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Edited Transcript of SONDA.SN earnings conference call or presentation 23-Apr-19 3:00pm GMT

Q1 2019 Sonda SA Earnings Call

Apr 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Sonda SA earnings conference call or presentation Tuesday, April 23, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christian Onetto

Sonda S.A. - VP of Transformation Services

* Patricio Garreton

Sonda S.A. - Head of IR

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Presentation

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Operator [1]

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Welcome to the Sonda's First Quarter of 2019 Earnings Release. My name is Richard, and I'll be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

I'll now turn the call over to Mr. Patricio Garreton, Head of Investor Relations. You may begin.

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Patricio Garreton, Sonda S.A. - Head of IR [2]

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Good afternoon to everybody, and I would like to thank you for joining us in our earnings call and our presentation that we will be discussing the main aspects about our first quarter results of 2019.

And now from a different point of view, if we compare our previous earnings call, during this call, we would like to introduce to you our digital transformation, and Christian Onetto, who will be discussing and presenting the main initiatives that we have been developing and implementing in this so relevant our aspects.

And to get us started, I would like to highlight that this quarter was a very positive quarter in terms of the results and was in line with our business plan for the first quarter of this year and was very profitable in terms of our results, which improved compared to the first quarter of 2018. And in that time, we have revenues growing 5.4% in our year-to-year comparison in reporting currency and this result in growth in most regions. And the EBITDA grew 15% as well in the reporting currency compared to the first quarter of this year and driven by important growth in Brazil and Mexico. The EBITDA margin as well registered improvements. In fact, it expanded 90 basis points during the quarter with respect to 2018, reaching 10.4% of EBITDA margin in the quarter.

In the case of Chile, revenues were 5.6% higher in reporting currency. That fueled, I would say, the most relevant performance during the quarter, and we -- relative revenue growth in terms of real currency, or constant currency increasing 2.2% in Brazilian real.

The EBITDA marked a remarkable 149% of growth during the quarter, in year-over-year comparison base. And the EBITDA margin expanded an important 380 basis points with respect to the first quarter of last year.

In the case of Mexico, revenues marked 9.5% of growth in reporting currency, and in terms of other currency, remained flat in our year-to-year comparison.

OPLA, it posted an attractive growth, strategic growth in terms of revenues, it remained relatively flat in terms of EBITDA. The net income decreased slightly 2%, affected by some specific aspects that we will be discussing after this presentation. And an important aspect is that our business closed increased 9.3% within the quarter. And if we do not consider the exchange rate effects of situation, business closed have been growing at 17% compared to the first quarter of last year. The increase of the business closed come from Chile that grew 33% and Brazil grew 14% in constant currency.

Regarding the quarter in revenues totaled $288 million in the first quarter of this year. EBITDA was $30 million and net income totaled $7 million. Industrial revenue increased 5.4% in reporting currency and driven by the growth collectively in several countries highlighting especially the regions OPLA where revenue growth of 18%; Mexico, 9.5%; and Chile, 5.6%.

In the case of EBITDA, EBITDA grew 15%, mainly driven by Brazil which collected 137% of growth in (inaudible) and Mexico, a remarkable 267% compared to the first quarter of last year.

And within the core business, the EBITDA increased as well at a higher growth rate, posting 20.4% of growth regarding the first quarter of last year. The core business for us excludes the (inaudible) business, mainly resulting in the version that we have in Chile.

Regarding the net income, the net income declined 2%, affected by nonoperating FX in the case of the exchange rate difference and $2.3 million of those results coming mainly from Mexico. The readjustment units influenced by the hyperinflation that we are seeing in Argentina (inaudible) $1.2 million the results of the quarter and those negative FX were partially offset by the positive effects (inaudible) due to the exchange rates fluctuations over the tax expenses calculation that were close to $1.5 million during the quarter.

