Grupo Rotoplas SAB de CV

BMV:AGUA

Earnings Call Analysis

Rotoplas Q3 2023: Growth Amidst Challenges

In Q3 2023, Grupo Rotoplas navigated economic challenges, with sales declining 15%, or 6.9% excluding currency impacts. Yet, service revenue soared by 54% for the fourth straight quarter. Aggressive strategic focus mitigated the effects of a strong Mexican peso and underperforming product sales. The company adjusted sales guidance but continued to see sequential growth due to burgeoning service demand. A 5-year deal with Google Cloud signifies a push towards digitalization. Despite setbacks, net profit grew by 30% year-over-year, and the 9-month EBITDA margin reached the high end of guidance at 18%. The company remains on track for its 2025 objectives with resilient operational results.

Navigating Economic Challenges with Agility and Innovation

In 2023, despite facing adverse macroeconomic trends and challenging political dynamics, especially in Mexico, the United States, and Peru, the company demonstrated agility and resilience. A 15% decline in sales was reported, with product performance dropping by 17%. However, after accounting for the 2022 exchange rates and excluding the Argentine devaluation, the contraction was adjusted to 6.9%. Encouragingly, service revenues, particularly from bebbia and water treatment plant businesses, soared by 54%, indicating a strong pivot towards more sustainable growth and increased profitability amidst a temporary economic downturn.

Strategic Partnerships and Operational Excellence

A strategic partnership with Google Cloud and SAP further underscores the company's commitment to operational excellence by implementing AI and streamlining processes. The introduction of new products such as Tinaco Plus+ showcases the focus on efficiency, sustainability, and market leadership. The company's EBITDA margin stood at 18%, aligning with higher-end guidance, while the return on invested capital (ROIC) was robust at 17.7%, surpassing the target of 250 basis points above the cost of capital. Quarterly net profit impressively increased by 30% year-over-year.

Financial Discipline and Growth Amidst Currency Headwinds

Despite a year-over-year sales decrease of 15%, strategic pricing and reductions in raw material costs expanded the gross margin by 170 basis points. Even though there was a 200 basis point reduction in operating profit and a 19% decline in EBITDA, the company's net profit surged by 30%. In Mexico, sales declined but an agile pricing strategy mitigated the impact, while in Argentina, sales doubled in local currency, largely thanks to strategic price adjustments. However, currency devaluation led to a 17% decrease when translated to Mexican pesos. Sales declines in the U.S. were also reported.

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Earnings Call Transcript 2023-Q3

[Operator]

Good morning, and welcome to Grupo Rotoplas Conference Call. Please note that today's call is being recorded, and [Operator Instructions]. The host will open the floor for questions later. Today's discussion contains forward-looking statements. These statements are based on the environment as we currently see it, and as such, there may be certain risk and uncertainty associated with such statements.

Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. The company's disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, further events or otherwise.

Please allow me to remind you that the company issued its earnings press release yesterday after market close. It can be found in the Investors section of its website. Also, the presentation for the call and the webcast link are in the Investors section. Today's call will be hosted by Mr. Carlos Rojas Aboumrad, Chief Executive Officer; and Mr. Mario Romero, Chief Financial Officer.

I will now turn the call over to Mr. Carlos Rojas.

[Carlos Rojas Aboumrad, executive]

Good morning, everybody. Thank you for joining us today. 2023 continues to be a unique blend of challenges and opportunities, adverse macroeconomic trends, comedic shifts and political dynamics particularly in Mexico, the United States and Peru have had a significant impact on our growth, particularly compared to our 2022 results. These headwinds now we have managed to face them showcase our agility, resilience and our unwavering strategic direction. . In response to these challenges, we prioritized strategies within our control, operational profitability, new business development, target discounts and brand market leadership. While sales this quarter saw a decline of 15%, primarily due to a 17% dip in product performance and strong comparative base in Mexico. It's essential to see this within context. When analyzed against the 2022 exchange rate and excluding the Argentina devaluation, we see a contraction of 6.9%. However, this doesn't overshadow the bright spots. Our service revenue rose for the fourth consecutive quarter by 54% with bebbia and our water treatment plant business leading to change. Reflecting on our third quarter results, they highlight our commitment to create value for our investors through sustainable growth and increased profitability. We continue to strive for operational excellence, and we continue to pursue new growth opportunities that will become in time significant growth and profitable drivers to our company. Sales were negatively impacted by a high comparison basis unfavorable weather and macroeconomic conditions in some of our markets as well as the continuing effect of the Mexican peso's strength relative to other regional currencies.

