Axtel Announces Second Quarter 2013 Results

Axtel Announces Second Quarter 2013 Results

SAN PEDRO GARZA GARCIA, Mexico--(BUSINESS WIRE)-- Axtel, S.A.B. de C.V. (BMV: AXTELCPO; OTC: AXTLY) ("AXTEL" or "the Company"), a leading Mexican fixed-line integrated telecommunications company, announced today its unaudited second quarter results ended June 30, 2013⁽¹⁾.

For additional information, please contact Adrian de los Santos, Investor Relations Officer and Corporate Finance Director at IR@axtel.com.mx

Highlights:

• Adjusted EBITDA for the quarter was Ps. 701 million; similar to the Ps. 703 million in second quarter of last year. However, excluding the new tower lease expense recorded this year, EBITDA would have been 10% higher than second quarter 2012, and 7% higher on a sequential basis.

• During this quarter, revenues from AXTEL's core business segments, mass market and enterprise, increased 3% on a sequential basis, consistent with the gradual recovery expected after the recapitalization plan and productivity initiatives recently implemented.

• WiMAX net disconnections were reduced from 23 thousand in the first quarter to 11 thousand this quarter, as more competitive acquisition and retention strategies were adopted since early April. Additionally, FTTH quarterly net additions increased from 9 to 12 thousand for the same periods. FTTH subscribers reached 120 thousand at the end of June, including 30 thousand video subscribers.

• Consistent with the strategy of increasing the proportion of IT services in our integrated solutions to the enterprise and government segments, this quarter, AXTEL signed a new contract with Banamex to provide voice and IT managed services.

Revenues from operations

Revenues from operations totaled Ps. 2,380 million in the second quarter of year 2013 from Ps. 2,688 million for the same period in 2012, a decrease of Ps. 308 million or 11%.

Revenues from operations totaled Ps. 9,668 million in the twelve month period ended June 30, 2013, compared to Ps. 10,672 million in the same period in 2012, a decrease of Ps. 1,004 million, or 9%.

Sources of Revenues

IMPORTANT DISCLOSURE. Unless otherwise stated, comments in this section exclude revenues generated by our major wholesale customer (see note 9 for further information).

Local services. Local service revenues totaled Ps. 823 million in the second quarter of 2013, compared to Ps. 915 million for same period in 2012, representing a decrease of Ps. 92 million, explained by Ps. 60 million, Ps. 12 million and Ps. 20 million decreases in monthly rents, measured service and cellular revenues, respectively. Average voice lines declined 9%, producing a decline in monthly rents of also 9%. The 20% decrease in measured services is explained by 12% and 9% decreases in billed-traffic volume and prices, respectively. The 13% decrease in cellular revenue is explained by a 14% decrease in prices resulting from a market trend linked to lower interconnection tariffs, partially mitigated by a 2% increase in cellular billed-traffic. Revenues coming from monthly rents represented 77% of local revenues during the three month period ended June 30, 2013. For the twelve month period ended June 30, 2013, local revenues totaled Ps. 3,430 million, compared to Ps. 3,707 million registered in the same period in 2012, a decrease of Ps. 277 million or 7% mostly explained by Ps. 117, Ps. 54 and Ps. 107 million declines in monthly rents, measured service and cellular revenues respectively.

Long distance services. Revenues totaled Ps. 268 million in the second quarter of 2013, compared to Ps. 275 million for same period in 2012. Billed-traffic volume increased 20%, however revenues decreased due to a 19% decline in billed-traffic prices. For the twelve month period ended June 30, 2013, long distance revenues totaled Ps. 1,092 million compared to Ps. 1,110 million registered in 2012, a Ps. 18 million, or 2%, decline.

Internet & Video. Quarterly revenues amounted to Ps. 252 million, compared to Ps. 193 million in the same period in 2012, a 31% or Ps. 59 million increase driven by the new video or pay-tv service and the increase in mass-market, or, "on-demand" internet services revenues, which increased 22% year-over-year. During the twelve month period ended on June 30, 2013, internet and video services revenues totaled Ps. 909 million from Ps. 671 million registered in 2012, an increase of Ps. 238 million, or 35%.

Data & Network. Data and network revenues amounted to Ps. 479 million in the second quarter of 2013, compared to Ps. 493 million in the same period in 2012, a 3% or Ps. 14 million decrease driven by 5% and 2% decline in private lines and dedicated internet revenues respectively. During the twelve month period ended on June 30, 2013, data and network services revenues totaled Ps. 1,953 million from Ps. 2,003 million registered in 2012, a decrease of Ps. 49 million, or 2%.