Taking these effects overall, the net income would have grown 74% in a year-over-year comparison. Regarding the revenue and EBITDA contribution by region, we can see how the different regions have been driving the growth of the company. In the case of revenue, the revenue in Chile, the growth in Chile has been driven by the Application and Platform business. And in the case of Brazil, the growth has come mainly from the Platform business. In the case of Mexico, we have a mixed trend with Platform growing and growth that was partially offset by the decline in IT Services. And regarding OPLA, most of the growth collected was driven by the growth that we collected in Argentina, Colombia, Peru and Uruguay.

We also have positive effects of the revenue, amounting to $3.6 million within the quarter. In the case of EBITDA, if we compare it to first quarter of last year, if you look at the lower result, this is being explained by the distribution business, the wholesale and the retail business and the Printing Platform business that mainly generate that lower results in the country. In the case of Brazil, the growth in terms of EBITDA is explained by the better wins that we are collecting in terms of the business closed and the strategic plan that we have been developing since the very beginning of 2018. That has been generating operating improvements, generating the growth in EBITDA and EBITDA margins.

In the case of Mexico, the growth is moderated in higher revenues coming from the Platform business and another provision of bad debt. And in the case of OPLA, with the mixed results in terms of EBITDA, positive growth in Argentina and Peru that was partially offset by the low results that we collected in Colombia and Ecuador.

In the case of -- and if we move to the different regions, Chile provided $133 million in terms of revenue, that represents 5.6% of growth with respect to last year. In constant currency, revenues also grew 2% year-over-year. The highlight in some of the growth that we collected in Platform business and the Application business. The EBITDA margin grew 12.6% in the quarter and decreasing 160 basis points on a year-over-year comparison, mainly affected by the distribution business as we mentioned before and the Printing Platform business. If we analyze and review the core business revenue, which was in line with consolidated level in Chile, 5.2% in reporting currency, while EBITDA dropped 2.2%, reaching an EBITDA margin of an important 21.3% within the quarter.

From the commercial point of view, business closed increased 23% in the year-over-year comparison, collecting $123 million in contracts. In the case of the pipeline, we are authorizing an important pipeline of $580 million that we were expecting to turn in new business closed across the year.

In the case of Chile and the expectation that we have for this first part of the year, first half of 2019, we should expect increase of growth in terms of revenue and we should be rounding to collect similar levels of EBITDA in terms of the magnitude compared to the previous year.

In the case of Brazil, this is a remarkable performance in the quarter. And we collect a growth of 2.2% in real terms, constant currency totaling BRL 316 million in the quarter, especially considering that the first quarter of last year was having a tough comparison base. In the sense of the revenues, we would say the revenues increased in line with the business plan that we have for the first quarter of this year. And most of the growth came from the Platform business, driven by the distribution of software in the business that we have regarding the Adobe and Autodesk products.

In terms of EBITDA, the EBITDA increased importantly, the EBITDA margin increased importantly 380 basis points, which is 6.4%. This is an important expansion, and this is in line with the recovery that we have been collecting that will be registering in the last quarter, especially in the year-over-year comparison.

In terms of the commercial activity, we could say that business closed grew 14% in real terms totaling $550 million based on important backlog of new -- of contracts awarded but are still pending to be signed, that amount BRL 403 million. If we consider this other contract, the growth would have been substantially higher than this 14%.

The pipeline -- the pipeline of new opportunities in Brazil totaled $6.5 billion. It's a remarkable growth if we compare it with the pipeline that we had at the end of 2018. And if we move through the recovery that we have been collecting in the case of Brazil, in Slide 7, we can see the revenue improvement across each quarter in a sequential and a year-over-year comparison. And we could say that we had collected, I mean, or reached an inflection point in the third quarter of last year regarding the revenues that we were producing in the year-over-year comparison collecting in the first quarter of growth in real terms.

In terms of EBITDA, EBITDA has increased in the year-over-year with a sequential comparison across quarters of each year. We can see how this first quarter, the EBITDA growth has been accelerating. And we expect that this year, we should be keeping that acceleration in terms of our operation.

