international traffic increase nearly four and 3% respectively was granted passengers credit 13% impacted by weaker traffic in Brazil.

Adjusted EBITDA, excluding pension accounting declined 25% year on year, we'd the margin eggs I <unk> contracting to nearly 32% from 41% in a year ago weren't there when we have posted a robust margin expansion over 470 basis point.

Earnings.

This was mainly due to a bad debt provision in Argentina, excluding these.

The adjusted EBITDA margin Ags <unk> for the quarter would have means that the members and down only 170 basis points.

We saw better margins this quarter in Armenia, you're right and make whether I loan was relatively stable margin easily.

You know didn't do you know we continued to experience a mix shift toward more a formula domestic traffic, we get a commercial revenues and the translation, but Oh FX devaluation.

Feeling there remains affected by this decision of over eight years old I'd be I'm gonna see.

Reinvested.

100000, 3 million in the quarter as we continue to enhance our airport infrastructure. We've been Thermon go further strengthening capacity to capture a future growth and add to that button does that I would experience.

Funds were mainly elevated to Argentina as we move ahead with works are they say type work.

Also made capital investments in Ecuador and equally.

Importantly, during the quarter the national airports <unk> organization of Argentina approved new maximum passenger use fees to recharge effective January 1st done due to and I will discuss more about this in a few minutes.

Turning to slide four.

Total traffic growth decelerated slightly above 1%, you don't hear from workforce and even brighter for.

Hey, good performance in Argentina, I mean, yes, but it was mitigated by weaker.

A few Andrew NSX and easily in Uruguay.

Yeah traffic was up nearly 8% year on year, we saw continued leadership for domestic drought.

Each was up 10% year on year.

International traffic in derm.

Okay. This is like younger in September ending the quarter up nearly 1% year on year. It really from the 6% year on year, though is that Brian border.

Graphic in Brazil remains negatively affected by either sensation overlays and some of your encoder. If you let me.

For some good year on year declined nearly 12% in building graphic on the book as you know you September going no additional growth.

Finally, we strategy to expandable agents.

Good morning.

Anybody graphic declined slightly over 1% year on year when traffic was up 3%.

Sure as airport fuse idea. If you know you airlines routes ambiguity beside report both this decline in assuming that magnitude as the quarter remained.

By a reduction of operation by new logos Gary.

Our other airports boasted a mixed performance.

And just traffic was up 17% in Armenia benefited from the addition of newer lengthen and flights what exactly are getting better <unk> increased over 5% this quarter.

Mike on today.

Traffic in your White was down nearly 3% eurone are impacted by the temporary consolation of a route to go into Colombia.

Which is anticipated to assume in December together with lower traffic built from Argentina.

Nick weather traffic was temporarily affected by the closure of the airport during September weekend, as we renovated the runway index annuities.

This resulted in 4% dropping traffic more than offsetting the good performance in July and August , but even by new international routes and frequencies.

I'll now hand off because growth Broncos will review operations and financial results.

So we go ahead.

Hey, Thank you Mark being good day, everyone I've seen may not know data at the beginning of the person. They show however to understand the not far from us.

Discuss oversized excluding the impact of hyper inflation in Argentina.

Starting with revenue on is 95.

Oh, that's logical dishwashing I was thinking that continues to impact our bulk liabilities quota and we are also facing some temporary John is listening, but as you guys did you guys.

On a comp whatever basis.

Moving cost production revenue booked on revenue fell 4% year on year.

I don't know pick out on the revenue declined almost 2%, mainly episodic thought that make shake domestic from the unless you're going to trafficking object.

Your next question Vince young impact on domestic Clarion Unifill, all strong balance sheet Association.

You bet sheet I'll take a revenue were mainly affected by declining traffic lower geographies.

Which more than offset the engaged in international traffic anybody white lower traffic was offset by higher study.

When you roll.

Looking.

Hi, sorry to see differentiation.

By contrast, we didnt.

Hey, Good performance you know I mean, yes.

Bolsters another federal revenue growth you're doing commission.

Rafiq, partially offset by you know that machine issue.

Moving on to go matter Chevrolet menu you send declined year on year, mainly reflected lower kind of what pvp GAAP basis with longer you'd be shade.

All right thing for a week or month in Argentina elsewhere in the fixed charge ratio any back Oh look our governance is revenue.

Religion, then commercial revenue stream, but I see you were impacted by lower it off the pricing for the various parking revenue. So why didn't you Debbie if I understand it looked out of the governor sheet gross was offset.

By the Euro up there for sure.

I mean, yeah continue to perform well cost in another quarter of share revenue girls Baltic by higher shoes in mind.

Hi prices.

Moving to our cost structure on she might shake.