After several quarters of record growth, which created a very high watermark, the temporary setbacks of this past few months indicate that we must adjust our sales guidance for the year, even as we have registered a sequential increase in sales in absolute terms over the last quarters. Now this sequential increase is particularly encouraging because it is driven by an increased demand of our services. This is the fourth consecutive quarter in which sales of services have increased driven by bebbia and our water treatment plant businesses. Furthermore, we continue to see increased traction in our new businesses. We have -- as we have discussed in the past, services and new business ventures will be key growth drivers integral to our future vision of the digitalization of the water ecosystem.

Our 5-year cooperation agreement with Google Cloud working hand-in-hand with SAP underscores our dedication to this initiative, streamlined processes and integrating AI into the core of our operations. Additionally, the launch of the Tinaco Plus+ acts as a testament to our commitment to efficiency, sustainability and market leadership. Despite the challenging landscape, our financial and operating results will remain strong, driving our profitability and enhancing shareholder value. Our EBITDA margin over the past 9 months was 18% aligning with the higher end of our guidance. Furthermore, our return on invested capital stood strong at 17.7% surpassing our target of ROIC that is 250 basis points above the cost of capital.

Notably, even with a sales reduction compared to last year, our quarterly net profit increased by 30% year-over-year. We have, in some, been able to maintain our market leadership position while adjusting to a rapidly changing market environment across the hemisphere without affecting our operating results in our core businesses and continuing to pursue new growth avenues. We remain, in short, on track to meet our 2025 goals in spite of the challenges of the past quarters and their negative impact on our sales growth. Our business model has proven to be time and again, both resilient and agile in challenging environments. We continue to provide the solutions that our customers and societies need to make the best use of water. And we will continue to create value for financial and operational discipline and innovation.

Before turning the call to Mario, I'm proud to highlight that AGUA remains a key constituent of the S&P, BMV, Total Mexico ESG Index, a benchmark representing the top 24 companies that embody exemplary environmental, social and governance principles.

This underscores our dedication to people, planet than profits. Additionally, for the second year in a row, out of 1,250 sustainability strategies, Rotoplas has been nominated by the HSBC Sustainable innovation-leading company support within the social category. Thank you very much for your time. I look forward to your questions and insights and now to Mario.

[Mario Antonio Romero Orozco, executive]

Thanks, Charlie. Good morning, everyone, and thanks for being you all here this morning. Well, the first 3 quarters of 2023 presented substantial challenges but with our resilience and the strategic focus on what we can control, we have effectively navigated the complexities. Our decisive actions in capital allocation, cost management and working capital optimization have positively impacted our year-to-date margins. So let's discuss our financial highlights for this quarter. Although sales continue to grow quarter-on-quarter, reaching MXN 3 billion for Q3, they represent a year-over-year decrease of 15%.

This decline stems primarily from 2 factors: first, in Q3 2022, we saw a surge in product sales due to significant growth in Mexico and the U.S., setting an elevated benchmark, which subsequently led to 17% quarter-on-quarter decrease. Secondly, the robustness of the Mexican peso curtailed the growth of sales in other currencies. To give you a perspective on the impact of currency calculations, after adjusting for the FX effects and the devaluation of the Argentinian peso, sales will have declined only by 7%. On a brighter note, we witnessed a consistent uptick in our service sales for the fourth consecutive quarter, marking a 54% growth compared to Q3 2022. This positive trend is attributed to various steady influx of new subscribers and the continued success of our water treatment plants. Regarding margins, our gross margin expanded by 170 basis points, primarily driven by our agile pricing strategy and a decrease in raw material costs. Admittedly, our operating profit took a hit of 200 basis points from reduced fixed cost absorption and EBITDA decreased by 19% pulling down the EBITDA margin by 90 basis points. However, our net profit surged by 30%, propelled by profits from our FX coverage.