And in terms of margin as well, we see that we have an important improvement compared to the 2 previous first quarter of 2017 and '18, posting more than 380 basis points of expansion that we expect to be there, the starting point for a very good year in terms of -- as well in terms of margin. Regarding the market improvement, we have been working in 2 main assets in the Brazilian operation. The use of it has been purchasing to improve the pipeline of opportunities concerning to identify and collect higher value and quality contracts and opportunities across the pipeline. And it's in that sales that will be proving the improvement that we expect to have in the change of revenues. Regarding this, we can see in the figure of Slide 8 that the revenue mix in 2017, it was the Group A, the business that we have been discussing a lot in the last quarters. All those business units that have gross margins over or above 20% has been growing or had grown importantly in 2018, representing 40% over the total business closed. And within the first quarter of 2019, the group represented another improvement in terms of the total contribution, collecting a little bit -- almost close to 47% of the total business closed in the quarter.

And regarding the commercial activity, we have been seeing in these sectors that has been very dynamic. We have been seeing and participating in several bids or tenders in the last period and those contracts are being enlarged in terms of the scale. We believe that these kind of contracts will allow us to establish on a higher volume of contracts and revenues, giving us more stability and recurrency of our operation there. Another focus as well is to increase the pipeline opportunities in the large-scale contracts, especially in the private sector. We are wanting to increase the contribution of those contracts over or above BRL 3 million.

Regarding the pipeline, we have been seeing that the cutting-edge technologies, like -- and contracts like AMS, all those contracts or solutions will come from the digital transformation, analytics solutions, et cetera, has been growing importantly in the recent past. Regarding Brazil, we should be -- and the upcoming results, we should expect important improvements as well in terms of revenues and margins, if we compare with the current year and the sequential improvements regarding the first quarter of this year. From the commercial point of view, we should be seeing improvement in the business closed.

Regarding Mexico, it was a good quarter regarding the comparison with last year in terms of revenues totaling $21 million, and that represents an increase of 9.5% of those. And the EBITDA, that marked an important 267% of growth compared to last year, and mainly influenced by the increase in the Platform business and a lower provision of bad debt within the quarter.

In terms of the commercial activities this year, it's very important. We collect $9 million in business closed. This represent 22% of decrease compared to the last year. But there was $12 million of contracts awarded, but they are still pending to be signed. If we add the figure, the Mexican operation has been representing an important growth for the quarter. But the most important thing here is the pipeline. We've been increasing the quality and the size of our pipeline, identifying new opportunities for the pipeline. We believe that we are seeing the most important matter in Mexico is to recover and improve the pipeline. This in some way -- is focused on the largest challenge that we have in the Mexican operation, which is to recover the growth in revenues. We also have been focusing in different initiatives from the point of view of the offering, enhancing the relationship with our customer and partners, and especially to enhancing our management in that country, especially with the arrival of the new CEO at the end of July.

And in the case of OPLA, in OPLA, also have a positive feel in terms of growth, collecting 18.3% of growth in revenues compared to the first quarter last year and 16.1% in constant currency. This growth has been mainly driven by Colombia, Argentina, Peru, and Uruguay as we have discussed. And we also saw reduced growth in the different business lines, Platform business IT Services, and Application business. And the EBITDA remain (inaudible) remain flat. And this is a mix trend or contribution of higher EBITDA in Argentina and Peru, partially offset by lower results in Colombia and Ecuador. Still, the EBITDA margin reached 9.7% in the first quarter. We are expecting that this margin should be improving in a sequential way across the year to deliver a better 2019 compared to the 2018.

In terms of the first half of this year, we should be expecting growth in terms of revenues and in terms of EBITDA and collecting growth in the year-over-year for the first half comparison basis.

