G
Grupo Traxion SAB de CV
BMV:TRAXIONA
Grupo Traxion SAB de CV
BMV:TRAXIONA
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Earnings Call Transcript
Other Earnings Calls
Good morning, ladies and gentlemen, and welcome to the Traxion First Quarter 2022 Earnings Call. [Operator Instructions]
It is now my pleasure to turn the floor over to your host, Executive President, Aby Lijtszain. Sir, the floor is yours.
Welcome, everyone. Good morning. This quarter, Traxion has turned up 1 year of reporting its logistics and technology segment independently. As you can see, its performance has been excellent and the future looks very promising. Most important is that our digital platform, Traxporta and Traxion Logistics grew more than 86% compared to the same period of the last year. This is precisely where we see the most expansion and growth in the future. Our asset-light approach has proven to be successful.
The company's quarterly results are positive despite the disruption in fuel cost, which we are working to pass through clients. Bear in mind that this increase in fuel prices was very fast and sudden. It happened in the middle of the quarter and the pass-through process is underway. This is something we have done successfully many times in the past. It's a normal part of the business.
Moving on to our results. We continue to see strong demand in our 3 segments. As you saw, there were many interesting developments in the quarter. Our CapEx plan is moving on as planned and according to our expectations. On that line, please be advised that due to the disruption in delivery of new units, we anticipated our CapEx needs since last year, which will turn into a competitive advantage as we will be able to address demand in a more efficient manner than our competitors.
As usual, in a moment, Rodolfo, Wolf and Tonio will provide more color on operating and financial metrics. On the M&A front, in March, we announced that Traxion executed an agreement to acquire Medistik, a leading company that provides specialized 4PL solution in health care, mainly medicines and medical accessories.
With these acquisitions, we entered the pharma vertical through an asset light approach and within our salient industry. The most significant synergies we expect to realize are on the commercial front. There are many interesting opportunities to be exploited together with other relevant operational and financial efficiencies as well. The transaction is subject to regulatory approvals, which Traxion expect to obtain in the following months. Moreover, in terms of ESG, I am very pleased to share that since January, Traxion reports ESG figures and metrics in Bloomberg for everyone to review. We continue to work very hard through our foundation to enhance many social, educational and mobility programs throughout the country.
With this, I end my remarks. Please, Rodolfo, go ahead.
Thank you, Aby. Good morning, everyone. I'm going to start with some highlights in our logistics and technology segment. As Aby just mentioned, our digital platform grew more than 86%. But there are significant aspects to discuss as well.
In terms of last-mile solutions, we increased more than 10% our daily handling volumes. Our state-of-the-art business model allow us to render a high-quality delivery process in terms of collections, evidence and real-time visibility. We further increased by 9,000 users of digital app for last-mile services with a very high retention rate above 76%, while we continue to bring up to date our technology platform. This quarter, we started operating a distribution facility in Mexico City, which will increase our overall output by 30%. Moving on. In terms of [indiscernible], we increased more than 77,000 square meters of warehouse area, mainly due to new business and expansion with existing clients compared to the first quarter of 2021.
On a special note, we started conducting inventories using drones, which will allow us to become even more efficient. Accuracy is guaranteed, no human contact needed, and information gets locked and compare in real time. Indeed, this represents a huge competitive advantage. Moreover, our traditional business lines continue to perform as we expected, with cargo moving into more specialized services such as refrigerated and petrochemicals, which typically carry better economics.
As a result, revenue per kilometer grew more than 12% with only a 3.2% growth in fleet. We continue to become more efficient by rolling our higher kilometer volumes per unit. Here, as expected, growth in revenues has softened by increase in fuel cost. Additionally, our refrigerated operations grew 36% compared to the same quarter of last year. We have built a very strong position in the Bajio region for this kind of service, mainly to the border, where we have strengthened by 176% our transfer fleet in order to be more effective in border crossing.
Finally, in terms of mobility of personnel, we kicked off operations with 70 clients, totaling more than 500 new units as a result of our effective commercial strategy. We have further implemented more technology to trade better routes and save approximately 400,000 kilometers per month and the use of boots to improve some processes. In that line, we launched LIPU Gold, an app whose target is to significantly improve our users' experience. As you can see, technology is now our backbone and our quarter was a very busy one. I am very pleased with what we have achieved in operational terms. With this, I conclude my remarks, and will hand it over to Wolf. Please, Wolf.