When we look at our 9-month horizon, the strength and resilience of our strategic focus are evident. While product sales saw an 11% year-over-year decrease influenced by the pre-year referrals FX effects and broader macroeconomic hurdles, our services division stood out generating MXN 458 million in sales, fueled by bebbia, water treatment and recycling plans and the expansion of Rieggo, Acuantia Brazil and Acuantia U.S.

During this 9 months stretch, our gross margins rose by 390 basis points, to reach 46%, highlighting the effectiveness of our sound pricing strategy and advantageous raw material pricing. EBITDA in the same period grew by 10%, with the EBITDA margin increased by 320 basis points, seamlessly aligning with the top end of our guidance. Side note our net profit a [Technical Difficulty] year-over-year primarily due to a 60% spike in medical expenses from our FX coverage and inflation operations in Argentina. However, it's worth highlighting that our ROIC rose by 330 basis points positioning at 530 basis points above our cost of capital.

So now let's dive into our regional performance. Starting with Mexico, we saw a decline of 13% in quarterly sales and 6% over the first 9 months. This is in comparison to the high benchmark in 2022. Nonetheless, our agile pricing strategy adjusted for raw material cost dictations have been pivotal in safeguarding our market presence and profitability. Sales in Argentina more than doubled in local currency marking a 130% quarterly surge and 116% over the first 9 months. This growth was primarily due to our strategic price adjustments that aligned with inflation and a remarkable performance in the water heater sector. However, we should note that economic backdrop here, the depreciation of the Argentinian peso means that when it translated to Mexican pesos, we saw a decrease of 17%, quarterly and 10% over 9 months.

In the U.S., our quarterly sales went down by 24% in Mexican pesos and 10% in U.S. dollars. And the 9-month metric stands at 21% in pesos and 10% in dollars. This was influenced by a trio of factors: One, the uptick in interest rates have slowed the construction sector, thus impacting the demand for our water storage solutions. Second one, the lack of significant routes in key markets for Acuantia reduced the urgency for storage solutions. Now third, the home improvement sector has observed a normalization of demand after the year's mark [indiscernible] pandemic. Additionally, there has been a noticeable shift with consumers becoming more cautious due to economic uncertainties.

Shifting our focus to the performance in Central America, Brazil and Peru. We observed a year-over-year decline of 5% in quarterly combined sales and 9% over the first 9 months when denominated in Mexican pesos. Primarily, this is a reflection of the prevailing local currency challenges. The [indiscernible] effects of the Mexican peso appreciation, sales would have registered an increase of 8% and 2%, respectively. In Central America, our proactive pricing approach aimed at boosting product demand, coupled with the strategic [indiscernible] as positive growth in local currency terms.

Turning to Brazil, our Acuantia branch continues its forward momentum. The pipeline for water treatment and recycling plants is broadening, and we have implemented a refined sales management process, considering optimized bill propositions. Now last, in Peru, economic challenges persist, evidenced by a reduction in government spending, consumer activity and private investments. Our water heater sales in the region face obstacles, primarily due to a milder winter caused by the El Niño phenomenon. The situation we have preemptively highlighted in our previous call.

Now moving into our solutions portfolio breakdown [Technical Difficulty] portfolio mix for 94% of total sales during the quarter and 95% in the first 9 months. Services have displayed 54% growth in the quarter and 47% over 9 months, largely backed by bebbia and our water treatment [Technical Difficulty] EBITDA impact while optimizing our product service mix or financial stance. Our foundation is anchored by a strong balance sheet, offering a sturdy financial foundation from which we can drive growth and profitability.

Our financial discipline is evident in our net debt-to-EBITDA ratio of 1.6x, notably below our set principle of 2x leverage. To provide more context, this sphere encompasses a short-term U.S. [indiscernible] loan served from the U.S., along with the proceeds from our sustainable bond [indiscernible] which amounts to MXN 4 billion. One of our recent accomplishments include refining our cash conversion cycle through the deep inventory and supplier management, we have successfully shortened it, we are forming our emphasis on efficient working capital management. However, this is essential to our knowledge that our cash reserves have seen a dip primarily due to the capital expenditures given disbursements and the effects of our FX hedge.