And moving to the commercial activity. We have a view in (inaudible) on the previous slides, the commercial activity (inaudible). We can say that we collect a growth of 9.3%, totaling $311 million in business closed. Here, we saw an important aspect or theme that we'll also have $235 million in the value of the contracts awarded but are still pending to be signed. So if we are considering those contracts, the business closed has been growing almost 29% in the year-over-year comparison, obviously considering the value of those contracts awarded as well in the first quarter of 2018.

And in the case of the business closed in constant currency, it grew 17% year-over-year and driven by the growth in Chile, 33%, and Brazil, and that collected growth close to 14% in Brazilian real.

And moving to the pipeline of new opportunities. I think that is important to highlight that we're going to see important growth. And regarding December of last year, we signed or closed $350 million during this quarter, and we -- sorry, $311 million during this quarter, and we can see that the pipeline grew $350 million regarding the pipeline that we collect or (inaudible) at the end of December. And this reflects -- so it's an example that several new opportunities were clearly identified within the quarter in the region. Almost half of the pipeline is still there in industry, keeping the trends in the previous quarters.

If we move to the next slide, you will see the main figure, so that our Spanish, we will be translating that into English very soon. But here, we illustrate the 7 pillars of our strategic plan. In the next presentation of Christian Onetto, the VP of Transformation, we will be having another round of the pillar of the orchestrated offering, highlighting the importance of the EBITDA transformation across this pillar until obviously -- and across the other pillars until their connection to the ecosystem. So Christian Onetto will continue from that.

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Christian Onetto, Sonda S.A. - VP of Transformation Services [3]

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Thank you, Patricio. Good afternoon, everybody. So let me share with you where we are right now with our transformation, digital transformation evolution in Sonda and how we are starting to transform the business of our customers. And let me start with our mission, with our main mission that has to do with how we can help everyday our customers' digital and cognitive transformation journey. And let me first illustrate it from something that we all saw a couple days ago where we got the black hole picture that was captured. An image capture, we were all witness of that, and it was captured not by one telescope. It was captured by 8 telescopes. And that means that you require the collaboration and the hand-in-hand working of 8 different centers around the world working together behind the same objectives. And that has to do with the experience of each one of those centers. It had to do with the coverage and the follow-through of the coverage that you can get from those parts, from the agility that you can get off working together every day and then the cultural part of the cultural transformation that requires these transformation journey for everybody. This has to do with also our own transformation in Sonda, and of course, we have to do a lot with the transformation of our customers' culture, processes and business. And having said that, if we think about that, that's a main advantage and the main differentiator for Sonda, because there is nobody with the muscle, the presence, the coverage in all Latin America, in same country, 3,000 cities with more than 16,000 employees working together hand-in-hand with our customers as our main obsession in everything we do with them for the transformation.

So let me go to the next slide, I believe it's 15. Just to share with you from this transformation overview, what we see, what is our primary architectural value, offering proposition for any of our customers' business transformation process.

So first of all, our consult division, where we are working closely with our customers to help them envision their long, medium and short-term transformation, not only from a technology perspective enabling from the technology part, but mostly from a culture and from a process perspective for the transformation of the business, of the core of the business. Secondly, from an enablement perspective, we are using the product from a hybrid perspective because we are already very strong, we are a leader in Latin America from a private cloud offering. And also, right now, we are getting all the enablement, key competencies around different public clouds like AWS, like Azure, soon it will be Google Cloud, where we are getting all the models as well to have our customers drive their own journey to the cloud to help enable their own transformation of their businesses from a business perspective to gain the capability, to gain efficiencies, to gain -- and to market and, of course, an innovation piece -- pace, sorry. From a data perspective, we are using the data to move through to completion. Of course, the accomplishment of, again, of new experiences of businesses for their own customers, of new modification models for their businesses, for different kind of process efficiencies, et cetera, et cetera.

