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Edited Transcript of SONDA.SN earnings conference call or presentation 29-Oct-19 2:00pm GMT

Q3 2019 Sonda SA Earnings Call

Nov 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Sonda SA earnings conference call or presentation Tuesday, October 29, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Affonso Nina

Sonda S.A. - CEO of SONDA Group Brazil

* Christian Onetto

Sonda S.A. - VP of Transformation Services

* Rafael Osorio Peña

Sonda S.A. - CFO

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Conference Call Participants

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* Rodrigo Villanueva

BofA Merrill Lynch, Research Division - VP

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Presentation

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Operator [1]

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Good morning, and welcome to Sonda's Third Quarter 2019 Earnings Release Conference. My name is Sylvia, and I'll be the operator of this meeting. (Operator Instructions) Please take into account that this teleconference is being recorded.

Today, we have Rafael Osorio, Chief of Sonda. Next we're going to give the floor to Mr. Rafael Osorio, who will start the teleconference.

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Rafael Osorio Peña, Sonda S.A. - CFO [2]

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Thank you. Good morning to all of you, and thank you for participating on this call so that we can analyze the results by September 30 of Sonda. As it is common, you can also have the presentation available in the website of Sonda.

First of all, I'd like to say that the results of Sonda in the first 9 months have shown an improvement in comparison with the last year, and especially the results in these first months of Sonda of integration in Brazil. We will also like to say that the commercial activity is very active with important business signatures and openings, which also reflect a relevant growth compared to last year.

Specifically, we can say that by September 30, the revenues increased in almost 7% with strength in all regions, except for Mexico. We're going to explain the specific situation in Mexico. And also in the third quarter compared to the third quarter of last year, the revenues have been pretty much the same.

And we can highlight that, specifically in Brazil, there was a growth of 23% compared to last year. And lower income report currency were given in Mexico, but we need to highlight that in the case of -- it was very affected by the exchange rates. Comparable currency, there was a growth of 17% compared to the third quarter of last year.

Therefore, we can say that the growth trend has been solid, very solid. And specifically, as you're going to see later on, with an important reduction by the closing of the quarter. And in regards to EBITDA, EBITDA grew 86% (sic -- see slide 2 -- rounded to 6%)in reporting currency, highlighting mainly the growth of Brazil. And it grew at 52% in comparison to last year. And reporting currency grow in 16% -- in 6%.

However, in comparable currency, the growth was very high, specifically, in the third quarter, OPLA grew a reporting currency at 17%. However, in comparable currency or in functional currency, it grew at 30.8% compared to the same period of last year.

In regards to the margin, it was kept online or in line in regards to the same period of last year. However, the market in Brazil has been prominent, we say that 70 basis points. And the margin in Brazil, it was reflected by the drop of margin in Mexico. Likewise, in the third quarter, there is a reduction of 50 basis points from the EBITDA margin OPLA compared to the third quarter of last year.

The profitability increased in a meaningful percentage in an accumulated way in the third quarter, influenced mainly by the cancellation of a branch office. And that during September, we did the closing and you have knowledge of the important impact in our [business]. Now in the signature of contracts, that's what I was mentioning, there's an interesting dynamics, we grew at 18% compared to the 9 first months of last year, specially a meaningful growth in Chile and Brazil.

In terms of business opportunities, we are managing around 8% and a growth highlighting Mexico with an increase of 143%, in Brazil with the growth of the businesses that we have currently in 33%.

Just to highlight some relevant issues. We can see in the picture that the revenues in the third quarter get to $287 million, EBITDA to $30 million with a margin of 38% compared to the third quarter of last year, the revenue grew at 70 -- at 7%. I mean, it's pretty much flat. However, there's some extraordinary events that happened in Mexico. Really, we can say that the growth is around 7% for the consolidated revenues.

In terms of EBITDA, the third quarter compared to third quarter of last year, grew at 6% influenced by Mexico. However, discounting the effect of these relevant contracts, which happens during the third quarter of last year in Mexico and the EBITDA level has been flat. However, we need to highlight that the EBITDA margin is stable very strongly in around 8 -- 11% compared to the last year. And the net profit grew because of what we just mentioned.

In next slide, we can see that the evolution, in regards to the second quarter, there is a growth of EBITDA margin. However, I will rescue from this. I will explain why the revenues and the result of third quarters were reduced compared to second quarter.