Now moving forward to our discipline in capital allocation. For the first 9 months, CapEx constituted 3% of our sales, representing a 39% decrease compared to the previous year. This decrease is due to the fact that in 2022, as you might remember, we executed the phase of the highest investment with the multiyear technology upgrade plant to produce a new water test. The majority of 2023 CapEx has been strategically channeled towards enhancing our core product businesses with a primary focus on Mexico. This delivered investment not only strengthens our foundational offerings but also positions us favorably to size emerging growth opportunities. As we look ahead, our commitment is unwavered. We will maintain rigorous discipline in capital allocation while remaining nimble in our approach. Our ultimate goal is to consistently prioritize avenues that amplify growth and elevate our profitability.

To this end, our core mission is not just about providing water solutions, but also about ensuring sustainable value for our investors. I'm pleased to report that as of the end of September 2023, our ROIC stood at 17.7%. This marks an upward trajectory with a robust 330 basic points increase from September 2022. Even more notably, achieving a few, it's 530 basis points above our cost of capital exceeding our guidance.

Now I would like to highlight some noteworthy actions in the framework of our sustainability strategy. For Rotoplas, our environmental community is paramount. Recently, our dedicated teams in Mexico City and [indiscernible] successfully collected a combined 2.6 tonnes of waste from local [indiscernible] while in Peru we made significant cleanup efforts in the Chillon, Rimac and Lurin rivers. Furthermore, our branch in Argentina, León Plant and Monterrey Plant have voluntary initiatives lined up for the upcoming months. Our ongoing actions underscore our belief that by working together, we can expect meaningful change for our environment. Now considering the prevailing environment, we anticipate an 8% decline in annual sales. While this is a point of consideration, this is also crucial to highlight that our guidance for the EBITDA margin remains steady positioning between 17% to 18%.

Moreover, we are committed to keeping our net debt to EBITDA leverage below 2x. On a brighter note, reflecting our ongoing pursuit of efficiency. we are increasing our ROIC forecast to at least 350 basis point spread to the cost of capital. Finally, at our meeting yesterday, the Board approved the proposition to distribute a capital reimbursement in kind, giving one additional share for every 3 shares. These shares are currently held in the company's treasury. The decision to distribute a capital reimbursement rather than a dividend is driven by fiscal consideration ensuring that investors are not addressing the effect. The initiative underscores our commitment to maximizing value for shareholders and offering a standard deal in the current high interest rate environment in Mexico.

Following the capital reimbursement given in May, with this one in November, we anticipate reaching a dividend yield close to 5.5%. We focus on rewarding our shareholders base, your trust and support have been key in this journey since the IPO.

We will call a shareholder meeting on the 15th of November to verify this proposal. Again, we deeply value your trust and support as we continue navigating this landscape. Now I open the floor for any Q&A sessions. Thank you for joining us this morning.

[Operator]

[Operator Instructions] The first question that we have is from Carlos from Apalache Research. Congratulations on the results. First, I would like to start with the recent relevant events related to artificial intelligence. What increases in profitability do you estimate when incorporating Google Cloud AI solutions and which region would benefit most from these technologies. And if you like, I'll read the second question after you answer this one.

[Carlos Rojas Aboumrad, executive]

Great. Carlos, thank you very much for joining. Let me first start very briefly by explaining the relevance of digital technologies in our business. Rotoplas being a business that promotes the use of decentralized water solutions complementing centralized infrastructure, but in a way that makes it more sustainable. The centralized [indiscernible] means you have to replicate them multiple times, the millions of users. And so the way to be able to do this efficiently with a standardized service is by leveraging digital capabilities. So one of the businesses that will be impacted mostly for this or the service businesses. With services, we're delivering hundreds of thousands of services per year already and it's growing very rapidly. So both big and water treatment plants as well as any e-commerce business will be greatly benefited by this. It will be benefited to improve how we understand our customers, how we communicate with them and how we serve them. Not only with that, it will improve how we identify opportunities and how to optimize our business. Additionally, it will also improve our cybersecurity capabilities, and it will now open on new possibilities for our more traditional business, the products business as we will be able to evolve our traditional solutions leveraging AI to be able to give more information to the different stakeholders on how to improve the use of water so that we can do it more sustainably. Mario, anything else that you'd like to share, you're very passionate about this.