And finally, from a cybersecurity perspective, when we open our organizations to different types of new data for monetization perspective, for understanding and knowing better our customers, we are also open to possibilities of vulnerability in terms cybersecurity, where we need to become a very close partner of our customers in this transformation journey, helping them to deter, avoid, detect, respond to those eventual incidents, and of course, in a very, let's say, vicious cycle, helping improve constantly their own security policies to be always ready for these constant vulnerability evolution in the world.

If we go to Slide #16. Let me show you a little bit about the momentum because it now counts what we are seeing in terms of business in terms of pipeline, especially. And what we see now is that we are getting very good momentum in terms of trend of pipeline. We are really growing in an exponential way, the way that we are capturing new pipeline opportunities month-over-month. Actually, during the last 3 months, we captured 46% more opportunities just in 3 months. So this is a very good trend. It's a very good growth. And we expect, especially cybersecurity, cloud service systems, Smart City, IoT opportunities to continue with the same trend over the next few months, and most of all, continue maturing those opportunities and bring them to life. Hopefully, a good percentage of that, almost $500 million opportunity so far where we can say that, probably, if we summarize what we already have as closed businesses, plus committed for sign-up contracts on the next couple of weeks, we should be talking probably around $30 million of opportunities committed and closed deals already. So this gives us a very good perspective about what we can accomplish in the next several months, especially when we are witnessing an exponential growth around the pipeline growth every month.

And especially in cloud services, cybersecurity, probably we are starting -- before with the big data analysis on these rapid technologies, sorry, outside of Brazil, where we started with a lot of strength. And now, we have seen a lot of companies that continue driving it not only to Colombia, but also to Chile and Mexico.

If we go to the next slide, 17, let me show you, we have a couple of highlights of how we are doing, how we are accomplishing this type of exponential growth around new pipeline and how we are continuing working to get the maturities we are having. First from Smart City and IoT perspective, we are developing a bunch of initiatives around Uruguay and Buenos Aires, which we are working on a launch activity in the Smart City Expo in Buenos Aires where we are launching our first end-to-end Smart City solution, but mostly above the cloud.

So using the cloud, the public cloud in this case, the Microsoft cloud, the Azure cloud are the main partner for this solution. This is the first one that will be in Latin America and it's going to be one of the disruptive communications to the market around the next couple of days.

Then, in Brazil, we are already working to complete 1 in (inaudible), 1 close to Rio and 1 outside São Paolo, where we are already developing an agenda around Smart City and how we can help the main journey to accomplish their main challenges around the city. In the case of Chile, we are working with a premier agency called Corfo around IoT projects and the way that we can leverage the entrepreneur market in Chile, startup markets around this kind of project in the City. And Uruguay, we have been recognized as a very important player around smart safety, mainly because of the 900-plus connected channels that we already have in more than 5 centers around the city where we have accomplished a downgrade of 45% around approximately of the safety perception that cities used to have.

From a hybrid cloud service perspective, as I mentioned before, we want to become the #1, the most important integrator in Latin America around hybrid cloud, where we already have a very important, a very strong private cloud and already working very, very strong with AWS, with Azure. We're starting to work with Google Cloud as well. And we have 13 already accomplishments in the case of Chile when we already got to a very successful deployment, the first SAP Hana migration to Azure in Latin America. So it's not only our first reference case, but also, it was the first reference case for Microsoft in Latin America run by their strategic partner, Sonda.

In the case of Brazil, we are working right now with an education organization. We've probably been -- with a massive cloud orchestration opportunity, the biggest one, orchestrating multi-growth in cloud beginning with Sonda private cloud, Amazon services and Azure as well. That is a very complex thing that we are accomplishing in a very good way. And finally, we are entering into a very interesting arena that has to do with the complex migration that, probably, this will bring us a very important and big opportunity around Latin America in the next couple of years, where we have already seen a couple of opportunities working with a couple of foreigners in Chile, Brazil, Mexico and Colombia from a recruiting perspective for (inaudible) environment with a high level of complexity to migrate to different kind of clouds.