Thanks, Rodolfo, and good morning, everyone. I would like to disclose some financial metrics. First, the company was able to maintain its net income levels. On this line, the main impacts were the fuel costs, obviously, and changes in comprehensive financial results. Here are 2 items to discuss. The first is the increase in interest expense, which was driven by the growth in overall debt due to organic growth and by the change in interest rates that affected the variable rate portion of our debt. The second has to do with an FX impact, which was caused by the position in U.S. dollars that the treasury maintains and a difference between billing and collecting of revenue denominated in U.S. dollars as well.
All that was partially offset by an efficiency in general expenses, which represents a 14.4% decrease compared to the same period of 2021. In terms of balance sheet, Traxion continues to operate with a very comfortable cash position and an adequate debt maturity profile that continues to be efficient and in line with our plan. We currently have more than MXN 5 billion in available facilities, of which MXN 1.5 billion are committed.
Speaking of leverage, our ratio went to 1.71x net debt to EBITDA, mainly driven by CapEx needs. It is very important to mention that such investments were conducted at the end of the quarter and contributed with virtually no revenue in the period. We continue to see strong demand and the CapEx program is running as planned. Despite delays in delivery of new units and because of the strategic planning we did in 2021, we are now in a much better competitive position as we have taken delivery of new fleet to start operations promptly with clients.
Finally, there is a 16.7% growth in net operating cash flow, mainly driven by a healthy improvement in our working capital cycle, which is even more remarkable given the steady expansion of the company's operations. Thanks again for your attention. I will now hand over to Tonio, Please, Tonio.
Thank you, Wolf. Hello, everyone. As you probably noticed, we have been experiencing an increase in fuel prices for the past few quarters. Historically, fuel prices in Mexico have always gone up. The last southern hike was in January of 2018. And before that, there was another one in 2017, and that's only recent history.
Having said that, please bear in mind that passing through such increases to our clients is an ongoing and standard practice within Traxion and the industry. It is also how our contracts are organized. After the price increase of 2018, we were able to conduct the pass-through within 2 quarters. Please be advised of 2 things. First, even though prices have gone up progressively for the past months, there was a very sudden and steep increase towards the last days of February, which was virtually 2 months into the quarter.
And second, that such pass-through is underway. It is not a matter of if, it's a matter of when. And management expects to complete it in the following months. We also expect this other increase to be temporary. However, we are working under the assumption that it's going to prevail. Shifting gears and despite the issue with fuel, we believe that the growth in revenues, expense control and overall quarterly metrics are truly outstanding given the complicated situation that the world is going through.
Revenue showed a very strong expansion mainly driven by 3 actions: first, an intensive and successful commercial activity, mainly in the logistics and technology segment; second, a very strong demand in the mobility of personal business; and third, an effective shift in cargo towards more specialized services such as refrigerated and petrochemicals.
Finally, the company is running according to its budget for 2022. Its CapEx plan is on schedule and its commercial and operating platforms are positioned to continue to capture growth opportunities. Well, thanks for your attention. With this, I open the floor to Q&A.
[Operator Instructions]
Your first question is coming from Luis Yance from Compass.
A couple of questions on my side. I guess the first one on cost, and I appreciate Tonio, the color around the pass-through and the fact that, as you said, it's a matter of when, not if.
But just wondering if you could quantify or give us a rough estimates in terms of how much of the 140 basis point margin compression we saw, it's related to this lag between increases in fuel prices. And I guess, the pass-through to clients. And whether in terms of the timing, I guess, we can assume most of it, you said a quarter or 2, most of it will be fully reflected in the third quarter. So is it fair to assume that assuming cost of where they are today, we should see sequential improvements in margins related to this, but just wondering if you could quantify how much of that has to do with it. That will be my first question.
