U.S. Markets closed

Edited Transcript of MEGACPO.MX earnings conference call or presentation 23-Jul-19 3:00pm GMT

Q2 2019 Megacable Holdings SAB de CV Earnings Call

Guadalajara Jul 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Megacable Holdings SAB de CV earnings conference call or presentation Tuesday, July 23, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Enrique Yamuni Robles

Megacable Holdings, S. A. B. de C. V. - CEO, MD & Director

* Luis Antonio Zetter Zermeño

Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer

* Raymundo Fernández Pendones

Megacable Holdings, S. A. B. de C. V. - Deputy CEO

================================================================================

Conference Call Participants

================================================================================

* Arturo Langa

Itaú Corretora de Valores S.A., Research Division - Research Analyst

* Carlos Antonio de Legarreta Diaz

GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst

* Frederico P. Mendes

Banco Bradesco BBI S.A., Research Division - Research Analyst

* Marcelo Peev dos Santos

JP Morgan Chase & Co, Research Division - Senior Analyst

* Rodrigo Villanueva

BofA Merrill Lynch, Research Division - VP

* Kenia Vargas-Trent

i-advize Corporate Communications Inc. - Senior Associate

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. My name is Carolina, and I will be your conference operator. At this time, I would like to welcome everyone to the Megacable's earnings conference call. (Operator Instructions) Thank you. I'll now turn the call over to Kenia Vargas at i-advise Corporate Communications for opening remarks.

--------------------------------------------------------------------------------

Kenia Vargas-Trent, i-advize Corporate Communications Inc. - Senior Associate [2]

--------------------------------------------------------------------------------

Thank you and welcome to Megacable's Second Quarter 2019 Conference Call. At this time, I would like to introduce Megacable's management and today's presenters: Mr. Enrique Yamuni Robles, Chief Executive Officer; Mr. Raymundo Fernandez, Deputy Chief Executive Officer; and Mr. Luis Zetter, Chief Financial and Administrative Officer. They will be discussing the quarterly result before moving on to the Q&A session.

It is important to mention that certain comments made today may constitute forward-looking statements, which do not account for future economic circumstances, the company's performance or financial results. These are subject to various conditions and could materially change throughout the year. Please review the complete disclaimer presented in the financial earnings report that was issued yesterday. You may contact us at (212) 406-3696 if you didn't receive a quarterly report or if you need any assistance.

At this point, I would like to turn the call over to Mr. Enrique Yamuni to begin his presentation. Please go ahead, Mr. Yamuni.

--------------------------------------------------------------------------------

Enrique Yamuni Robles, Megacable Holdings, S. A. B. de C. V. - CEO, MD & Director [3]

--------------------------------------------------------------------------------

Thank you. Good morning to all and thank you for joining us as we review the results of the second quarter of the year. During this period, we continue to see the economic slowdown also observed during the first quarter of the year. Key indicators like GDP, as you are probably you are already aware, contracted 0.2% during the first quarter. The monthly indicator of the new productivity published by the National Institute of Statistics and Geography reflected a 2.1% decrease during the month of June. In the figures released by the Mexican Social Security Institute during the first 6 months of the year, only 290,000 jobs were created, way below the estimated for this period. Megacable adopted measures aimed at mitigating these effects to the highest degree possible. For us, this means a conservative sales strategy that seeks to maintain a healthy and stable consolidation.

This quarter was also highlighted by 0 growth of the pay-TV market. The growth of the Internet market significantly flattened. Megacable, however, has important competitive advantages, and we sought to maximize these strengths by focusing our strategy and efforts to achieve revenues and EBITDA growth despite the environment.

RGUs grew on a slower-than-expected pace, given the aforementioned competitive landscape. However, the company focused on increasing the average ticket per subscriber by offering additional quality services, such as HBO HD in our premium packages. Again, we were able to continue the ARPU growth strength of unique subscriber, which are record levels for the company. The Corporate Telecom segment also continued to achieve growth under these challenging conditions.

During the second quarter, Metrocarrier and ho1a reached higher revenues, while continuing to expand its market footprint. The alliance between these 2 companies has allowed us to offer a united front in the corporate market with a much more complete portfolio of services that is more attractive to users.

