Grupo Traxion SAB de CV

BMV:TRAXIONA

Earnings Call Transcript

[Operator]

Good morning, and welcome to Traxion's Fourth Quarter and Full Year 2024 Earnings Conference Call. My name is Vanilla, and I will be your conference operator for today's session. [Operator Instructions]

We are joined today by Aby Lijtszain, Co-Founder and Executive President; Rodolfo Mercado, Chief Executive Officer; Wolf Silverstein, Chief Financial Officer; and Antonio Tejedo, Investor Relations Vice President. I will now hand the call over to Aby Lijtszain for some opening remarks.

[Aby Lijtszain Chernizky, executive]

Good morning, everybody. Thanks for joining Traxion earnings call. As usual, I will provide some remarks, and then we'll hand over to the others for a deeper discussion on operations, financials and sustainability. Once again, I am very pleased to share the outcome of another successful year with record high figures.

2024 was a challenging year for many reasons. But most importantly, because there were presidential elections, both in the United States and in Mexico, what we see are strong trade fundamentals between countries and that it will continue to grow. But despite of that, there is political noise. We have a sound commercial pipeline for this year and believe to have approximately 95% of it already signed.

Having said that, there are many positive matters discussed in each of our divisions. First, in the People Mobility segment, we are achieving price increases with basically the same cost and expense structure, which will improve our profitability metrics even more in this service.

Second, in our Mobility of Cargo business, the most important feature to highlight is that revenue per kilometer keeps growing with a drop of approximately 2 million kilometers in volume compared to the same period of last year, which is mainly due to a very strong market with much better economics as we have shifted a large portion of our capacity to operate more profitable circuits, especially those related to cross-border activity.

And third, in Logistics and Technology, all our business lines are performing as expected. Another important matter here is that we continue to grow our revenue with less warehouse square footage under management as we become more productive with our clients.

Moving on in terms of leverage, Traxion ended the year with a 2.1x ratio of net debt-to-EBITDA, which is well within our comfort zone and with enough room to navigate through 2025. Once again, the design of our business model has proven effective despite uncertainty. Finally, we continue advancing with the closing of the Solistica deal, and we expect to have good news soon.

On that line, please be advised that we have decided to release our guidance for 2025 until we close the acquisition, and we have the full picture. As always, we will keep you posted, and we'll provide all relevant details so that you can see how strategic and accretive this acquisition is for Traxion.

Well, with this, I end my remarks, and we'll hand over to the others. Please go ahead.

[Rodolfo Mercado Franco, executive]

Thank you, Aby, and welcome, everyone. It was indeed another interesting quarter in operating terms. First, I want to talk about the People Mobility division. Revenues grew 11.5%, with an increase of just 3% in kilometer volume. This is mainly due to an increase of 8.2% in revenue per kilometer as our price increase plan advances and continues to kick into our revenues.

Moreover, cost per kilometer only increased 4.6% in the quarter. This means that our revenue per kilometer increased by MXN 1.68, while the cost per kilometer increased by just MXN 0.65, a very significant operating spread. We continue to leverage on our large-scale commercial muscle and technology to be at the top and the absolute leader, providing unique value-added services to our clients, which is our most significant competitive advantage and the tallest barrier of entry in our business.

In the Cargo Mobility division, as Aby just said, we continue growing our revenue base with the same fleet size and with less kilometer volume, which proves that our shift to the cross-border related services effectively is more profitable and efficient, which translates into a higher revenue per kilometer. In terms of costs, there is a larger increase than that of revenues and is explained by the shift of circuits and routes we did during the year in order to achieve our revenue and efficiency goals.

It is important to mention that we expect such costs to normalize during 2025. Moreover, for this year, we expect to continue to modernize our cargo fleet, which is now 3.4 years old in average compared to 5 years at the end of 2023. Such improvements will allow us to operate with much better engine technology, which will ultimately enhance our efficiency and our sustainability metrics.

Moreover, we continue to upgrade our transportation management systems, conducting broader cross-selling efforts with Traxporta and implementing a state-of-the-art monitoring system to increase the security protocols for our drivers. Finally, you will see a significant reduction in our last mile fleet, which has to do with the decrease of the B2C last mile operations during the second and third quarters, which led to a portion of the fleet to be sold or rolled off, mainly small units such as cars and motorcycles.

Well, thanks for your attention. I will now turn to Wolf, please.

[Wolf Silverstein, executive]

Thanks, Rodo. Hello, everyone. As usual, I will dive deeper into some relevant financial details. The first item I want to discuss is that we posted a revenue growth of more than 17%, and we did so with approximately MXN 800 million less of CapEx compared to the figure we originally budgeted of MXN 4.2 billion for 2024. This has many considerations. First, the efficiencies and price increase plans started bearing fruit within 2024 and will have a positive impact in 2025 as we are much more focused on efficiencies rather than share growth.