Thanks, Luis. Tonio here. Thanks for your question. Yes, I mean, the bulk of the 140 basis point contraction in margin is from the increase in fuel costs. And now regarding that, and considering that April is coming to an end shortly and that volatility in prices prevailed on the month of April, we think that the most recovery you would see or you should see in margin, if any, is going to be on the third quarter.
We are working very hard to do the pass-through but we expect that.
Okay. Great. Great. And then the second question goes to your guidance. Initially, you were calling for a revenue growth of around 13% and margins in the 19% range. When I look at your results in the first quarter, it seem to be pretty much in line with that. But just wondering, given the first quarter results, the outlook for the remaining of the year, the encouraging signs that the fuel price increases will be passed through. Just wondering if that changes your view on the guidance? And what would be the main assumptions to get to those numbers?
We don't have any change or any comment on guidance as of yet. The thing is that if you remember, in February when we released the guidance, we were conservative because there was a lot of volatility. Volatility prevails as of today. So we don't have any new information or any new development to do any change. We are -- we feel confident with what we see in terms of demand, in terms of operating metrics. And if we are successful with the pass-through that which we think we are going to be, we don't think that the guidance should change at all.
Great. That's good to hear. And my last question on your recent acquisition of Medistik, can you give us an update in terms of the timing to close that transaction? And perhaps now that you've had a bit more time to look into the assets a bit of a range on potential synergies that you can achieve in the first year based on the numbers you gave kind of like an EBITDA of $220 million for -- on an annualized basis? And what would be the drivers of those synergies?
Luis, this is Aby. So we expect to close the transaction maybe between 3 to 4 months. We're still in the regulatory process to get the authorization. And I mean we continue to see strong opportunities mainly in the commercial part. We are already working on them. We have seen and made some successful commercial effort in -- to help the company growth that we are seeing with good eyes. So I mean, I'm happy with the acquisition and seen a lot of opportunities, mainly in commercial part. The company is very well managed business. So we are going to see also some synergies in financial and operating, but the majority of that, it is coming from commercial.
Your next question is coming from Alex Demichelis from Nau Securities.
First one, a follow-up from what Luis asked. So in terms of how you see the evolution of the year, should we assume that the first quarter should be the low point for 2022 because you're indicating the pass-through on fuel should happen in the next kind of couple of quarters, then the logistics expansion I think you are saying that, that came very late in the quarter. So second quarter should benefit from that. So how we should think about the shape of the year then?
Alex, this is Tonio. Thanks for your question. Yes, I mean, if you remember in terms of seasonality, the first quarter usually is the softest of the year. So in operational and commercial terms, we think that this was the softest of this year and things should improve in those terms.
Okay. That's great. And then a couple more. So last time we had results, I think, Aby, you were indicating that there were a number of potential M&A transactions to go ahead. Now you announced Medistik. So how are you thinking about the inorganic potential for the company?
Yes. So we are working on some other opportunities that are coming mainly in the logistics and technology division. We see these opportunities smaller in terms of the amount of money that we are paying for them, but we see them as strategic. So they will allow us to offer more service to our clients or to grow that business line. So it's on the -- I mean, we are still working, and we expect to have some new news soon.
Okay. That's -- and that's great. And as a very quick follow-up, the tax for the quarter seemed very low. So how we should think about the evolution of taxation for the rest of the year and going forward?
Alejandro, this is Rodolfo. Thanks for the question. In terms of taxes, if you see also from the history of the company, it's also like a very stable line in the previous year. So it will have a few hikes or you could have a different numbers throughout the quarters.
But at the end of the year, usually, it's a very similar number. So I think during the quarter, it will depend on the performance, obviously, of the company, but we should expect something similar in the previous years.
Mainly cost of the deferral taxes, what makes the main changes.
Your next question is coming from Stephen Trent from Citi.
I had 1 or 2 for you. The first off, you mentioned interest rates and fuel and what have you. So how are you thinking on a high level about offsetting your risk in terms of fuel and foreign currency. Are you thinking to hedge anything on the balance sheet, for example?
And then the second question, if you could just refresh my memory on the cargo versus logistics segment versus personnel, sort of what's the average length of your contract, maybe 1 or 2 years in cargo and maybe shorter on logistics.