During the quarter total operating costs and expenses psychiatry, Troy increased 7.5% viewed our year, mainly impacted by you're tracking so we really don't bostic, Josh recall that in Argentina related to over that and yet I can relate the last few commercially revenues and Erika Street.

For all and hope that literally.

Cost of services excise Victoria's secret and 1%, yes, mainly due to lower cost issue on 15, our main market, partially offset by higher gross fuel you know.

Oh police bomb to profitability on slide seven.

Okay. If he's got excite break declined 25% year on year to having to do meal in Victoria.

Yeah margin contracted to 32% mainly impacted by you give us great job. He has been to either do with literally the old coffee Michelle equal I didn't see now, but I see due to softer topline growth.

Equals partially offset by the Sobi managing many beauty white.

Excluding they've got their jobs.

Adjusted the lease that we have been hanging on to amplify medium and I guess.

Got it might seem excited.

That's the language.

As you can see on somebody's Hey.

If you mentioned position remains strong.

We are making sure you know we score you know those I wish him themes. So she or he can't guarantee to clearly see de for a total amount or family until the media.

We really need to find an hour got fixed for around you just got tree.

This transaction was particularly.

Well done the Cardium going up by 500, when I see relying on US we did not seem as Shelly <unk> to support this makes me right testing for future.

Actually oversight.

We ended the Florida, we didn't catch will cease young adults to convey to be a medium unless they.

Matt I lived on 53.

Net debt to not really wants adjusted EBITDA stood at 2.1 times.

Let me now.

Thunder quarterback to might have been.

Roll up from four miles an hour PBC state when somebody who will comment on out.

Thank you, though we.

Moving on to Argentina on slide nine.

Revenues eggs, I think well down 9% year on year, I said adverse macro conditions continue to impact our financial performance in this market.

First we continued to experience a mix shift to more affordable domestic destinations.

I think traffic was up 10%, reflecting new routes and frequencies Cobranded my low cost carriers and increased promotional activity.

This compares with the nearly 1% increasing international travel, which goes to the temporary recovery from the 6% year on year drop observed in the second quarter opened did indeed.

Second lower kind of on duty for revenues, partially offset by higher VIP lounges and advertising revenues resulted in a declining commercial revenues this quarter and third research, where I was impacted by the FX translation impact from the peso depreciation which impacted our logo grows yet another.

Nickolenko MISO revenue.

Adjusted segment, EBITDA fell, 42% white adjusted EBITDA margin exactly well constructed to 28% from 45% in the same quarter last year.

Excluding the bad debt charge in the quarter discussed earlier adjusted EBITDA margin, excluding epic growth would have declined only 200 basis points to 43% in the quarter, reflecting lower cost dilution.

Yeah.

During the quarter, we invested 104 million in Argentina with funds, mainly located two words are they say set and metabolic airports, that's where I sit within other airports in the country note that the opening of the newly budget that I mean at the same has been delayed you.

To a construction incident that has the construction well being invested investigated by the abruptly the rice agents.

We expect the construction work in if they said to be completed during the second quarter up into going.

In the meantime.

We have progressed with working adjacent buildings and the moves the level parking at this airport, which is expected to be finalized by the end of this month.

We also advanced on the lens suited for construction of a new car parking facility uncles done It Avenue I had a bank airport.

During the third quarter, we also program with the construction of the news I mean are living and you are sue and who airport.

The expansion of the Damietta buildings, and Buddy legitimate as black and their skill airports among other investments across our airport network.

Finally like event in the quarter was the increase of passenger you start it's effective January 1st 20 blended.

As a result, although it wouldn't be 17 economic agreement revision.

The new study framework implies a 4% increasing international studies to $51 from $49 today.

And then 162% increase in domestic bodies to 195 vessels from 74 basis today.

In connection with the 2016 economic collaboration we have filed a judiciary claim against the national airports or they would actually organization fortys to declare that that's the reason.

And to redo it in a gordon's would be applicable regulations.

Please turn to slide 10.

Looking at easily.

Going back to your traffic was down slightly over 1% year on year.

Burns therefore, both good and 3% he wouldn't that be supported by new routes and frequencies.

These were mainly rose from local scanning and waiting to several years nations with Europe .

That's why that original it's nice to participate in France and from at least by Radian.

Good customer response to Sac light to Copenhagen average basket is good and utilize the uses or by low cost carrier Euro ratings also contributed to higher traffic at sort of airport.

This was more than offset minus 3% declining traffic at B. Sanfilippo Aspirator, we'll use these operations in the quarter.

Late in the quarter lead the launch of new routes to Brussels, and Brock among others.

Also slow source nice pickup in operations by Ryanair.