Integrated Services & Equipment Sales. Quarterly revenues totaled Ps. 267 million in the second quarter of 2013, from Ps. 503 million in the same quarter of previous year, a 47% decrease mostly explained by a 81% decrease in equipment sale. In the second quarter of 2012, Axtel recorded an extraordinarily high $158 million equipment sale transaction to a Federal government entity that makes year-over-year figures not directly comparable. For the twelve month period ended June 30, 2013, revenues totaled Ps. 1,194 million from Ps. 1,489 million registered in 2012, a decrease of Ps. 294 million, or 20%.

International traffic. In the second quarter of 2013, international traffic revenues totaled Ps. 171 million, an increase of Ps. 3.5 million or 2% versus same quarter of previous year, explained by mixed effects of 12% increase in prices and 9% reduction in volume. Higher prices is attributable to a change in the mix towards higher priced mobile traffic vs on-net and off-net traffic. In peso terms, the price increase was mitigated by an 8% appreciation of the Mexican peso vis-à-vis the US dollar. For the twelve month period ended June 30, 2013, revenues from international traffic totaled Ps. 582 million from Ps. 1,059 million in the same period in 2012, a decline of 45% explained by a 10% decline in volume and a 1% decline in prices.

Other services. Quarterly revenues from other services totaled Ps. 81 million in the second quarter of 2013, from Ps. 92 million in the same quarter of previous year, a decrease of 11%. For the twelve month period ended June 30, 2013, revenues totaled Ps. 338 million from Ps. 361 million registered in 2012, a decrease of Ps. 22 million, or 6%.

Revenues by segment *(Excludes International Traffic and Major Wholesale Customer)

Mass Market. Revenues totaled Ps. 888 million in the second quarter of 2013, compared to Ps. 923 million for the same quarter in 2012, a decrease of 4%, mainly due to 12% and 11% decrease in local and long distance revenues, partially compensated by 27% increase in internet and video services. For the twelve month period ended June 30, 2013, revenues totaled Ps. 3,629 million, an increase of 1% compared to the same period in 2012, mostly explained by a 33% increase in internet and video services.

Enterprise (including Government). Revenues for this segment amounted to Ps. 1,106 million in the three month period ended June 30, 2013, a decrease of 17% versus the same period in 2012. This is explained by decreases of 82% in equipment sales and 5% in local revenues. For the twelve month period ended June 30, 2013, revenues decreased 6%, from Ps. 4,782 million registered in the twelve month period ended June 30, 2012, to Ps 4,493 million in 2013. This is due to decreases of 4% and 23% in local and equipment sale.

Interconnection, Public Telephony and Carriers. Revenues for this segment declined 20%, from Ps. 221 million in the second quarter 2012 to Ps. 176 million in 2013, mainly due to 22%, 17% and 25% decreases in local, long distance and data revenues. For the twelve month period ended June 30, 2013 revenues reached Ps. 795 million, a decline of 17% compared to the same period in 2012, primarily explained by 26%, 42% and 12% decreases in local, long distance and data revenues respectively.

Consumption

Local Calls. Local calls excluding our largest wholesale customer totaled 447 million calls in the second quarter of 2013, compared to 450 million calls for same period in 2012, representing a decrease of 1%. Billed local calls decreased 11 million or 12%, while local calls included in commercial offers increased by 7 million. Business and residential customers contributed with 9 million and 2 million decrease respectively to the billed local calls decline. Local calls included in commercial offers represented 82% of total calls in the second quarter of 2013. For the twelve month period ended June 30, 2013, local calls totaled 1,800 million excluding our largest wholesale customer, compared to 1,792 million registered in the same period in 2012, an increase of 9 million calls.

Cellular ("Calling Party Pays"). Minutes of use of calls completed to a cellular line excluding our largest wholesale customer amounted to 172 million in the three month period ended June 30, 2013, compared to 166 million in the same period in 2012, an increase of 4%. Billed cellular minutes increased 3 million or 2%, while minutes in modules included in a monthly rent increased 3 million minutes or 7%. Billed cellular minutes represented 71% of cellular minutes in the second quarter of 2013, compared to 72% in the year-earlier quarter. For the twelve month period ended June 30, 2013 and excluding our largest wholesale customer, cellular minutes increased 33 million, or 5%, from 638 million registered in the twelve month period ended June 30, 2012, to 671 million in 2013.