In terms of hedging or swapping in terms of FX or fuel prices, we don't hedge any of these. It's not part of the business. This was I think, kind of a different quarter in terms of the loss that we had in the FX. Part of it is also virtually just because the portion that we had in our treasury in U.S. dollar. So if we saw the last, I don't know, maybe 2 years, we will find after the first hike of the COVID season that the FX was very stable in terms of the U.S. dollar against the Mexican peso.
So we usually have more revenue that cost in terms of FX dollar. So we have like a natural hedge or we don't hedge anything besides that. And in terms of the fuel, we also don't make any different hedge. We -- like the regular hedge that we use, it's our contract. So the way we did in the past is using our contracts and our relations with our cloud is to make the pass-through through them when it goes up or when it goes down. So that will be the first question.
Yes. And talking about the contracts, the term of the contracts, in general, they are multi-annual contracts in the 3 business line. And it's important to know that the renewal rate from the company, from the clients, it's more than 95% so it's very difficult for Traxion to lose our client. I mean, we are used to have very long-term relations with them, more than 10, 20 years with the most important clients from the company.
Your next question is coming from Martin Lara from Miranda Global Research.
I have 2 questions. The first one is on the guidance for the year includes the Medistik acquisition?
And the second one is, do you believe that technological applications will be the main driver for the rest of the year in the logistics and technology segment? Or there should be an acceleration in last-mile and logistics services revenues?
Martin, Tonio here. Our guidance -- the guidance that we released in February only considers organic growth.
Yes. And in the logistics and technology division, we see that the main driver for this year will be the technological applications because the growth that we're observing is really high. The others are growing. Sorry?
Yes. Sorry, go ahead.
The other business lines are growing on a healthy or very good growth rate, but the technological applications is growing in really fast.
Your next question is coming from Manuel Parra from Barclays.
Could you give us some color on how do you see overall demand? I mean the end consumers have seen in high inflation, many companies try to pass the higher cost like you are, so I'm trying to understand if we can continue [indiscernible] to negatively impact the demand for your services?
Yes. So we are observing a strong demand. There is a lot of cargo that is moving in the country. And we're seeing that. I mean the clients are hiring a lot of personal transportation services.
So we are very happy and confident from that part. And I mean -- and that's very helpful also to increase the prices and to pass through the diesel cost and the cost of inflation.
Okay. So do you then expect some pushback from the clients when you try to make that pass through?
I mean it's a process. I mean, we have clauses in the contract, but we need to speak with all clients. I mean the good thing here is that it's from all the industry and from all the country. So at the end, what we have observed in the past is that this process are successful. I mean, it's part of the business. So the clients will want to negotiate the inflation and because we are also seeing a high inflation. But at the end, our contracts are strong and their relations with them are strong too, so we are confident that we can do the pass through processing to the clients.
Your next question is coming from [indiscernible] from Summit Capital.
I have only one, which is related to the inorganic growth that you might expect for the following quarters. I know that maybe it's clearly to understand the possible transactions in the commercial part of the business that you want to achieve. But regarding on financing these transactions, what are your expectations or your milestones in order to achieve best possible one? And I mean that you are in the process of doing that.
Could you repeat the question? You were not -- we didn't hear you very clear.
Okay. Yes. The question is related to the inorganic growth that Aby was talking a little bit. So the question is, how are you going to finance this M&A?
As I just mentioned before, we have different credit facilities right now. In terms of the credit availabilities, we have more than MXN 5 billion today. So it will be a mix between equity that we have in our cash position and also the debt that we can pull to our balance sheet. So we have more than that, and it's not too relevant even though the price of the acquisition in [indiscernible] I just mentioned, it could be with the other one. So our ratio is remember, below it's around 1.7x net debt to EBITDA. So we have a lot of room even though over there.
Your next question is coming from Luis Yance from Compass.
I'm back. Just a follow-up on the cost side. And I guess, more related now on the labor cost, right, because we've seen many companies with cost pressures, not only on the input cost or raw materials and where not, but also on the labor side. When I look at your labor cost, they had a sharp increase in the first quarter up almost 40%. So just wondering if you could give us some color in terms of how much of that is kind of related to the new businesses that actually you're putting together that perhaps do not contribute yet to revenues, but you have the increases.