[Mario Antonio Romero Orozco, executive]

I might probably add some short-term benefits that we'll have in -- by moving into Google Cloud, we're going to be moving from [Technical Difficulty] of the company views while growing. So now putting under one single Cloud will help sum up short-term benefits in terms of cost. That's one thing. And the other thing going forward is the Google Cloud comes combined with SAP RISE, which is also based, as you know, we are an SAP run company. So moving into SAP RISE, which is the latest solution from them also runs in the Cloud, so it is going to be easier for the company to use our data to do more digital analytics going forward. Secondly, both SAP and Google Cloud has already signed an agreement between them and they have created an ecosystem of different companies that has different softwares, so it's going to be simpler and easier for us to implement technology into our processes and solutions towards our end consumers. So we are very thrilled about this strategic partnership that we have done with both of these companies and you'll start to see how these digital solutions coming to base at Rotoplas and help us create benefits not only in terms of user experience, but also to be more efficient in terms of our costs.

[Operator]

I'll now read the second one for Carlos. In the case of the Argentinian market, will you seek to improve margins in the coming quarters? What strategies would you implement to do so?

[Carlos Rojas Aboumrad, executive]

Let me start very briefly by saying that Argentina is a very volatile market. And while I understand Carl, on the risk of that countries persist. We've developed a strategy where we can leverage multiple different lines of products, and we do it very successfully. We leverage on water storage solutions, on water flow control solutions and water improvement with heaters solutions. And by being able to have a more complete offer to our customers, we were able to navigate this volatility with what I would call a very stabilized result generation with very consistent performance.

So this is actually one of the things we're very proud on how we can have the level of stability that we've had to this point in such volatile market. And I think we have a tremendous impact in the society and in the environment in Argentina on doing this. So we're very proud of how we do business in Argentina. Regarding margins, we do manage margins by leveraging the strengths from these 3 different lines of products when they are put together. Mario, anything more specific that you like share?

[Mario Antonio Romero Orozco, executive]

Well, just to tell that we have achieved in the third quarter a 17% EBITDA margin, 9 months 15%, so really, the team in Argentina is doing a great effort to achieve those margins in such a volatile environment where it's not only about keeping up with inflation, but also with the FX, not only in the Argentina side but also in Mexico, which creates a double effect. So going forward, I think that's a good target to put in 15% to 17% in Argentina. And obviously, our teams are striving and doing just a fantastic job down there in terms of managing the complexities of the country and achieving such a good margin.

[Operator]

Moving to the next question, Martin Lara from Miranda Global Research. He's asking about 2 things, cost and CapEx. So first is how do you see raw material costs going forward? And the second one is what is the CapEx level for the rest of the year? And how do you see it for 2024? .

[Mario Antonio Romero Orozco, executive]

Well, a similar question. Well, good morning, Martin, and thanks for joining us this morning -- today. Last quarter, we saw a similar question around raw materials. We said that we see them quite stable where they are now, but in the last 3 months, things have changed in the Middle East. That has created some volatility in the energy space. So going forward, at this point, we think it's going to be around the same levels of raw material prices. But with these geopolitical tensions, you never know. So I would tell you that for the remainder of the year, we already have secured raw materials and costs are going to be quite stable again for 2024 it's all dependent on the geopolitical landscape. And then on the CapEx level, we are heading towards a 3% CapEx as a percentage of our revenue. So that's roughly about MXN 360 million. And for 2024, given that we have just passed this cycle of technology update, we will see levels around 3%.

[Operator]

Thank you. Now from Sofia Martin, GBM. The first question is about Argentina. So I'm going to read the second one. Does your guidance for 2025 remain? Will there be any changes? And if so, which will they be?