Long distance. Excluding our largest wholesale customer, which represents 13% of total volume, outgoing long distance minutes amounted to 557 million for the three month period ended June 30, 2013, from 472 million in the same period in 2012, a 18% increase. This, resulting from a 9% decrease and 25% increase in traffic from residential and business customers, respectively. Billed long distance minutes during the second quarter of 2013 increased 20% compared to the same period in 2012. Domestic long distance minutes represented 96% of total traffic during the quarter. For the twelve month period ended June 30, 2013 and excluding our largest wholesale customer, outgoing long distance minutes amounted 2,185 million, compared to 1,898 million registered in 2012, an increase of 15%, explained by increased traffic from business customers, particularly in billed long distance minutes.

Operating Data

RGUs⁽⁸⁾and Customers. As of June 30, 2013, RGUs (Revenue Generating Units) totaled 1,450 thousand. During the second quarter of 2013, there were no net-additions, compared to 15 thousand net-additions in the second quarter of 2012, attributable to a greater number of disconnections from wireless RGUs, compensated by an increase in FTTH and video RGUs. As of June 30, 2013, customers totaled 653 thousand, a decline of 102 thousand from the same date in 2012. Total customers declined 19 thousand on a sequential basis.

Voice RGUs (lines in service). As of June 30, 2013, lines in service totaled 939 thousand. During the second quarter of 2013, gross additional lines totaled 52 thousand compared to 63 thousand in the second quarter of 2012. Disconnections in the second quarter of 2013 totaled 70 thousand compared to 67 thousand in the year-earlier quarter. Lines in service in the second quarter of 2013 decreased 18 thousand, compared to 4 thousand in the same period of 2012. As of June 30, 2013, residential lines represented 64% of total lines in service.

Broadband RGUs (broadband subscribers). Broadband subscribers remained unchanged year-over-year totaling 481 thousand as of June 30, 2013. During the second quarter of 2013, broadband subscribers net-additions totaled 1 thousand compared to 18 thousand in the same period of 2012. As of June 30, 2013, WiMAX broadband subs reached 347 thousand, compared to 388 thousand a year ago, while AXTEL X-tremo, or FTTH customers, totaled 121 thousand compared to 76 thousand a year ago. Broadband penetration reached 51% at the end of the second quarter of 2013, compared to 46% a year ago.

Video subscribers. Axtel launched its pay-television service, AXTEL TV, on January 30th, 2013, and as of June 30, 2013, video subscribers had reached 31 thousand. Video subscribers totaled 15 thousand at the beginning of this quarter.

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 June 30, 2013, line equivalents totaled 743 thousand, 27% increase.

Cost of Revenues and Operating Expenses

Cost of Revenues. For the three month period ended June 30, 2013, the cost of revenues represented Ps. 609 million, a decrease of Ps. 211 million, compared with the same period of year 2012, mainly explained by decreases of Ps. 214 million in integrated services and equipment sale costs. For the twelve month period ended June 30, 2013, cost of revenues reached Ps. 2,573 million, a decrease of Ps. 221 million in comparison with year 2012, mainly due to decreases in local and equipment sales costs.

Gross Profit. Gross profit is defined as revenues minus cost of revenues. For the second quarter of 2013, the gross profit accounted for Ps. 1,771 million, a decrease of Ps. 98 million compared with the same period in year 2012. The gross profit margin increased from 69.5% to 74.4% year-over-year, influenced by lower equipment sales revenues that carry a low gross margin. For the twelve month period ended June 30, 2013, our gross profit totaled Ps. 7,095 million, compared to Ps. 7,878 million recorded in year 2012, a decrease of Ps. 784 million, or 10%.

Operating expenses. In the second quarter of year 2013, operating expenses totaled Ps. 1,070 million, Ps. 95 million or 8% lower than the Ps. 1,165 million recorded in the same period in year 2012, explained by Ps. 84 and Ps. 42 million decreases in personnel and maintenance expenses, respectively, due to the efficiency initiatives initiated during the fourth-quarter of last year. These reductions were partially offset by the Ps. 70 million increase in rents due to the towers lease expenses. For the twelve month period ended June 30, 2013, operating expenses totaled Ps. 4,445 million, coming from Ps. 4,607 million in the same period in 2012. Personnel represented 40% of total operating expenses in the twelve month period ended June 30, 2013.