I will say that everything was affected by the first quarter. However, what's interesting of this is that a trend is kept in terms of defining what's effective in quarterly EBITDA as well as year-to-date. However, the third quarter shows a good indicator on how the run rate is doing. We always think that a period of analysis of 9 months compared to 9 months of last year, it shows a good results increase.

In general, in the third quarter, there was a lower dynamism in regard -- compared to second quarter, but mainly influenced by the effect of exchange. But in the case of Mexico, yes, there is an effect of business. But yes, we continue to highlight the behavior of Brazil, which increased in revenues and in the EBITDA.

Now in next slide, there is a look of the 9 months, $136 million of revenues and EBITDA of almost $100 million and profit of almost $32 million. If we discount that extraordinary effect in Mexico, we will be growing compared to the same period of last year at 9%. And the EBITDA also will be growing in -- around 10%.

So that means that we can highlight that we're discounting some effects that could affect the comparison base. We can say that in terms of the evolution of the business of the day-to-day of the business we're growing in regards to the EBITDA compared to last year. And the same thing, the margin is around 8% as what we had said before.

In next slide, Slide 6, we can go through very quickly through the business in Chile. The business in Chile and its revenue as well as in its growth is still reasonable -- revenues increased at 14% on a cumulative way and around 5% during the third quarter. The growth of third quarter is affected by a lower growth of distribution, which did not correspond to Sonda.

In the case of EBITDA, the EBITDA margin which is 13.6%. This, at some point, shows the results of our margin. However, we need to highlight that it's true that the EBITDA margin in -- the accumulated is 13.6% in the third quarter increased and it got to 14.2%.

In the case specifically of Chile, the EBITDA margin has evolved in -- from the first quarter, it was 12.6% to second quarter 13.1%. And to these, third quarter 14.2%. So in terms of margin, in the case of Chile, there is an improvement, a continuous improvement, during the third quarter. There was a good closing of business during the first months.

And next slide is Slide #7, where we can see the results of Brazil, specifically in Brazil, I would highlight the following. The growth of 2 digits in revenues and very meaningful growth of EBITDA. You can see here in reais that the first quarter, it grew at 16% compared to the same quarter of last year. And in accumulated way, it grew 13%.

And in terms of outcomes or results it's been very meaningful, we've grown in value. In the 9 months, 49% of the EBITDA is very relevant. Now the expectation that we had was that the third quarter also had a growth -- a meaningful growth in regards to the third quarter of the last year. This was a little bit affected due to the fact that some important contracts that we closed this year, there is a delay in the implementation, mainly of issues associated to clients not to Sonda.

It's been said -- that has affected at some point revenues, we consider that in the third quarter, there was an effect of that. And those results were run to the fourth quarter in around BRL 10 million. In that context, we are confident that Brazil, in the 3 main pillars that we're doing, which are basically an optimization of cost and expense.

Second, to take the emergence of business units to margins that we estimate to be appropriate for this unit. But most importantly, to grow in those assets that have most added value. Specifically, we can give an additional data. We can say that the EBITDA -- the online EBITDA, so to speak of Brazil is in around 10%. And nowadays, we have impacted 800 basis points in the results of Brazil, with negative contracts during the last quarter. And this kind of from a point of view of revenue, as a result, the EBITDA margin of Brazil in the first 9 months of the year is -- has grown into 9.9%.

If we go to Slide 8. There, we can see the yellow bars, which means how revenues as well as EBITDA, especially considering the last 2 quarters, we can see that there has been an important growth in revenues and in EBITDA. And the same thing, we can say that EBITDA margin this year has been way better than in the previous years.

If we go to Slide #9, a relevant part of the improvement of results has to do with this, that we have mentioned already with the experience that Sonda has had in Brazil in the last year, 1.5 years, which is to close businesses more than 8%, which means the concentration in conclusion of businesses for higher value, we can see group A and Group B.

Group A, starting with 18% in 2007 -- in 2017 and in 2019, we're at 45%. However, if we see in relative terms, in percentage terms, Group C contracts that means those that have lower or equal to 5% went from 42% that we had in 2017 to 21% in this year. These contracts -- contracts of Group A and Group B, are long-term contracts are contracts, which revenues are reducing throughout time and we're bidding so that those revenues are going to help us improve the margin of the next period.