[Carlos Rojas Aboumrad, executive]

Thank you very much for joining and for your question. So as I have mentioned, we do maintain our guidance for 2025 as it is. There have been some challenges in terms of revenue growth this year, but that does not mean that we have not made progress in the development of our capabilities needed to deliver on the results of 2025. So one of the biggest drivers for the results that we've given our guidance for 2025 is the capabilities that are required for the services business. And in services, we've continued to grow quarter-over-quarter on very strong growth. And this is because we've been developing capabilities around fuel services and on e-commerce. And this is very digitally enabled, so all of that is on plan, and we would expect to deliver on that 2025 guidance. Anything else Mario that you'd like to share? .

[Mario Antonio Romero Orozco, executive]

No. No, I think it's very clear what you just told Sofia.

[Operator]

And then another question from Sofia. What drivers do you see for 2024?

[Carlos Rojas Aboumrad, executive]

Services is one of the big ones. It was -- it's been very small, so big investment in services with very small scale, so any growth in services was not generating a new impact in the previous years. Scale now has come to a point where strong growth in services start to move the needle for Rotoplas. So that is definitely one. A second one, but this is unprecedented, at least for me, and it would be just an expectation. Last year, we had a very dry season in Mexico, that generated a lot of demand because there was no -- there was big interruptions in the supply of water. This year, it's been dry, but the interruptions in the supply of water have not been the same. The impact has been that the dam levels went down very much. It will be challenging if we have a regular season in terms of precipitation, going to be challenging for the country to be able to manage the situation. It's likely that there will be shortage of water and that there might be, again, growth in demand for water storage and other water solutions.

So we went from very high demand because of challenging supply of water in 2022, lower in '23 because we didn't have that interruption of supply of water, and it's likely to happen next year. So probably, again, some growth there. And also for the U.S., we had the wettest season in a lot of our very relevant markets. And so that impacted the demand of our solutions. And I don't think it's expected that it will continue to be that way. It was off the charts in terms of precipitation for the last season.

Mario, anything else that you'd like to mention regarding drivers for 2024, financially?

[Mario Antonio Romero Orozco, executive]

I think we will need to pay close attention to the economy in the U.S., how -- if it keeps on performing well. The second thing is that we're going to have a political year in Mexico and in the U.S. as well. So that's something that we need to consider going into 2024. So that's kind of macro things and political things we're considering our plan for 2024.

[Carlos Rojas Aboumrad, executive]

We're very -- we're keeping our eyes open in a big way for the undoubtedly surprises that will happen next year, but which are surprises, we can't tell which they are until they happen.

[Operator]

Moving to the next question, Felipe Barragan from BTG. The first one is, could you share with us how volumes would have performed in Mexico if we exclude [indiscernible], the abnormal effect from third quarter of 2022.

[Carlos Rojas Aboumrad, executive]

I think it would look like at least an average of the 2 quarters. I think one way to look at it is you take that quarter, you take that quarter for '22 and this quarter for '23, you find that average and you compare them to '21, and we feel there's been -- when you look at our whole cycle, prepandemic to up to now, there's very strong growth. Mario?

[Mario Antonio Romero Orozco, executive]

If you normalize demand in Mexico, we're going to have that uptick given the drought. It will be mid-single digit, the growth in units, which is a little bit like 1.5 to 2x the speed of growth of GDP, which is like the long-term trajectory that we use to understand our mature business, which is water tax.

[Operator]

Michel from [indiscernible] congrats on navigating well in a very challenging environment. And what he is asking is six questions.

So let me start with the first one. Overall, you stayed constant to growing market share. For the product segment, can you give much transparency, please, in which countries or markets you were stable and where you gained and where you may be lost probably a bit of market share? .

[Mario Antonio Romero Orozco, executive]

Thanks for joining us. We measure our market share on a monthly basis. That's something that we really take very seriously inside Rotoplas. And for us, that's key and probably what I'm going to tell you is for each country and each segment, how we perform when we compare the first 9 months of 2023 to the first 9 months of 2022.

In Argentina, water storage, we gained market share. In water flow Argentina, we kept our market share. Water heaters, we gained market share. In Peru, we gained market share in all 3 segments: water storage, water flow and water heaters. In Mexico, we decreased slightly market share in water storage and in water flow, we kept the same level of market share. In Central America, we gained market share. That's for products and that was your question.