Adjusted EBITDA, D&A and Operating Income

Adjusted EBITDA⁽⁵⁾. The Adjusted EBITDA totaled Ps. 701 million for the three month period ended June 30, 2013, compared to Ps. 703 million for the same period in 2012. As a percentage of total revenues, Adjusted EBITDA margin represented 29.4% in the second quarter of 2013, 330 bps higher than the margin recorded in the year-earlier quarter. Excluding the tower lease expense, Adjusted EBITDA in the second quarter would have been Ps. 771 million, representing a 32.4% margin, or 625 bps higher than a year earlier. For the twelve month period ended June 30, 2013, Adjusted EBITDA amounted to Ps. 2,650 million, compared to Ps. 3,272 million in year 2012.

Depreciation and Amortization⁽¹⁰⁾. Depreciation and amortization totaled Ps. 799 million in the three month period ending on June 30, 2013 compared to Ps. 757 million for the same period in year 2012. Depreciation and amortization for the twelve-month period ended June 30, 2013 reached Ps. 3,170 million, from Ps. 3,044 million in the same period in year 2012, an increase of Ps. 126 million.

Operating Income (loss). In the three month period ended June 30, 2013, the Company recorded an operating loss of Ps. 120 million compared to an operating loss of Ps. 63 million registered in the same period in year 2012. For the twelve month period ended June 30, 2013 our operating income reached Ps. 2,367 million when compared to the operating loss of Ps. 204 million in the same period of year 2012, a variation of Ps. 2,567 million mainly explained by the gain related to the tower sale.

CFR, Indebtedness, Cash, Investments and Derivative Instruments

Comprehensive financial result. Net interest expense for the second quarter 2013 decreased Ps. 106 million vis-à-vis the second quarter 2012, due to the debt reduction implemented in the first quarter of 2013. During the second quarter 2013, a 6.3% peso depreciation against the U.S. dollar generated a Ps. 446 million FX loss. In the second quarter of 2012, an FX loss of Ps. 703 million was generated by an equal 6.3% peso depreciation. Concerning variations in the fair value of financial instruments, these are partially explained by 19% increase and 31% decline in the price of AXTELCPO during the second quarters of 2013 and 2012, respectively, which affected the valuation of AXTEL´s position held in its own stock through the zero-strike-calls instruments. The Ps. 1,047 million comprehensive financial gain for year ended in June 2013, compared to a Ps. 2,622 million comprehensive financial loss for year ended in June 2012, is mainly explained by an 8% appreciation of the Mexican peso against the U.S. dollar in the 2013 period, compared to a 13% depreciation in the 2012 period.

Debt. At the end of the second quarter of 2013, total debt decreased Ps. 4,351 million in comparison with the same date in 2012, explained by (i) a Ps. 3,096 million net reduction related to the exchange of the senior notes due 2017 and 2019, (ii) a Ps. 824 million decrease in bank debt related to the prepayment of the syndicated bank facility, (iii) a decrease of Ps. 277 million in leases and financial obligations, (iv) a Ps. 142 million decrease in notes issuance and deferred financing costs, and (v) a Ps. 260 million non-cash decrease caused by the 4% appreciation of the Mexican peso.

Cash. As of the end of the second quarter of 2013, our cash and equivalents balance totaled Ps.750 million, compared to Ps. 843 million a year ago, and Ps. 824 million at the beginning of the quarter. As of the end of the quarter, 24 percent of the cash balance was maintained in dollars, the rest in pesos.

Capital Investments. In the second quarter of 2013, capital investments totaled Ps. 410 million, or $33 million, compared to Ps. 476 million, or $35 million, in the year-earlier quarter. Accumulated for the twelve-month period ended June 30, 2013, capital investments totaled Ps. 1,777 million, or $139 million, compared to Ps. 2,250 million, or $172 million, for the same period ended in 2012.

Other Investments. As of June 30, 2013, the Company maintained an economic position equivalent to 30.4 million AXTELCPOs in ZSC.

Derivative Instruments. The following table summarizes the Company's derivatives position as of June 30, 2013.

Financial Statements

Information as of June 30, 2013 compared with information as of June 30, 2012

Assets

As of June 30, 2013, total assets summed Ps. 18,924 million compared to Ps. 21,194 million as of June 30, 2012, a decline of Ps. 2,271 million.