And therefore, going forward, we will see a much better cost absorption from that. Or if there is also some pressures you're seeing from unitary cost in terms of salary increases with the minimum wages? And I guess related to that, as you go into negotiations with your customers, for the contracts, specifically for the increase in fuel prices. Just wondering if you factored this in also into the equation, the pressures beyond fuel prices and therefore, the contract that you're aiming to achieve also will cover you from those pressures?
Luis, Tonio here. Thanks again. Yes. I mean the bulk of what you see in the increase of labor cost comes from the logistics and technology segment. The thing is that if you take a look at the growth of the segment, we need to strengthen the labor side, the equation. And then as you said, those -- that strengthening is not naturally generating revenue right now because you need to prepare ahead of new business.
And then if you take a look at past quarters, the past 3 quarters, you are going to see that the cost in absolute terms has been pretty steady, and that's consistent with the strategy of growing the logistics and technology segment in -- as a percentage of revenues. And then in terms of labor in contracts, as we said, this is from the bulk of what you see is from logistics and technology. But when we do dedicated contracts in -- both in personal mobility or in cargo, labor is already blended in when it's a long-term contract and labor has -- the annual increase is blended in that equation as well. So that's pretty much covered.
Okay. So if I understand correctly, we were to see salary increases, I don't know, in the 10% range or so. That also goes automatically to a certain extent on the contracts as well, right? So if you see big increases, you kind of cover the risk, right?
That's right.
Excellent. And my last question, I know you mentioned on CapEx that you're on schedule for what you were planning to spend this year, I guess, the MXN 3 billion for the year. Just wondering if -- how do you see the potential impact? One, from an economy that is slowing down, clearly. But perhaps the businesses that are driving your growth are less correlated to the economy. And therefore, you might just keep growing despite of that slowdown. And two, we know that a lot of companies have suffered from supply chain issues around the world, we've seen CapEx plans being delayed mainly for that.
Just wonder if that's the case for you or you kind of anticipated that and have been ordering equipment in advance so your plans can be executed as planned?
Hi, Luis, this is Aby again. So the majority of the CapEx for growth in the company is in the mobility of people, business line in the company. And it's important to remember that we signed long-term contracts with the clients. And that's where our buses are assigned. So if we grow, we grow with contracts. And we are seeing the opportunities, we see the market here is strong. And so we are on timing in the CapEx, but also in growth as we planned.
And talking about the CapEx for -- in general, but also in cargo, we put the orders last year in advance -- so we could cover the budget and the plan for the CapEx for this year. And I think in general, this was -- or this is a competitive advantage because the short -- in chips in the world is still there. So our competitors I mean, they don't have the equipment to be serving their clients very -- I mean, as quick as we are doing right now.
Your next question is coming from [indiscernible] from ARROWHEAD.
Congratulations on a successful quarter. My question is actually related to the Medistik acquisition and its impact on the revenue and EBITDA guidance. You already answered that you're not revising your guidance, but what will be the impact of Medistik 35% EBITDA margin on your profitability?
This is Wolf. Just as we just mentioned, our guidance does not include the Medistik acquisition. So yes, this company, if you saw the number that we published in the previous month, you will find that it has a higher margin.
As Aby just mentioned, these are very higher margin business line that we want to enter in. So this will affect, but remember that with the numbers that we gave, we will not move a lot when we integrate this company at the beginning. I think that will be moving maybe our margins after we can make all the synergies in the commercial side when we acquired this company and integrated the company and put in place the synergies in the commercial side.
That concludes our Q&A session. I will now hand the conference back to Aby Lijtszain for closing remarks. Please go ahead.
Thanks again for your attention. Given the seasonality of the business, the first quarter is usually the softest of the year. Having said that, we continue to see a very solid market in Mexico, such activity with a lot traction to generate interesting growth. There are other strategic opportunities we plan to capture and we are ready to capitalize on them.
Traxion is a strong company, which has grown year-over-year, improving its profitability and generating sustainable long-term value. Please be advised that we'll host our Traxion Day in the following months. More details will arrive shortly. Have an excellent rest of the week.
Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.