As for HBO, we'll continue to grow the subscriber base thanks to a strong performance of the platform and the great content that it offers. At the same time, we'll continue working on the operational improvements that the platform will have in the short term, which will undoubtedly maximize the product's capabilities.

CapEx remains in line with our annual plans, the network expansion and modernization continue to be top in offering the highest quality services. As such, we'll continue to invest in these goals. The special projects of the submarine cable and the data center are near conclusion, and we are very excited about how these 2 projects will improve and complement the complex operational and subsequent results.

In addition, effective May 1, we acquired Axtel's optical fiber infrastructure and subscribers from their massive segment business for a total of MXN 1.15 billion. These subscribers are spread to 5 cities in which Megacable is already present and will help us to strengthen our position in these markets. It is important to mention that these subscribers contributed only 2 months to the company's quarter -- quarterly results.

In May, Megacable paid a shareholder dividend for a total of MXN 1.9 billion. This was higher than originally established in our dividend policy. And we're certain that, looking forward, the strategy we have set forth, along with our strong execution, will allow us to continue generating value for our shareholders.

In conclusion, given the difficult environment we face today, we will continue to rely on our operational and financial strengths to overcome the challenges that arise. As you can see, the measures we have taken have proven right, allowing us to continue growing despite the challenging environment.

Thank you for your attention. At this point, I will turn the call over to Raymundo and Luis so that they may provide us with additional details regarding the company's operational -- operating and financial results. Raymundo, please go ahead.

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [4]

--------------------------------------------------------------------------------

Thank you, Enrique, and good morning, everyone. Now we will review the operating results for the quarter.

As Enrique mentioned, we continue to observe a slowdown in the economic activity of the country as investment of public and private sectors remain flat, while there is less money available to the average consumer to spend on the services that Megacable offers.

In accordance with consumer surveys we have carried out, the main reasons for subscribers who canceled services are economic. Thus, during the quarter, we continued our conservative strategy with regard to subscriber acquisition, aimed at having minimal impact to revenues and ARPU growth by always seeking to maintain healthy subscriber acquisition.

Given this strategy, we experienced a continued lower level of gross adds when compared to the first 9 months of 2018, so we'll focus on the higher quality customers. Churn, however, continued to be affected by the economic slowdown, present an increases of 30 and 20 basis points in Video and Broadband, respectively, compared to second quarter 2018. Telephony, on the other hand, declined as a result of the strategies implemented to motivate subscribers to remain with the service.

Now moving on to results. At the end of the quarter, we reached more than 8.2 million RGUs, an 8% increase when compared to the second quarter of last year as a result of subscriber increase year-to-year across all 3 segments of the massive market.

Video reached 2% subscriber increase; while Broadband grew 7%; and Telephony, 22%. As a result, we reached 2.27 RGUs per unique subscriber compared to the 2.15 a year ago. The Video segment rose to more than 3.2 million subs at the end of the quarter, recording net adds of 64,000 compared to the same quarter of last year. On a sequential basis, subscriber rose by 21,000.

XView reported its best quarter, yet, in terms of net adds, reaching 621,000 subscribers or almost 118,000 new additions. We are working diligently on the next generation of the platform, which should include a completely new environment, more user-friendly and more features.

In Broadband, as you are aware, the company surpassed 3 million subs at the end of the quarter, recorded 207,000 net adds when compared to the same quarter of last year. On a sequential basis, 70,000 net adds were recorded when compared to first quarter 2018. At the end of this period, [68%] of our subscriber base have the minimum speed of 20 megs, compared to 57% in the second quarter of 2018. During the quarter, we installed almost 800 WiFi hotspots to reach 8.7 thousand. We significantly increased the connection capabilities of our subscribers.

The Telephony segment continues to perform and rose to more than 1.9 million subs, recording 363,000 net adds on a yearly basis. On a sequential basis, 82,000 net adds were recorded in line of our strategy of high-quality new subscribers.

Our bundling strategy, focused on the sale of triple-play packages, continues to shift the product mix. As such, triple play now represents 48% of the total portfolio, compared to 41% at the end of the second quarter 2018. Double- and single-play packages now account for 31% and 21%, respectively, compared to 34% and 25% at the end of the previous year.