Cash and equivalents. As of June 30, 2013, we had cash and cash equivalents of Ps. 750 million compared to Ps. 843 million in the same date of year 2012, a decrease of Ps. 93 million or 11%.

Accounts Receivable. As of June 30, 2013, the accounts receivable were Ps. 2,621 million compared with Ps. 2,486 million in the same date of 2012, an increase of Ps. 135 million.

Property, plant and equipment, net. As of June 30, 2013, the net of depreciation value of property, plant and equipment was Ps. 13,199 million compared with Ps. 14,935 million as of June 30, 2012, a decrease of Ps. 1,736 million. The property, plant and equipment without adjusting for the accumulated depreciation, was Ps. 36,600 million and Ps. 35,422 million as of June 30, 2013 and June 30, 2012, respectively.

Liabilities

Total liabilities were Ps. 11,063 million as of June 30, 2013 compared to Ps. 15,872 million as of June 30, 2012, a decrease of Ps. 4,809 million.

Accounts payable & accrued expenses. On June 30, 2013, the accounts payable and accrued expenses were Ps. 1,823 million compared with Ps. 2,420 million on June 30, 2012, a decrease of Ps. 597 million.

Stockholders Equity

On June 30, 2013, the stockholders equity of the Company was Ps. 7,861 million compared with Ps. 5,322 million as of June 30, 2012, an increase of Ps. 2,539 million, or 48%. The capital stock remained unchanged at Ps. 6,626 million as of June 30, 2013 and 2012.

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 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 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, 2013 compared with the three-month period ended June 30, 2012

Net resources provided by operating activities were Ps. 376 million for the three-month period ended on June 30, 2013 compared to Ps. 718 million recorded in the same period of year 2012.

Net resources (used in) provided by investing activities were Ps. (410) million for the three-month period ended on June 30, 2013 compared to Ps. (475) million recorded in the same period of year 2012. These flows primarily reflect investments in fixed assets of Ps. (410) million and Ps. (476) million, respectively.

Net resources (used in) provided by financing activities were Ps. (28) million and Ps. (0.7) million for the three-month periods ended on June 30, 2013 and 2012, respectively.

As of June 30, 2013, the ratios of net debt to Adjusted EBITDA and interest coverage of the company were 2.6x and 2.6x, respectively. As June 30, 2012 the ratios of net debt to Adjusted EBITDA and interest coverage, were 3.4x and 3.1x, respectively.

Since the beginning of operations of the Company, AXTEL has invested approximately Ps. 37 billion 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.

Cash Flow Statement

For the twelve months ended June 30, 2013 compared with twelve months ended June 30, 2012

Net resources provided by operating activities were Ps. 1,998 million for the twelve-month period ended on June 30, 2013 compared to Ps. 3,000 million recorded in the same period of year 2012.

Net resources (used in) provided by investing activities were Ps. 1,370 million for the twelve-month period ended on June 30, 2013 compared to Ps. (2,258) million recorded in the same period of year 2012. These flows primarily reflect investments in fixed assets of Ps. (1,776) million and Ps. (2,250) million, respectively.

Net resources (used in) provided by financing activities were Ps. (3,343) million and Ps. (785) million for the twelve-month period ended on June 30, 2013 and 2012, respectively.

Other important information

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

― Consolidated income statement information for the three-month period ending on June 30, 2013, and March 31 and June 30, 2012; and twelve-month period ending on June 30, 2013 and June 30, 2012, and

― Balance sheet information as of June 30, 2013 and 2012; and March 31, 2012.

2) Revenues are derived from:

3) Cost of revenues includes 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.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 8,672,716,596, respectively, as of June 30, 2013.

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) Breakdown of AXTEL's revenues including its major wholesale customer:

10) Depreciation and amortization includes depreciation of all communications network and equipment and amortization of pre-operating expenses and cost of spectrum licenses, among others.

11) 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.

• Actinver Casa de Bolsa S.A. de C.V.

• Bank of America-Merrill Lynch

• BBVA Bancomer, S.A.

• BTG Pactual

• Casa de Bolsa Banorte Ixe, Grupo Financiero Banorte

• Credit Suisse Securities (USA) LLC

• GBM

• Scotiabank Inverlat

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 www.axtel.mx

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

KEYWORDS: United States Mexico North America Central America

INDUSTRY KEYWORDS:

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