[Carlos Rojas Aboumrad, executive]

I was just going to mention, Mario, that this is while we improved very strongly the returns on the business. So this was part of the management that I was mentioning in these variable conditions from the actions we're focused on improving profitability for the business.

[Mario Antonio Romero Orozco, executive]

Yes. I was just -- I was going to add that in all the different segments and countries that we operate, we only lost market share in one of the segments. And the reason is with all the fast trend of our raw materials and FX pricing, we were a little late in promotions and discounts. Now going forward, we have already started making very specific promotions and discounts to recover that market share. And the team in Mexico feels comfortable that by year-end, our market share will be the same as in 2022.

[Carlos Rojas Aboumrad, executive]

And I rather mentioned just in this case, [indiscernible] but the lost market share is 1.5%, not much level.

[Operator]

I'll be reading the second question. What's your rough revenue split among the 4 core offerings, bebbia, RSA, [indiscernible] within the Services segment or any other transparency you could provide in this direction?

[Mario Antonio Romero Orozco, executive]

Let me -- probably a good way to answer that, Michael, because that's an information that we don't disclose at this point. [indiscernible] are still very small and probably a good way to see it is just split the revenues in half.

[Carlos Rojas Aboumrad, executive]

The size is comparable bebbia and RSA.

[Mario Antonio Romero Orozco, executive]

Yes.

[Operator]

The next question is actually related to that. So can you provide more details on the performance of the water treatment plant business.

[Carlos Rojas Aboumrad, executive]

I think what we can say is that bookings for the water treatment business are reflected eventually in revenues in the future years. It's very long cycles to recognize bookings to revenues. And in 2022, we had bookings that were about twice as much of our revenues. So meaning with that level of bookings, the business will eventually dull. This year is well over that. So our leading indicators, which are bookings to see how revenues will look in the future are such that are much and much larger than the revenues, so offering high levels of certainty on the growth of that business, but it's again long cycles, and so it takes time to reflect. Mario, anything else?

[Mario Antonio Romero Orozco, executive]

No, I think you just nailed it out, so.

[Operator]

Okay. Moving to the next question. Congrats on breaking the 100,000 units mark for bebbia. However, growth has been slowing with Q3 growth close to 6% for the quarter sequentially. Do you expect growth acceleration in Q4? Is this low in unit growth due to less demand or lower marketing expense for you to protect EBITDA.

[Carlos Rojas Aboumrad, executive]

Just let me mention that the capabilities for this business were very new for Rotoplas. It's not a business about transformation of plastic. It's not a business that is done through the same distribution channel, and so we had to develop lots of capabilities. And in some of the capabilities, the development takes a little bit longer. For bebbia, it was really about developing the capabilities around on e-commerce and through services to be able to get on a track of continued rapid growth in a percentage way, but where the amount of services are so much more.

We had to have a little bit of a slowdown in growth to make sure that we were going to deliver on good experiences to our customers. And it's been worked on, most of the work of the digital platform was done this year, end of last year, will continue until the end of the first quarter of next year. And that's really our platform to be able to grow at accelerated rates now with a much bigger scale. Mario, anything else you'd like to ?

[Mario Antonio Romero Orozco, executive]

I think that's just trying to do the connection. We briefly explained about the Google Cloud when Carlos did that question early on. And for example, we weren't working on be better at booking, be more digital to increase efficiency. And it's not only efficiency, it's also bandwidth. So it's not the same servicing 10,000 clients and 100,000 clients. So we are in the process of build as we grow, and that's very exciting why we stroke these strategic alliance to create that bandwidth in a faster way because we believe the opportunity is there, the consumers are coming to us [indiscernible], improving churn rates are going down, so I think we are in a good spot and very focused on building those capabilities as fast as possible.

[Operator]

Michael's last question. Have you gained market share in the U.S. e-commerce business? What is your market share? And what do you estimate the market share of your largest competitor at?

[Carlos Rojas Aboumrad, executive]

Regarding market share in the U.S., it has stayed fairly stable. It is a business that has tremendous tailwinds because of pandemic dynamics and because of drought. And so that base compared to the end of those pandemic dynamics and then having the weather systems impacted sales. The market share has remained fairly stable. It's a new market to us, and we continue to improve the way we are targeting market share. In terms of selling through online and getting customers through online channels, we are the leading competitor.