ARPU per unique subscriber continues to rise, reaching a record high this quarter of MXN 396.5, a 6% increase when compared to the same quarter of the previous year. This increase was driven by higher RGUs per unique subscriber, benefiting from the sale of triple play packages, coupled with the contribution from add-on services.

Regarding ARPU per service, as we stated in the first quarter call, beginning this year, we review our income allocation policies to better reflect the value that the market and the consumer gives to the Massive segment results. As a result, Telephony's ARPU decreased by 21% when compared to the second quarter of last year. ARPU on Video and Broadband, on the other hand, increased by 9% and 2%, respectively.

On the network, during this quarter, we build and activate more than 900 new kilometers. Additionally, we'll continue working on the mobilization of the existing network, including the partition of nodes, which not only allow us to increase bandwidth capacity and wire stability, but also prepare for future needs that may arise.

Moving to the Corporate Telecom segment. We continue to record growth despite the economic situation and the government spending restrictions. All that reached a significant increase of 34% when compared to the same quarter of last year. We have managed to process contracts in the last few months, which will lead us to better second half of the year.

Metrocarrier continues to grow in both on-net and off-net cities where innovative solutions complements technology we offer as well as customer service backed by highly trained personnel, reaching a 20% increase when compared to the second quarter of 2018. All these, we are very happy of these results.

Now Luis Zetter will take you through the financial highlights. Luis?

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [5]

--------------------------------------------------------------------------------

Thank you, Raymundo, and good morning, everyone. I will now give you more details regarding the financial results before taking your questions.

Consolidated revenues for the second quarter rose to MXN 5.4 billion, a 10% increase when compared to the same quarter of 2018, excluding the nonrecurring revenues, increased in the range of 11%. Growth is a result of high revenues in the massive market as well as Metrocarrier and ho1a in the Corporate segment.

In the Massive segment, revenue grew 9% when compared to the second quarter of 2018, with Video going up 11%; and Broadband, 9%, while Telephony decreased given the change in the revenue allocation mentioned by Raymundo.

Corporate telecom revenues increased 19% when compared to the second quarter of last year. ho1a recorded a significant 34% increase, while Metrocarrier grew 24% and MCM increased 16%. In terms of the revenue breakdown, Massive Market, 80% of total revenue, while Corporate represented 20%.

Cost of services increased 15% during the quarter, mainly due to the Corporate Telecom segment, given the higher component of equipment sales. In the Massive segment, costs rose as a result of increasing content, labor and advertising. Consolidated SG&A for the quarter increased only 7% below revenues and RGU growth.

All the above resulted in a MXN 2.7 billion consolidated EBITDA, representing a 9% increase when compared to the second quarter of 2018, with a consolidated margin of 49.6%. On the other hand, EBITDA for Cable operations accounted for MXN 2.5 billion, increasing 4% when compared to the same period of last year, reaching a 51% margin.

As Enrique mentioned, the acquisition from Axtel of infrastructure and subscribers is reflected in all figures and comments made in this call, considering a little bit more than 50,000 subscribers in Broadband and Telephony and around 20,000 in Video. Without these operations, our revenues and EBITDA growth would have been 8.5% and 7.5%, respectively.

Also, the new IFRS 16 generated a positive effect of approximately MXN 54 million on lease and expense reduction for this period. Excluding these effects, consolidated EBITDA will have rose to MXN 2.6 billion with a 48.6% margin.

Net profit for the quarter reached MXN 1.3 billion, representing a 3% decrease when compared to the second quarter of 2018. This was mainly due to higher depreciation component as a result of investments made in previous years, aided by the IFRS 16 impact.

The company's net debt reached MXN 4.5 billion, higher than the MXN 340 million recorded in the first quarter. As mentioned in the release, during the quarter, we closed an additional MXN 2.9 billion of bank debt to fund the acquisition made to Axtel in the Massive segment and to cover deferred tax commitments and also some CapEx. The maturity of these new credits was matched with the existing ones that are due this month. We are about to successfully conclude the negotiations to refinance a total of MXN 6.5 billion debt, an attractive level without traditional banks.

It's important to mention the IFRS 16 lease liability worth MXN 383 million at net present value and is now being included in the net debt. As a result of the above, the net debt-to-EBITDA ratio is now 0.47x, still underlevered levels, while interest coverage ratio reached 19x, still very healthy levels.