Specifically, we understand that this year, we've set the foundations to have 2 digits EBITDA margin in our operation in Brazil for next year. In the case of Mexico, we have a very concerning situation in terms of the results appearing there. However, it is interesting.

It is important to also highlight what is it that we're doing. No doubt, 2019 is a year in which Mexico has not been very good. We expect it to be better for next year. However, we do a comparison, a little bit more detailed comparison. Taking this relevant contract in the third quarter of last year, instead of dropping at 63% of revenue, we should have dropped (inaudible) is still bad. But effectively, if we had a contract of the same size, we wouldn't have been affected that much in the drop and the results of operation in Mexico.

If we also see that if we do an adjustment in terms of 9 months, we would have had pretty much -- revenue this year would have been very similar to last year. In the case of EBITDA, in the effects of the contract and results during the first quarter of last year, we see that accumulated EBITDA would have been an EBITDA margin of 4.1% and this year 8.6%. So we could say also that in percentage terms, EBITDA would have grown.

This is no justification, but it is just to say that there is a very large contract that we could have -- that we could get last year, which was not repeated this year and that affects us in Mexico. But no doubt, these figures are not satisfactory for what we want. There are some issues that are interesting.

First, that the closing of business has increased or the agreements increased in this year. That's important in the 6% and 16% EBITDA from there has shown some improvement in terms of closing of business. But probably the most relevant things are within opportunities that we're talking about.

In Mexico, has had a pipeline of around $800 million with a diversity of opportunities that we understand that as long as we can close our closing capabilities that's going to bring us income, and that's going to give us a better operation for 2020. In Mexico, this has been the great issue. The organization and the company is working, so that we can get ahead there.

We hope that next year, we have better news in terms of business. And we are certain that 2020 is going to be way better in the results of -- compared to 2019, in which there were changes. There was a relevant cancellation of the operation of business in Mexico and for next year, we're going to have a more solid and more robust business base.

In terms of OPLA, it's been affected by the exchange rate, and it is important to consider the functional or the reporting currency. To say that the revenue of the third quarter growing at 17% in a comparable currency not in reporting currency, which grew only 4%. But in accumulated terms, it grew at 16% in comparable currency which is very positive, especially because of the revenues grew that we had in Argentina, Brazil and Panama.

In the case of EBITDA in comparable currency in the third quarter, it grew at 32%, which is very meaningful. And that besides the EBITDA margin grew in 260 basis points compared to third quarter of last year. In an accumulated way, we're still on the EBITDA margin -- below the EBITDA margin of last year. However, in comparable currency we grew almost at 12%. We understand that.

OPLA has also been in a continuous process of improving its EBITDA margin. In the third quarter last year, we had an EBITDA -- in the first quarter, we had an EBITDA margin of 13%, second quarter of 14.9% and the third quarter, it was 13.6%, and we hope for the fourth quarter, we are above 14%.

Now on next slide, Slide 12. In terms of closing of business, there are some indicators. The last 12 months, we have closed businesses for $1,400 million, which represent 123% of revenues that we have recognized. In last 9 months, we've closed revenues for $1,105 million, that's a 32% of growth recognized in this third quarter.

But here, it's very interesting because in the last quarter, we've closed $481 million, which is a growth of 183% (sic ) 173% of revenues that we had. That implies that the speed of closing of business is going to impact naturally the revenues ahead. And therefore, it is going to allow us to have a growth rate of 2 digits.

On the other hand, it is also important that the new businesses that are around 60% and that also implies that we're going to have new customers. And also, there are going to be new sources of revenues for the company.

Slide 13, the closing of business are specified here, Chile, $486 million, Brazil $447 million, Mexico $40 million, and we can see how Mexico and Chile have grown in an important way in closing of business. The total of closing of business is 44% in Brazil -- in Chile and 40% in Brazil. And nowadays, we have a [valley] on the closing of contracts, which has to be signed, which still we haven't accounted as closed businesses, which are of around $26 million.

On the other hand, an important data of the top 10 closing of businesses, represent $340 million and represent that have a margin, which is equal or higher than 28% in a weighted average. In terms of how we're having revenues and how that's going to help us improve our margin. And the other important thing is that by the closing of business, we've generated additional $670 million accumulated.