Second, Traxion was free cash flow neutral during 2024 and posted MXN 4.2 billion of net operating cash flow as part of management's plan to start improving such metrics and overall profitability. On this line, it is important to highlight that we generated more than 24% more operating cash flow with basically the same amount of CapEx as in 2023.

And third, the significant reduction of the B2C last mile, combined with other efficiencies, we'll take away more than MXN 500 million of fixed costs and expenses in 2025 with a similar amount of revenue which started in 2024, and we saved a portion in such items since the inception of the program.

In order to achieve such efficiencies, we originally estimated approximately MXN 250 million of restructuring expenses, but in the end, the figure was around MXN 220 million. We do not expect any onetime expenses during this year. Moreover, it was a very strong quarter financially in every division. Margins in our 3 segments improved compared to the other 3 quarters of 2024, and management expects a positive trend into 2025.

Moving on to working capital. There were some investments that required some working capital at the end of the quarter. However, there is an improvement in this line in the yearly figure of approximately MXN 138 million as a result of a better working capital management and an efficiency as a percentage of revenues. As a result, the cash position ended with almost MXN 1.5 billion, which is a very healthy level, together with a comfortable leverage ratio, which, as Aby mentioned, remained at around 2.1x.

As you can see, it was a very active quarter on the financial arena and our efficiencies program is running as expected. Thanks again for your attention. I now hand over to Antonio.

[Antonio Tejedo, executive]

Thank you. Hi, everyone. As usual, I'm going to discuss many relevant ESG milestones we achieved that are especially noteworthy. In the first place, Traxion got the Standard & Poor's Corporate Sustainability Assessment rating, which came in at 60 points, which is 8 points higher than our assessment 2023. With this, Traxion is positioned within the top 15 best rated companies of the industry in the world and #1 in Mexico. This assessment allows our stakeholders to better compare the company in a wide range of ESG metrics.

Second, Traxion was recognized by 50-50 women on Boards, a very renowned international organization dedicated to promote female inclusion in corporate boardrooms for its efforts in terms of women involvement on its Board, management and operative positions. In that regard, we have recently disclosed a goal to have at least 30% of women in operative positions by 2030.

All these efforts resulted in Traxion winning the special award of diversity and inclusion during the 2024 transportation awards by one of the most recognized media in the transportation sector in Mexico. Finally, Traxion maintained its position within the Dow Jones Best-in-Class MILA Pacific Alliance Index, which evaluates companies in Mexico, Chile, Colombia and Peru with the best ESG performances.

Traxion is 1 of just 5 companies included in such index. As you can see, these are very important advances in sustainability. Since inception, we have always strived to build a strong ESG strategy in line with the leadership position we hold in market. There are many initiatives on our table that will take place in 2025, that will further enhance our ESG strategy in the coming years. For example, we expect to be included in the standard and poor sustainability year book this year.

It's a very special milestone as thousands of companies are assessed by such metric and only a few hundred are included. We believe the Traxion is a very strong candidate for this distinction, especially in the transportation industry, and would be yet another important step towards an even stronger ESG strategy.

Thanks for your attention. With this, I wrap up my remarks and will now open the floor to Q&A.

[Operator]

[Operator Instructions] And our first question comes from Pablo Monsivais at Barclays.

[Pablo Monsivais, analyst]

Just two questions on my end. We know that you are postponing the guidance because of Solistica acquisition. But I was just wondering what's the run rate that you would have on your guidance growth excluding Solistica in a way? That's number one. And the second question is, you have had a lot of one-off charges last year. When should we see a more normalized cost items in 2025? .

[Aby Lijtszain Chernizky, executive]

Thanks, Pablo. Well, as you know, we are planning to be more conservative by privileging cash flows together with the holistic integration this year. And having said that, we expect to exercise an organic CapEx of approximately MXN 2.4 billion, which is significantly less than in other years. With that, you should see organic top line growth to be in the low to mid-teens, perhaps 12% growth on an organic basis. That would be reasonable to assume.

However, with the efficiency program running full, we expect EBITDA to grow in the mid-teens, somewhat around 15%, which means a margin expansion, again, in organic terms, and should translate into improved cash flows and net income at the end.

These are, of course, our preliminary estimates, and they will change once we close the Solistica acquisition, as you know, in a few weeks. But with this information, you should be able to get a good picture of how the organic run rate should be for 2025. And regarding your second question, no, there are no such nonrecurring expenses estimated or budgeted for 2025. We were done with that in the fourth quarter of 2024.