Regarding CapEx. In the second quarter, the company invested more than MXN 1.6 billion, which totaled nearly MXN 3 billion for the first 6 months of the year, representing 28.3% of revenues. We'll continue to invest in the network capacity, the construction of new kilometers and the acquisition of subscriber equipment.

Lastly, the MXN 79 million nonrecurring revenues in our second quarter figures are accessories to the AMX trial we won last year and we just have collected.

Thank you all for your attention. At this moment, we will now move to the Q&A session. Operator, please go ahead.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And you do have a question from Miguel Dávila with Itaú.

--------------------------------------------------------------------------------

Arturo Langa, Itaú Corretora de Valores S.A., Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

This is actually Arturo Langa. I have 2, first. Is there, in the EBITDA margin, any impact from the launch of your MVNO? And if so, would you be able to quantify it? And then second, regarding ho1a, you mentioned 2 contracts that you were signing, would you be so kind as to provide more color on what type of contracts these are? Are they government related or are they related to the Corporate segment? That would be very useful.

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [3]

--------------------------------------------------------------------------------

Sure, Arturo. I don't know, Luis, if you want to mention the MVNO volume mix.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [4]

--------------------------------------------------------------------------------

Right. Basically, there is minimum cost on the MVNO as we have not launched that yet. So I will say it's very difficult to identify that so far in this quarter, so just consider there is none.

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [5]

--------------------------------------------------------------------------------

There is none. There is a minimum. We haven't launched the MVNO, the full MVNO. What you have is a friendly user trial. As we mentioned in the first quarter, we'll continue to work on the MVNO project. We decided to launch during the summer, we're working on the project and you can expect, going ahead of the questions, you can expect that in the fourth quarter. We're preparing for fourth quarter of this year to make a good launch on that and we decided to go with other ones, so the impact is minimal. There is no -- there is nothing related to MVNO so far.

And related to ho1a, ho1a had a terrific second quarter. And as we said before, we do not depend on government contracts for none of our Corporate business units, not on MCM, not on Metrocarrier, and not on ho1a. All of you won a little bit of more corporate sales because of the nature of the managed service and infrastructure. But at the end, it's a mixture of ho1a being with a higher growth in the areas where Metrocarrier has presence, not only on the Corporate segment. So I can tell you it's part of the note of the business and the synergy with the rest of the company that makes ho1a have this very good second quarter on that part. We expect that to continue to be in the same line in the future to come.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

And your next question comes from Fred Mendes with Bradesco.

--------------------------------------------------------------------------------

Frederico P. Mendes, Banco Bradesco BBI S.A., Research Division - Research Analyst [7]

--------------------------------------------------------------------------------

I have 2 questions as well. I mean, the first one, regarding the competitive landscape. I take it Axtel was more aggressive in this quarter, particularly in terms of the prices. If you can just give us a bit more color on that, that should be great. And also, in this environment, do you think it's possible for us to continue to believe there will be another price increase for the second half '19? This will be my first question. And then moving to my second question, regarding the submarine cable. In our understanding, it should become operational now already in third Q. So just in terms of numbers or any visibility you can give us, what can you expect in terms of savings even for '19 and 2020, if this could be something already relevant?

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [8]

--------------------------------------------------------------------------------

Thank you, Fred. Let me answer you the operating question that you mentioned there and then I'll let Luis go into the increased savings. Regarding the competitive landscape, yes, we saw Telmex mostly increasing in some of our areas. But we have that fiber from Telmex before, and the prices that they represent so far are competitive. Still, we maintain the best offering in the market. The best combination of all the telco companies, so far, is the one that we have. We have, call it, 3 different levels of products, from the low end, to the mid, to the premium services, and we're very efficient. So the price changes that Telmex arises and come to the market, even though you can feel the competition to be constant, we keep a very good track of that, it is not really, really impact our marketing strategy, our price. We are more -- we adjust more to the quality of the services of the subscribers related to the economic situation, not that much about the competition.