Also, I wanted to mention it's been of my highest priority to find strategies to grow in a more stable way the U.S. business because of the strategic importance being a country that offers such a large opportunity to grow because of the size of the market and the internet market and also the relevance in the [indiscernible] a diversification for Rotoplas. So I spent a lot of time in our Dallas office, I spent basically all hours in our Dallas office and I go very frequently. And one of our biggest focus was to have the personnel who was also looking at the U.S., who was also looking on overseeing Mexico, to focus exclusively on Mexico because of the traction we are having in services in Mexico. So very big growth opportunities in Mexico. And so we generated more focus on that Mexico track. At the same time, we looked for a CEO for our U.S. business, and we're very honored to have a board with us who's in this call, Joseph Besi.

Joseph was Chief Marketing Officer for Veolia in his last role, sorry for [indiscernible] in his last role, one of the biggest water solutions company in the world. And before that, he was in GE water. So he has tremendous experience in the water business and tremendous experience in developing businesses in the U.S. So we feel honored to have him. And hopefully, we will be able to have more stable growth going forward in the U.S.

Mario, anything else that you'd like to share?

[Mario Antonio Romero Orozco, executive]

No, I think you said everything around the U.S.

[Operator]

Thank you, Charlie. [indiscernible] Partner, she was asking also with the U.S. So now I'm going to move forward to Rodrigo Salazar, AM advisors. And he has 3 questions.

I'm going to read the first one. Could you explain further the demand situation in Mexico? How are dynamics? And how do you see them moving into 2024? And how are peers performing? We already touched on this, but maybe you can give another comment.

[Carlos Rojas Aboumrad, executive]

Again, prices impacted revenues and having even though a dry -- very dry season on not having interruptions in flow impacted revenues. For 2024, I don't think that's necessarily something that can be sustained, so we could potentially particularly in having uninterrupted water supply to customers. I think that can generate an uptick in the bank.

[Operator]

And the other 2 questions are related to the U.S.

[Mario Antonio Romero Orozco, executive]

And I think just to complement on how U.S. is performing, the market shrink for everyone. I think we already explained around the market share that Michael asked. So the situation is not only for a lot of us, it is for the market as a whole.

[Carlos Rojas Aboumrad, executive]

One of the things that we're very excited though is we've had complete validation on the big investment we did to improve our water storage solutions. One of the [indiscernible] water storage was the most relevant one and the acceptance, the adoption of this new product is tremendous. So very, very happy about that.

[Operator]

Could you give us more color on the EBITDA losses in the U.S. and in Services? How is the septic business developing? And if it is included in the service segment?

[Carlos Rojas Aboumrad, executive]

It is still developing but -- and it is still -- a part of it is in septic, where we serve the customer in the design and implementation of the solution, it is in the services, but it's still while aggressive growth is still very small scale. So the impact in the result is very small. It will take still some time for it to start moving the needle for the company.

[Operator]

And the last question. It's a follow-up question from [indiscernible]. For your growing service sales, what are the key initiatives or growth drivers you are planning to focus on to maintain the momentum?

[Carlos Rojas Aboumrad, executive]

The biggest part is that we can serve in much larger of services per month or per day in a way that we are doing it timely and when we can have very high customer satisfaction. And so the biggest part is about having the capability to serve more and more services. And when I say more services, it's in quantities huge amounts more in this way where we can have very high customer satisfaction. The design of the business is one that has been very clearly validated where the customers are very happy with the services that we're giving. So the design of the model is giving us the opportunity to gain demand and the biggest focus is in being able to serve that demand. Mario?

[Mario Antonio Romero Orozco, executive]

I will just probably add that as we explained in the -- I think it was a couple of calls ago, what are the initiatives to increase the speed of growth in services was implementing a programmatic M&A program, which is in place. And I think that can give further momentum to the services segment in Mexico. [indiscernible]

[Operator]

All right. We have no further questions. So thank you all for joining, and see you next quarter.

[Mario Antonio Romero Orozco, executive]

So with you running time. Thank you, everyone. Have a great year.