And in fact, I think it's more important to highlight that the actual figure for those restructuring expenses last year was around MXN 221 million, which is much less compared to the 20 -- MXN 250 million figure that we originally budgeted for the efficiency plan. So I think we're good with that. Thanks for your questions.

[Operator]

Our next question comes from [indiscernible].

[Unknown Analyst]

A couple of questions, please. Antonio, you said MXN 2.4 billion on CapEx this year. How should that translate into, say, the cargo fleet versus the transport fleet flowing? That's the first question. And then I think, Aby, you mentioned some price increases in the People Transportation business. Could you please give us some kind of indication of the size of those kind of price increases that you're seeing? .

[Antonio Tejedo, executive]

This is Antonio. Thanks for your questions. I'm going to answer the second question first. I would say that it will be reasonable to assume the price increase should be 200 to 300 basis points above inflation. And regarding your first question, we have -- the CapEx breakdown is somewhat as follows. We are planning approximately 350 new buses for the People Mobility division, together with some renovation in that segment, which usually we don't do that. This is the first time you're going to see renovation in this segment. And then we're going to have also a renewal in the Cargo Mobility Fleet as well, which be around MXN 100 million to MXN 900 million. We are going to enter into a somewhat a modernized program of the fleet this year. So that should be the extent of organic CapEx in the asset-based segments.

[Operator]

Our next question comes from Martín Lara at Miranda Global Research.

[Martín Lara, analyst]

Congratulations for these results. I have the following questions. The first one is profitability in the Mobility of Personal business was very high in the quarter. Do you think this level is sustainable going forward? And the second question is, if you could please explain the working capital increase in the quarter? And what can we expect in the future?

[Rodolfo Mercado Franco, executive]

This is Rodolfo. Thanks for your questions. So regarding your first question in terms of the profitability of the Mobility of People division, I will say that this will be like a very normalized margins for this particular division. So if we are something around the 27%, I will say that it's -- that it's a very healthy margin. So basically, we are between 25% and 28% in the past.

So I would say these are very, let's say, a regular margin in terms of a good season for this particular business. So we were planning to be something around that number. And regarding the second question for the working capital. If you look at the numbers of the full year, you will see that even though the working capital cycle was most efficient considering the 2023 figures.

Basically, at the end of the year, we invested a little bit more considering the operations that we put in place in particular for this Mobility of People division. So that was basically the change, let's say, in the working capital. But at the end of the year, if you look at the full numbers, you will see that it was more efficient considering both years.

And in terms of as a percentage of the revenues, it was efficiency also considering both numbers.

[Operator]

[Operator Instructions] Our next question comes from Marko kraljevic.

[Unknown Analyst]

I'm from [indiscernible]. I have one regarding the mobility of personnel average fleet. The average fleet decreased for the very first time since 2022, and it came to 8,500 roughly speaking. I'd like to understand what's the main driver of this decline? And if that has something to do with the decline in CapEx, which also came lower versus the average CapEx that you've been investing in the last quarters?

[Antonio Tejedo, executive]

Marco, this is Tonio. It was -- what you saw there, it was a movement between new units and other ones that we are renovating and are no longer in service for this quarter. It's just a difference between the commissioning of new units and the...

[Rodolfo Mercado Franco, executive]

Old units.

[Antonio Tejedo, executive]

The old units that we are -- that are no longer in service or no longer in the balance because they are very old. So as I said in the previous question, we are entering into a renovation program for a portion of this fleet. So that's what you saw. It has nothing to do with more or less CapEx. It's just a difference between quarters.

[Unknown Analyst]

And why did it decline than the actual figure because in a quarter-on-quarter basis, you have fewer average fleet in operations. I do think that you've been renovating before, right? So it seems that you've been growing at a lower pace than for that, that has something to do with the demand or anything like that? It's just only because of the renovation and you've been not renovating -- been renovating taking out trucks on a faster pace. .

[Wolf Silverstein, executive]

No, Marco. It has nothing to do with a decrease in demand or something. We have very old units that have been in service for 15 or 20 years. For the first time since the company is publicly traded, we are writing off older units to be renovated. You have never seen renovation in this division because our fleet is somewhat newer but we used to operate and we operate older units that are starting to be written off. That's what happened.

Last quarter, we had some of those some of those [ units in ] operation with the new units that entered service in the third quarter of this year. And this quarter and the fourth quarter, many of them, approximately 150, I believe, were written off from the -- from our balance and are no longer in service. That's the only reason.

[Unknown Analyst]

And the last question, if I may, then what's the main driver of the decline of CapEx?

[Antonio Tejedo, executive]

The main driver of what, sorry, can you repeat?

[Unknown Analyst]

On the decline of pace of investments because it declined versus the average CapEx that you've been investing in the last quarters?