Yes, one of the contraction experienced fees basement.

Revenues expected, good where not only go through 3% year on year impacted by nearly 5% limitation of the euro.

In local currency. However, at an article revenues were flat driven by higher passengers with restricted mobility CCEP Legalities February offset by the decline in passenger traffic.

Commercial revenue local currency were up 5%, reflecting new advertising and kind of rental agreements as far as carefully as.

As we will have deeper form of you get beat out of your opinion from the opening of you areas.

Hi, here I don't know kind of commercial revenue more than offset weaker passenger traffic.

Our celebration boasted service profitability, these babies and traffic and the utilization adjusted EBITDA margin exactly Glenn remains stable at 37% year on year.

Turning to Capex.

Invested 3 million Laura this quarters.

Maybe master plan you in a minute thrown in surplus.

His preliminary works legacy expansion and decide what do you guys aren't we've been asked road there.

Now we have based on the goals airport expansion program.

And then obviously the nation no mention of assessment.

For the lender, who would be 8 billion indeed.

Yes, some of them well you stable year assisted living work by screen, but because.

Remember what was it has been delayed and new silenor millions it doesn't that over them. If they learned measurements and definitely degree or there was an outline Muslim before before they become benign massive that.

Finally.

Our plan to expand this doesn't mean that desire for glaucoma. They insist that the goal remains on track with construction is expected to begin during the first half of next year.

Now please turn to slide 11 in the view, our recipes and operations.

This is station of operations for the encoder represented a drop in Boston visible, 15%, partially offset by the growth of other airlines, resulting in a nearly 20% year on year began traffic.

Moving to offset these we have remained focused on adding new domestic and international routes. For example boys in partnership with Palmetto added three domestic routes as roughly I would like them also just noted the new international routes in Chile and is expected to learn due more to neighboring.

Just before year end.

You are also maybe brogadir I'm not an airport, we got them absolute and one ideas bhupender nine new routes frequencies by year end.

Revenues were down 4% and last year impacted by lower aeronautical and commercial revenue.

While the exchange rate remains stable year on year.

At an article revenues were down 5% impacted by the cessation of I'd be uncovered a serious operations.

And lower address these partially offset by a 41% increase in higher margin international traffic.

Commercial revenues intern fell 4%.

Lower advertising, finding and food and beverage more than offset higher revenues from continued good performance of our VIP lounges.

In terms of profitability adjusted EBITDA declined don't behaviors, and importantly, ending the quarter utilizing gone back to.

To 16% from them be one person in the third quarter from DC.

We saw lower cost dilution as we benefited from embed recovery in the third quarter of the VIP, partially offset by lower concessions be charges.

We have began construction of the pickup let's not forget book, which is expected to be completed by the first quarter of countries like the platinum resistant television for oil car hailing companies in particular Hoover.

I feel as most of the government celebrations and be airport.

The driver and passengers can grading when negations with diesel fuel opportunity for a new revenue source, particularly for the leverage and is okay. The first Starbucks in the failure will be the pages units one.

Now please turn to slide 12 to review our you land operations.

The definition of an easy relative OCA and will travel demand from I continue.

Continues to weigh on button the topic.

I have younger has indicated you'd expect.

The lower than the real route to assume in December .

Revenue exactly growth went down nearly 4% year on year, driven by lower analytical and commercial revenues.

Thanks are really just in terms of 4%, reflecting lower the refi and banking revenues.

Resulting from software demands for margins and passengers coupled with the FX translation impact from that 13% currency depreciation.

Lower collectively also contributed to lower revenues.

Higher VIP lounge revenues from new commercial agreement signed in the quarter, partially offset the decline.

Despite the weaker topline adjusted EBITDA was up nearly 1% to 14 million with margin X. I pick 12, expanding 200 basis points to 51% in the quarter.

Higher profitability was supported by a lower maintenance costs and as DNA expenses.

Now to wrap up turn to slide 13.

Looking ahead, we remain focused on executing on our long term strategy as we navigate and I'm very minor Monday night, India and Weve dynamics in the field.

As India are key market, while we face complex macroeconomics and no near and medium term community, we have a resilient business.

We are successful track record operating in different markets cycle.

Over 80% of revenues are denominated in us dollars.

Further supported by solid balance sheet.

We continue advancing when our investment programs to capture these are additional growth in the economy recovers.

In the city.

Yeah again, the visibility in the back inside economic growth and cessation of operations of again Gillespie.

And then got form we have together he airport is expected.

The gradually restored by this together barriers with domestic operations at the airport Salbi towards your again.

Military we expect to deliver positive traffic growth. This year will you continue to monitor deletion of an Italian undelivered elements of Brexit.