Every quarter, we continue to gain our market share penetration on that part in most of these segments. We are also investing in the network so we continue to improve our bandwidth. As I said in my page -- 65% of the subscribers already have 20 megabits, and we'll continue to upgrade services, those broadband subscribers, to a better broadband without significant impact for them in the price in some of the cases, and other ones we migrate and we try to get some increase from them.

We do not foresee a second half price increase as it is as we speak, but we always try to bring a good and healthy balance with add-on services. We have a good quarter with XView and we have a good quarter migrating to the higher package than the low end, so we're normally balancing between the growth of subscribers and the increase of the ARPU coming from the existing packages.

Going to the submarine cable, we still foresee at the end of third quarter of this year to put it operational. It will not have any impact for the first 3 quarters of this year for sure and we will begin to feel the savings on the fourth quarter of this year. As I said, it will only impact on the fourth quarter. And I don't know, Luis, if you have the impact just for that query.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [9]

--------------------------------------------------------------------------------

For the submarine cable?

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [10]

--------------------------------------------------------------------------------

For the submarine and also the question that Fred has.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [11]

--------------------------------------------------------------------------------

Sure.

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [12]

--------------------------------------------------------------------------------

That when will we have it, we will have it at the end of third quarter and we will feel these savings of [foreign language] at the fourth quarter of this year. And again, like I've said before, it won't feel the same -- the whole value because we need to be canceling contracts that we have with the existing suppliers or vendors that won't finish exactly when we turn the submarine cable.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [13]

--------------------------------------------------------------------------------

Yes. We expect savings for the year, as Raymundo said, maybe more in the fourth quarter more than the third quarter. But we expect savings from MXN 30 million to MXN 40 million during the year. And that we'll have to do, again, by the date that we will have the submarine cable operating and closing the contracts that are due during this year and the following 2 years. So once we have fully canceled all those, yes, savings will -- could move to a much higher number for monthly and yearly basis.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

And your next question comes from Marcelo Santos with JPMorgan.

--------------------------------------------------------------------------------

Marcelo Peev dos Santos, JP Morgan Chase & Co, Research Division - Senior Analyst [15]

--------------------------------------------------------------------------------

I actually have also 2 questions. In face of the difficult environment, could you please update us on your targets for, like, revenue and EBITDA growth for the year? This is the first. And the second, just to clarify the savings on the submarine cable. So you say MXN 30 million, MXN 40 million in the fourth quarter, how much could that turn -- I mean just wanted to just understand, is that a quarterly number, is that an annual number, is that a run rate after you, like, finish all your contracts with the other suppliers? Just to understand a little bit better how to incorporate that savings in our model.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [16]

--------------------------------------------------------------------------------

Right. Well, let me first start on your first question on the figures that we have on our guidance. And we are reviewing our numbers with a guidance, but you have to take into consideration that, also, we have Axtel now part of the operation will stop here. And in our numbers in the second quarter, we have only 2 months of Axtel operation onboard. So what we are doing is we are adjusting our numbers and figures, and basically not on a great change. We are expecting, again, 9% to 10% growth in our revenues, and that is coming more from, maybe, Corporate being a little bit short, we think that the Massive Market will be pretty much in line. And in our EBITDA, our figures are also very well in line with what we mentioned at the beginning of the year. And this is including, of course, the savings on submarine cable and also the operation of Axtel included, so keep that in mind.

--------------------------------------------------------------------------------

Marcelo Peev dos Santos, JP Morgan Chase & Co, Research Division - Senior Analyst [17]

--------------------------------------------------------------------------------

EBITDA growing -- EBITDA will be growing with revenues?

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [18]

--------------------------------------------------------------------------------

Okay. And related to submarine cables, well, we have different contracts for different capacity that we have allocated from América Móvil throughout that cable. And those contracts were, let's say, at the beginning, will be maybe MXN 7 million per month and then wait. So it's a matter of time when we reach, basically, MXN 9 million, which will be the - I think is going to be the highest savings on a monthly basis.

--------------------------------------------------------------------------------

Enrique Yamuni Robles, Megacable Holdings, S. A. B. de C. V. - CEO, MD & Director [19]

--------------------------------------------------------------------------------

And in pesos.

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [20]

--------------------------------------------------------------------------------

Pesos, pesos, yes of course.