[Wolf Silverstein, executive]

This is Wolf. If you remember, by the second quarter of 2024, we announced the market that we were adjusting the CapEx for that particular year. Instead of MXN 4.2 billion, we will be something closer to MXN 3.6 billion. So that was basically what we have been doing in the previous 2 quarters of 2024.

So we were basically focusing on the efficiencies also in the price increase and other areas in the company. So that was basically what we have been doing in the previous quarters, and that's why we're adjusting the CapEx for the previous, let's say, for the second half of 2024.

[Operator]

Our next question comes from Carlos Peyrelongue at Bank of America.

[Carlos Peyrelongue, analyst]

My question is related to Traxporta. If you could give us some color as to the expected growth for this division, how it's been doing? And whether we should continue to expect strong growth going forward?

[Aby Lijtszain Chernizky, executive]

This is Aby. For this year, we're going to have 2 drivers. So the first one is the organic, which we are projecting to grow something around 50%. But the second is the acquisition of Solistica and through the acquisition of Solistica, we expect to get a big amount of volume like on the time of the acquisition, we are seeing that we'll get around $200 million, which make Traxporta growth maybe 150% or 200% in the year for this acquisition. So by the end of the year, we expect the company to have revenues around $500 million -- between $400 million to $500 million. So the growth is going to be very strong.

[Carlos Peyrelongue, analyst]

Understood. So organically, without the acquisition, about 50% growth is what you would be expecting?

[Aby Lijtszain Chernizky, executive]

Yes. And we are choosing that number because we want to go more conservative this year, focus on processes and profitability inside Traxporta and be ready to merge both companies.

[Carlos Peyrelongue, analyst]

Merge out the seamless integration of the acquisition.

[Aby Lijtszain Chernizky, executive]

Yes.

[Operator]

Our next question comes from Bernardo Malpica at Santander.

[Bernardo Malpica, analyst]

My question is regarding leverage. I understand I just said you're currently comfortable with the level of leverage. I was just wondering if it's still a possibility, maybe in the long term to continue to deleverage the company. to improve somehow cash flow going forward? Or should we expect a similar level in the medium to long term? .

[Wolf Silverstein, executive]

This is Wolf, again. Thanks for your question. So regarding the leverage level, I will say that we feel, as you mentioned, comfortable in this healthy level. including, obviously, the organic growth and the M&A transaction for this particular year. We will be at the same level, including both let's say, growth for the company, given the organic and organic growth at the same level. So we feel comfortable on that level. after the synergies and all the efficiency plan that we put in place also with Solistica expecting after the acquisition and also the efficiency plan with the 2024 that we put in place last year. I think we'll be privileging the cash flow of the company and the profitability. And obviously, that will be deleveraging the company at some point in the next future.

[Operator]

[Operator Instructions] And our next question comes from Julia Orsi at JPMorgan.

[Julia Orsi, analyst]

So quick follow-up from my side. The first one is related to the M&A pipeline. I understand that you're still digesting the Solistica transaction. So do you plan to analyze any other M&A alternatives in 2025? And just a clarification. So excluding the Solistica deal, what's your goal in terms of cash flow generation for 2025?

[Wolf Silverstein, executive]

I will answer the second question. So regarding the cash flow for 2025. So I will say that this will be the first year considering the organic growth pre Solistica numbers that will be free cash flow positive. I think that's very important and something that we mentioned to the market in 2024. And obviously, that will benefit, obviously, for the operations of the company also for the profitability and net income of our company also for this 2025.

[Aby Lijtszain Chernizky, executive]

Julia, this is Aby. I'm talking about M&A. We don't have plan to do a [indiscernible] soon, unless we see something spectacular, but we are focusing now to close and then to integrate Solistica, which I believe is going to be a very good transaction for the company. The Traxion will become the largest logistics company in Mexico, the largest 3PL.

So I guess this acquisition is very strategical and we have a lot of synergies for this acquisition. So now we are focusing on this.

[Operator]

We have no further questions at this time. But if you do have any additional inquiries, please feel free to contact the IR team via e-mail. Thank you. I would now like to hand the call back over to Aby for some closing remarks.

[Aby Lijtszain Chernizky, executive]

Traxion has a leadership position in each of its business lines, operates with the absolute best technology in the industry and the most capable management team. Moreover, we operate in an essential sector for the economy on both sides of the border and believe that trade will not stop quite the contrary.

2025 could be a very interesting year. in which traction will consolidate years of growth, together with a solid efficiencies plan to be able to improve cash flow and overall profitability. That is the core of Traxion strategy for this year. Thanks again for your attention. Have an excellent day.

[Operator]

That concludes today's call. You may now disconnect.