Corporacion America Airports SA (NYSE:CAAP) Q3 2022 Earnings Call Transcript

Corporacion America Airports SA (NYSE:CAAP) Q3 2022 Earnings Call Transcript November 18, 2022

Corporacion America Airports SA beats earnings expectations. Expectations were $-0.03. Reported earnings per share was $0.23.

Operator: Good morning. And welcome to the Corporación América Airports’ Third Quarter 2022 Earnings Conference Call. A slide presentation accompanies today’s webcast and is available in the Investors section of the Corporación América Airports’ Web site. Reminder: All participants will be listening only. At the end of each presentation, there will be the opportunity to ask questions. Now, I’d like to hand the presentation to Patricio Esnaola (Head of Investor Relations). Patricio, you may proceed.

Patricio Esnaola: Thank you. Good morning to everyone. Martin Eurnekian (our Chief Executive Officer) and Jorge Arruda (our Chief Financial Officer) will be speaking during today’s conference call. Before we begin, I’d like to make this Safe Harbor statement. Today’s call may contain forward-looking information. Please refer to our earnings release and the most recent filings with SEC for more information. We are not obliged to revise or update any forward-looking statement to reflect changes or new events. Let me now pass the phone to Martin Eurnekian, our CEO.

Photo by Pascal Meier, Unsplash

Martin Eurnekian: We are grateful, Inaki. We are pleased to welcome you all to our third quarter earnings call for 2022. We had a strong quarter, with steady growth in both the top and bottom lines. Both of these levels were higher than any previous record. Due to strong growth in revenue from commercial and traffic, total revenues increased by the low double digits in the third quarter 2019. We were able to report an adjusted EBITDA (EBITDA) of over $130million with positive contributions from all countries. This was in addition to our continued focus on cost controls. Notably, our adjusted EBITDA margin ex IFRIC12 was higher than the pre-COVID levels. This quarter’s EBITDA margin grew to 38%, up from 32% last quarter.

In the first nine months, adjusted EBITDA was already $339 million. Our balance sheet showed a steady decline in our leverage ratio. Net debt to adjusted EBITDA was below 3 times. This is due to relatively stable net debt levels and a significant recovery of adjusted EBITDA. Also, let me remind you that the amount of preferred shares in the AA2000 were nearly $40 million. Recall that this amount is deducted in Argentina’s mandatory CapEx. In line with our development ambitions, this month we were named prepare bidding agents to manage the Nigerian airports of Kano and Abuja. We are currently in negotiations with the government about the concession agreement terms and will keep you updated as we progress.

Slide 4 shows that passenger traffic continues its recovery trend. We had over 18 million passengers fly through our airports during the third quarter. Traffic reached 82% in the third quarter of 2019, up from 76% during the second quarter. This is a result of strong demand and removal of travel restrictions. The quarter saw a better performance month-over-month. This momentum continued into October, when traffic almost reached 90% of prepandemic levels. Armenia continues to lead the recovery process with traffic levels 16% higher than pre-pandemic levels. The revamp continued through October, when traffic increased 26% We remain concerned about the regional geopolitical environment. We also witnessed a strong performance in Ecuador due to traffic from the USA, Europe, and Panama, with higher frequencies for domestic and international flights.

The airport was closed on three weekends in September 2019 to reduce passenger traffic. The strong performance continued into October, when traffic increased by 8% compared with October 2019. Italy’s traffic showed a solid sequential improvement. This was driven by the summer and reached 89% in the third quarter 2019. It also continued the recovery that had been seen in the preceding quarter. Brazil’s traffic increased to 91% during the third quarter 2019, an increase of 76% from the prior quarter. We expect this momentum to continue throughout 2019. The gradual recovery trend continued in Uruguay and Argentina, with passenger traffic reaching 68% and 80% respectively for the third quarter 2019. Recall that borders were reopened at November’s start, and that Argentina’s old COVID entry regulations were lifted only at August’s end.