--------------------------------------------------------------------------------

Enrique Yamuni Robles, Megacable Holdings, S. A. B. de C. V. - CEO, MD & Director [21]

--------------------------------------------------------------------------------

Yes. Sorry, I didn't classify that.

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [22]

--------------------------------------------------------------------------------

We talk in pesos.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [23]

--------------------------------------------------------------------------------

Sure.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from Carlos Legarreta with GPM.

--------------------------------------------------------------------------------

Carlos Antonio de Legarreta Diaz, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [25]

--------------------------------------------------------------------------------

The first, just to confirm, Luis. I think, you said the organic growth in Cable was 8.5% in revenue and 7.5% in EBITDA, please?

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [26]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Carlos Antonio de Legarreta Diaz, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [27]

--------------------------------------------------------------------------------

Okay. That's perfect. Just for the other questions. I'm wondering what's behind the unusually high cash tax payments in the quarter. If we can expect it to normalize in the second half of the year?

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [28]

--------------------------------------------------------------------------------

Absolutely. The tax payment was deferred tax that has been there and was already accrued for. But this is something that is not going to happen on a sequential basis. So you can expect that number to go back to usual and less than MXN 400 million.

--------------------------------------------------------------------------------

Carlos Antonio de Legarreta Diaz, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [29]

--------------------------------------------------------------------------------

Okay. And finally, again, just to clarify the nonrecurring revenues in the quarter. I understand both of them, both the MXN 99 million and the MXN 79 million, they both have record to EBITDA, right?

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [30]

--------------------------------------------------------------------------------

Right. That was a coincidence in timing. But yes, they're going both on the EBITDA line.

--------------------------------------------------------------------------------

Carlos Antonio de Legarreta Diaz, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [31]

--------------------------------------------------------------------------------

That's perfect. Just to clarify the comparison year-over-year.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [32]

--------------------------------------------------------------------------------

Sure. Thank you.

--------------------------------------------------------------------------------

Operator [33]

--------------------------------------------------------------------------------

And the next question comes from Rodrigo Villanueva with Merrill Lynch.

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [34]

--------------------------------------------------------------------------------

My questions are related to -- well, basically, I had the same question regarding the nonrecurring revenue from AMX, which basically goes straight to EBITDA. And also, regarding your guidance. So basically, you're saying 9% to 10% revenue and EBITDA growth, which would include probably around 1% coming from the acquisition of Axtel. And is there any other thing that we should take into consideration? Also, probably 1% related to the IFRS 16. So adjusting for these, probably it would be something closer to 7% to 8%, is that correct?

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [35]

--------------------------------------------------------------------------------

The -- you mean, revenues or EBITDA? I got...

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [36]

--------------------------------------------------------------------------------

Talking about revenues.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [37]

--------------------------------------------------------------------------------

Yes, but IFRS 16 doesn't impact the revenue.

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [38]

--------------------------------------------------------------------------------

At both levels. Well, yes, in the end, there's no impact from IFRS 16 on revenue. But then revenue probably could be somewhere between 8% to 9% and then EBITDA, 7% to 8%?

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [39]

--------------------------------------------------------------------------------

A little bit higher than that on the EBITDA. But yes, yes, you're pretty much in line, considering -- excluding the nonrecurrent and that's just it.

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [40]

--------------------------------------------------------------------------------

It should be in line to revenue.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [41]

--------------------------------------------------------------------------------

Yes. Pretty much will be in line -- the growth in both lines.

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [42]

--------------------------------------------------------------------------------

If I remember correctly, I believe the one-off that you had last year, it didn't close to EBITDA, did it? I think that there were some costs associated with those extraordinary revenue of around MXN 100 million.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [43]

--------------------------------------------------------------------------------

Can you make the question again?

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [44]

--------------------------------------------------------------------------------

In the second quarter last year, you had extraordinary revenues of around MXN 100 million. I believe there were some costs associated with those revenues.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [45]

--------------------------------------------------------------------------------

Oh, yes. Yes, of course. There are some lawyers and then there are some other costs that were associated to that. Yes, that's totally sure -- totally true.

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [46]

--------------------------------------------------------------------------------

But not in this year, right?

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [47]

--------------------------------------------------------------------------------

In this year, there is some minimum, and that is recorded there in our...