And just to end up with this slide, just to highlight again, we are very strong from a private cloud perspective. We are in 8 countries. We have important investments from Sonda. And we are about to announce for the end of this year another data center, Tier 4, in Chile, and for mid next year, we will be in Colombia as well in Tier 4 capacity.

If we go to the next slide, #18, we can see what we are doing around (inaudible) with big data, analytics and disruptive technologies. So we just launched new technology using a mix of different kinds of initiatives and a lot of challenging markets around our Sonda cognitive solution, if you want to, called SonIA. And it has to do from a very simple solution of virtual assistance, 2 new customer experience, for example, in a retail branch or a banking branch and, of course, growing even to automated responses for the processing any our customers. Actually, we have our first reference that has to do with Sonda on Sonda. We are using this kind of cognitive solution to reduce the cost, a big cost with our end-user support services, where we have already accomplished more than 30% of savings. And from a risk management perspective, we are working with analytics. We are making a big partnership in Latin America with SaaS. We are already accomplishing a committed big deal. The main goal that we have around that in governments in Brazil between $12 million and $15 million. And it's going to be a very big reference for Sonda, but also for our partner SaaS in the region.

From a video analytics perspective, we are also working with different customers, for example, banks, where now we are doing a very important proof of concept in Colombia, with the bank improving the security and, of course, the customer experience inside the branch.

And finally, working very closely in Colombia, in Brazil and Chile and starting with Mexico as well with robotic process automatic and different kind of solutions around mobile experience for a new experience of users in our customers.

If you go to the next slide, we can touch base with cybersecurity there where we just launched Sonda (inaudible). We launched our first regional SOC, security operation center, from Colombia to our customers in Latin America. It was a very important launch for us because it's the first regional SOC for us that we, I'm sure, that we will be able to be very successful, but mostly to continue growing it for the purpose of our customer support. We already have, by the way, 3 customers in place in the set of the current contract with us. Two customers, important customers in Colombia and one customer already outside Colombia, in Brazil, and we already have different prospects, very mature prospects, I believe 10 from Chile, Colombia, Brazil and Mexico. We have to continue growing the presence of customers in these SOC. And putting a lot of special effort and focus on industries like retail, FSI, government and oil and gas.

If you go to the next slide, 20, we are also putting a lot of effort with innovation and transformation in the beginning. This is not only about technology, it has to do with culture, it has to be with agility. It has to do with processes, but also, and mostly, with the ecosystem, and how to work with the ecosystem and enable the ecosystem around innovation and transformation. And here, I want to show you 3 or 4 of the initiatives that we are working today currently, 2 in Brazil. In this case, we are working with the Joinville University campus with 350 professionals already working there to develop and to generate new skills, new knowledge around the students, working with the students and a complete startup ecosystem around disruptive technologies development.

And secondly, we have already signed a couple of weeks ago an important strategic agreement with Bradesco, with Bradesco Innovation Center, where we are working already with 170 startups and 70 other companies around innovation initiatives, creating value through the Brazilian market and, of course, pulling opportunities to our ecosystem, including Sonda.

From a Chilean perspective, we are working as part of a key member of an innovation board to promote innovation, promote entrepreneurship and more startups, digital startups around the important challenges that we are seeing in Chile and the rest of Latin America.

And finally, we are also working in Chile in a very important and ambitious initiative with -- in a co-investment with the University of Chile, and the business CEO internship for IoT projects and IT startups to help them create new solutions for the team.

And finally, again, we show you what I just mentioned around the ecosystem and the importance of collaboration. We couldn't do it alone. That's something that we are embracing with a lot of conviction, building the strong ecosystem, collaborating and working together from the global alliances that we traditionally have had in the past, but also with niche players and, of course, products that brings us a lot of time to market. And that can gain a lot of also growth with a big partner, we can now develop Sonda working together in different areas for the transformation, the digital transformation of our customers around the region.