Slide 5 shows that we continue to see a steady recovery in cargo volumes, which reached 82% of the third quarter 2019 volumes. Particularly strong were Italy, Uruguay, and Armenia, which beat third quarter 2019 levels. Meanwhile, Argentina saw a sequential improvement, with cargo volumes reaching 83% pre-pandemic levels. The revisions made last year also reflected in cargo revenues, which increased by 43% compared to the third quarter 2019. Jorge will now take the call. He will review our financial results. Jorge, please go ahead.

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Jorge Arruda Martin, thank you and a happy day to everyone. Slide 6 shows our top line. Total revenues ex-IFRIC 12, which was the highest since pre-pandemic, showed a strong performance. The recovery in passenger traffic across the globe, which reached 93% of 2019’s third quarter levels, drove a nearly 130% increase in aeronautical revenue year-on-year. Armenia contributed a significant amount to this growth, with aeronautical revenue up in the mid teens from pre-pandemic levels. Ecuador reported a single-digit increase. Our total revenue growth was up 90% year-on–year and 42% over 2019.

This was due to a greater cargo, parking and duty-free revenue in Argentina and a higher fueling service for Armenia. These strong results were reflected in our increased revenue per passenger, which increased 30% to $13.6 from the third quarter 2019. To $18.6 this year. Slide 7 shows the cost structure. The strong increase in business activity reflected a 56% increase in total operating costs and expenses. This was however significantly less than the 106% revenue growth. Comparable to 2019, operating expenses and costs for the quarter rose by 4%. This is due in part to higher fuel prices in Armenia, which was a result from the strong increase of fuel sales in the quarter. In a smaller amount, it could also be explained by higher salaries paid in Argentina, where the local inflation rate was significantly higher than the currency depreciation.

However, this was partially offset by lower SG&A expenses as third quarter 2019 was impacted by a $23 million bad debt charge in Argentina. Slide 8 now focuses on profitability. Our adjusted EBITDA was $131 million, an increase of $40 million from the previous quarter. Notably, our adjusted EBITDA was $31 million higher than the endemic levels. Strong commercial revenue growth and our linear cost structure are driving our adjusted EBITDA recovery. This quarter has seen positive figures in all our geographies. This quarter saw a significant increase in margins to almost 38% year-on-year, compared with the third quarter 2019 levels. Excluding the $23 Million bad debt charge, our adjusted EBITDA margin ex IFRIC was only 1.2 points lower.

This was due in part to the shift in revenue mix caused by fuel business’s significant growth, which has a lower profit margin. Slide 9 is the result. Slide 9. Martin noted that we completed the last early redemption of our preferred shares in the AA2000 during the quarter. Recall that the $174 million spent on these shares was deducted from the $406 million CapEx program under our AA2000 concession. Slide 10 contains our debt and maturity profile. The total amount of our debt and net debt at the end the quarter was $1.5million. Our net debt leverage ratio declined to 2.6x from 3.5x in the previous quarter due to the strong performance of our adjusted EBITDA.

Our strong financial results allow us to fund the CapEx program we previously announced and maintain stable net debt levels. We will continue to maintain a healthy balance sheet and a healthy debt profile to allow us to capitalize on future growth opportunities. Martin will now take the call. Martin will make our closing remarks. Slide 12.

Martin Eurnekian: Jorge, thank you. Slide 12 will wrap it all. In the future, we anticipate continued growth in passenger traffic at our airports. We have seen an increase in demand since the beginning of the summer in South America. This will be a positive for our performance. However, we remain cautious about the global macroeconomic environment and geopolitical environment. As part of our efforts to create value, there are several things we do. First, we are continuing to build new routes to provide services for passengers using our airport network. We also received economic compensation in Brazil this month. This month we will continue to work on economic re-equilibrium in Armenia.

Last but not least, I want to reiterate that our growth strategy includes selectively expanding our airport concessions. We remain committed to pursuing attractive value-creation opportunities for our company. Before we end, I’d like to mention that we had a townhall with our global leaders and key managers last week. They reinforced and reiterated our determination to grow the business and create value to our shareholders, customers, employees, and all stakeholders. It was based on our goal of connecting the world in an inclusive, sustainable, and easy way. I want to thank everyone for their attention. We are ready to answer any questions. Operator, please use the line to ask questions.

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