We have also began works for the expansion of the terminal building. Besides book, which will continue into next year and expect to accelerate investments that warrants.

He's been doing.

In conclusion.

While in the near term we continue to face several headwinds in our you know nephew remains focused on executing.

On our investment plans to better position the company to assume growth as market conditions in Argentina into.

We are now ready to take questions. Operator, please open the lines for questions.

We will now begin the question answer session to ask a question you May Press Star then one on your Touchtone phone.

If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.

Please limit yourself to one question and one follow up if he would like to ask a further questions. Please re queue for additional questions.

At this time, we'll pause momentarily to assemble our roster.

Today's first question comes from Ian Zaffino of Oppenheimer. Please proceed.

Hey, Good morning, guys. This is mark Godfrey and thanks for taking your questions.

So just to start off going into the bad debt expense. This quarter can you guys provide some more information on exactly how the mechanics helped you expense.

Forward and how it works and are there any additional that ER or past two fees that we should be aware off going forward. Thanks.

Just doesn't know to the Speaker line. Your line is I needed you maybe locally muted at your telephone.

Hello can you hear me now.

Okay.

I don't see.

This is Mike you don't again here I will I will.

Ask I will do to intervene if needed.

The bad debt provision that we have or if it's an aging issue all I'm, saying piece I don't know because piece and and commercial vslam.

The main carrier.

Of Argentina.

And the fact that we've recently issued its a matter of aging and accounting rules.

Basically they started meeting about them their payments since August last year and since it's been a year, we had to grow region that although.

These airlines is controlled by the state and we really one way or another.

This is not going to turn into a real loss.

Okay, great. Thank you.

And then just a follow on just in terms of are there any updates to negotiations for the 2000 concessions.

Just given where the election results have come out.

And then sort of color incremental detailed there will be much appreciate it. Thank you.

Thank you, there's not going again.

As you mentioned, we are in the transition to a new government.

This doesn't change our view.

Regarding the state of they're going to vision and everything that because they didn't have gone through over the last calendar years, basically and although we now have to establish a new relationship with a new team that will come in seems so a couple of weeks from now starting a couple of weeks from now.

The we really we still strongly believe that.

The extension clause or will be executed at some point.

And we are eager to start negotiations with the with the entering government.

Okay, great. Thank you guys very much.

As a reminder, if you do have a question during today's conference you May Press Star then one on your Touchtone phone.

Our next question comes from Stephen Trent of Citi. Please proceed.

Thank you everybody and good morning, and thanks for taking my question.

I just had a quick one I also relating to a 2000 asset like the gentleman from Oppenheimer. I'm curious you gave some very helpful color on what's going to happen with eight 2000 tariffs starting in January .

But then you also said that.

There's a legal dispute.

That is.

Going on between you and the regulator in Argentina.

And if you get just help me out you know.

What exactly you're distributing the tariffs that are going up in January or this is a separate adjustment.

On the guaranteed IR.

Thank you.

Thank you Steven this is not going again.

As you as you know do you do later has to review every year the concession equolibrium.

In doing this administration they haven't done it yet so they they released that wouldn't be 16 revision in that wouldn't be 17, or we should be very close to each other.

It wouldn't be 16 revision does not come with it that if adjustment. So we got invested back quite strongly actually because instead of going into the administrative process. We went into a judiciary to make a claim for this.

And then they released that wouldn't be 17, a revision which included the $2.

Additionally in international fees.

And domestics from 74 basis into 195 basis.

Okay got it so as we and as a quick follow up to that end. Thank you. My team has a quick follow up to that you know is it.

Fair to say that you know you're going into the current discussions with.

Some negotiating power considering that.

Right you know you're still owed on that the guarantee for some years, Andy governments or flag carrier as.

Maybe still loves you some back payments you know how should investors think about that.

Well, yes.

Although we would like to provision for bad debt.

The situation, we had a yes, we did they said that we have.

That being a controlled by the state we believe that ER. He is going to give us a room for negotiation or in terms of how how that east rebate or or how we should handle.

And yes, what you mentioned before regarding what what a good these days.

The.

The economy, given even revisions and the fact that we went over.

Over the requirements of investment so far.

I think that this puts us in a very good position.

To negotiate.

The terms with the conversation with the government.

Okay very helpful. My Tina Thanks very much.

This concludes our question and answer session. At this time I would like to turn the conference back over to Martin Your Nike and for any closing remarks.

[noise] or things you everybody for joining us today really appreciate your interest you know were company. We look forward to meeting. Moreover, you over the coming months and delighting financial and business updates in the next water in the meantime, our team remains available to answer any questions that you may have thank you again and enjoy the rest of the are they.

Hi, My life.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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