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [48]

--------------------------------------------------------------------------------

Not significant, of course.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [49]

--------------------------------------------------------------------------------

Yes. But of course, that is for the consequence of the trial.

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [50]

--------------------------------------------------------------------------------

But you're right, probably.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [51]

--------------------------------------------------------------------------------

Yes, that's true.

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [52]

--------------------------------------------------------------------------------

So we have leverage this year with a less impact in the cost this year. And last year, we did have that MXN 100 million nonrecurring with costs associated to that.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [53]

--------------------------------------------------------------------------------

Yes. The cost this time was very, very minimal.

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [54]

--------------------------------------------------------------------------------

Understood. And just a follow-up regarding the Corporate segment. It has been growing pretty strongly. Is there anything that you could foresee in this business related to the economic slowdown that's something that could impact the business or you still feel very comfortable that you're going to be able to grow at the rate that you have been growing in the first half of the year in the remainder of the year?

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [55]

--------------------------------------------------------------------------------

Well, the economy really affect us like all different companies. And mostly in Corporate segment where we have also sales to government expenditures. But we feel confident that the way that we've been merging operations between ho1a and Metrocarrier and MCM, that part is being proven to be a successful formula. And the growth that you can see does not depend on government. And even the economy is down, the combination of growth that we have in the markets where we're selling continues to be a key combination. If you get Metrocarrier with the footprint in different states where we have the majority of the midsized enterprises, they need to increase their network and infrastructure and connectivity even when the economy might be down.

What I'm saying, we have a lack of all the midsized enterprises getting to what they need to be competitive. So we're jumping into that wave and that's why we have a good year for ho1a and Metrocarrier. And also, we are more effective in selling new solutions, video surveillance, cameras, network equipment. Besides, we continue to bring new portfolio. We increase in the office and the calls because we increase our cellphones and that's how we managed to increase the revenues as we continue too, as we continue to have a snow ball on the positive side. More and more strong organization bring better results for us in a market where we believe we can grow the numbers and the pace that we have. We are very happy that we have that 34% in ho1a and 20% of Metrocarrier, regardless of the economic slowdown.

We would love to see a better result and I don't see any reason why we could not bring those results and keep it in the future to come. That will be our opinion.

--------------------------------------------------------------------------------

Operator [56]

--------------------------------------------------------------------------------

(Operator Instructions) And there are no further questions at this time. I'd like to turn the program back to Mr. Yamuni for any closing remarks.

--------------------------------------------------------------------------------

Enrique Yamuni Robles, Megacable Holdings, S. A. B. de C. V. - CEO, MD & Director [57]

--------------------------------------------------------------------------------

Thank you very much, Kenia. And as always, it is a pleasure to discuss our results with you all. We will continue to leverage growth in our operational and financial strength, always focused in providing the best service to our customers. Please contact our Investor Relations department if you have any questions or concerns regarding the company. Have a wonderful afternoon, and thank you very much, again, Raymundo and Luis, also, are very grateful.

--------------------------------------------------------------------------------

Raymundo Fernández Pendones, Megacable Holdings, S. A. B. de C. V. - Deputy CEO [58]

--------------------------------------------------------------------------------

We are very grateful was that -- we got into an economic uncertainty, it was a good result. And something that I'd like to close with is looking at the industry and subscriber growth. We feel that we have a good close of the quarter from May to June. We start with a low April and Easter that we did not mention, we hold it for the end. And as you can see, the majority of the companies were looking to recover that stagnation. The measures that we took gave us good results at the end of May and June. And hopefully, we will have -- we will continue to have a good second half.

So thank you all for the interest, again, from my part of the team, the rest of the team.

--------------------------------------------------------------------------------

Luis Antonio Zetter Zermeño, Megacable Holdings, S. A. B. de C. V. - Chief Financial & Administrative Officer [59]

--------------------------------------------------------------------------------

Thank you. Bye.

--------------------------------------------------------------------------------

Enrique Yamuni Robles, Megacable Holdings, S. A. B. de C. V. - CEO, MD & Director [60]

--------------------------------------------------------------------------------

Bye.

--------------------------------------------------------------------------------

Operator [61]

--------------------------------------------------------------------------------

And that concludes today's call. Thank you for your participation. You may now disconnect.