So thank you very much, and I will be available for more information. Thank you, Patricio.

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Patricio Garreton, Sonda S.A. - Head of IR [4]

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And well, in order to summarize the main aspects that we have been discussing, I would like to highlight that this quarter was a good quarter where revenues grew and the pipeline in focus and EBITDA increased at a good pace and the EBITDA margin collected 90 basis points of expansion.

An important aspect as well is that Brazil continues recovering, continuing the trends that we have collected in previous quarters in 2017. And we are seeing Mexico in a positive way, especially from the commercial point of view. So we should be expecting a quite better second half of this year for that operation. And from the commercial perspective, we should expect the performance in the business closed including the pipeline for rest of this year. And regarding the strategic plan, we would like to say that we are fully committed and we are working on development of this strategic plan that has been largely communicated since December of last year.

And that will be, in some ways, really, the goal that Sonda should be collecting for this year and upcoming years, especially later on the important initiatives and projects in these new technologies that, as Christian wisely commented to you during this presentation.

In terms of the expectations and feel for the rest of the year, we should expect a better first half this year if you compare to the first half of last year, growing in terms of revenues and EBITDA.

Operator, we come to the questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question online comes from [Sebastian Ramirez] from [Bank Chile].

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Unidentified Analyst, [2]

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Patricio, just quick 2 questions. If you go to Mexico, in the previous call, you answered a question about the reversal of provisions that you had over there, but can you please give to us the exact number that was -- that charged? Because if I go back in the previous quarters, SG&A expenses were around [MXN 1.5000 million], which in this quarter was virtually 0. So if I extract that as a regular SG&A, EBITDA would have been almost 0. So I just wanted to clarify how it would have been without the reversal, the margins of Mexico. That's question 1. And the question 2 is regarding Chile. You, in the press, have been vocal that you are in a situation in the renewal of the contract with Transantiago. Can you please elaborate in the amount of investments that are entitled -- are related with that renewal? And how that would be deployed during the next couple of years? That's all from my side.

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Patricio Garreton, Sonda S.A. - Head of IR [3]

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Okay. Just one second. And regarding your first question about the provision, the reversal of the provision in Mexico, that amount represent close to $1 million of lower bad debt for the operation in the quarter. So you can use that to (inaudible). Sorry?

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Unidentified Analyst, [4]

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So I guess, if we do that, SG&A for the quarter was around MXN 700 million, which compares to almost BRL 1,500, BRL 1,500 in the average of 2018? Exchange rates are pretty much the same. So it's just -- so we should think forward that SG&A in Mexico is around $1 million?

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Patricio Garreton, Sonda S.A. - Head of IR [5]

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No, no, no. The pesos, the reversal, on the other hand, the positive effect, that reversal of that provision contribute to higher operating income or EBITDA is $1 million.

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Unidentified Analyst, [6]

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And that's the only nonrecurring in Mexico? Or there's other things beside that?

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Patricio Garreton, Sonda S.A. - Head of IR [7]

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There are -- just one second. Regarding the SG&A that we should be having in Mexico, we should be thinking on $2 million per quarter, this quarter, yes, in the second quarter of this year. And there was no other nonrecurring effect on the Mexican operation. And your second question about Chile, it's kind of difficult to give you more information because we should expect the official communication coming from the Ministry of Transport. We cannot disclose any information if -- they have not been communicating anything yet.

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Operator [8]

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(Operator Instructions)

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Patricio Garreton, Sonda S.A. - Head of IR [9]

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I think that we are safe and we have a couple of minutes over the time. Thank you, everyone, for having joining us in this call, and we are more than willing to attend your inquiries. And you can call us, email us, to Natalia, Rafael or myself. And you have our company information. And if you don't, you can look for them in our website in Investor Relations section.

Thank you very much, and have a nice afternoon. Bye-bye.

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Operator [10]

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And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.