In Slide 14, we see 53% of pipeline is in Brazil is very powerful. And specific pipeline in Brazil and Mexico, which has grown very strongly, a very diverse pipeline with opportunities in the business lines of higher added value. Therefore, we understand that this pipeline, which is very strong is going to help us continue closing businesses, and it's going to give more dynamism to -- not only to revenues but also to give higher sustainability to the profitability improvements that we're looking for.

In Slide 15, the company continues to be very strong, the indicators that you can see there. And we also have indicators that we already mentioned, as probably many of you when we did the road show. We can see that nowadays, we have cash flow of almost $600 million, and we grew in the month of July, we grew in the month of July.

I'd like to remind you that bond that we put on October '17 is a bond for $17 million, we were about to fund by the 1st of November. It's a bond, it's a green bond, which has been very successful, 7.36 represents. And that's important because the spread that we get is a spread of 72.4, which expresses the levels of investors in the business model. We're talking about a net equity of $700 million.

In Slide 16, ***** we're talking about indicators of 0.9, we're talking about 17.3 and net financial assets on an EBITDA of 9.36x. These indicators, as we've mentioned, are indicators that are going to grow up to probably the first quarter of next year. However, then we'll see all of the margins that the risk has -- assessments as well as shown in these plans.

I'd like to tell you that the total CapEx by September 30 is a figure of $70 million. We had mentioned already, that part of our CapEx presented by the end of -- of $180 million. The first quarter, in part was moved to the second quarter. However, we estimate that the CapEx of the first and second year, we went from $180 million to $85 million is going to be given in 2 years.

I want to indicate that in a cumulative terms, in comparable currency, the company is growing in a reasonable way in revenues as well as in EBITDA. It's worth highlighting, especially the operation in Brazil, which is growing very well and in revenues and also in results, growing very well in terms of growth of business.

We've got important challenges in Mexico. We've been working hard so that these results can be reversed during the next year. In the case of OPLA, we need to say that figures in terms of comparable currency because there we can see things that we can control. Revenues and results are growing good. Margins of all quarters are improving. Operation in Panama, Peru, Uruguay, Argentina has been doing really well this year, and Colombia improving towards the last quarter.

As it is common now, we'd like to give some minutes to the CEO of Brazil. So that for 5 or 7 minutes, he can tell us in which situation in Brazil is and how we see the future. And also, Christian Onetto, who is the leader of all the division of digital transformation, to explain where we are and where we're going to in this line of services in our plan. I would like to leave you with Affonso Nina from Brazil.

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Affonso Nina, Sonda S.A. - CEO of SONDA Group Brazil [3]

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Well thanks Rafael, Affonso Nina here, good morning to all of you. I'm sorry for my mixture of Portuguese and Spanish. But here I would like to start by talking about Brazil. I'd like to reinforce the pillars of the plan that we're executing since last year. With main focus on the improvement of margins of operation, expenses as well as costs and seek for or the pursuit for contracts in general.

And second, a very strong issue of growth, specifically this year, 2019, where we're effectively with a very strong execution and growth of revenues. And finally, third point, which is the improvement of mix of margins and mix of services, looking for services, which bring a better margin for the company. Likewise, supporting this strategy, I can mention the results that Rafael presented.

First, the growth of revenue this year, the 9 months of this year compared to last year of almost 14%, 13.7% of growth of revenue. And also in comparison of the quarter also 16% of growth compared to last year in the third quarter. When we talk about margin, EBITDA margin, also the 9 months of this year has shown a growth of almost 50%, 49% compared to the 9 months of 2018.

We're talking about 160 basis points, which is the results of all actions that we are doing in direct costs of operation of contracts as well as indirect costs as a support areas with several initiatives of optimization of the cutdowns and internal process of the company and of the organizational structure, also to have a lighter structure and with lower expenses.

Third point that I want to mention is what Rafael mentioned, I would like to emphasize a very large management emphasis in contracts that have financial performance that is not doing that good or not very good financial performance, which effectively where we get this contracts from our results, the EBITDA margin improved in 300 basis points. And EBITDA margin around 9.9% of growth.

And the status of that is that some of those contracts, we are going to finish them now. We're finishing some of them and some other, we're being -- we're negotiating them in financial and commercial terms with customers and some resolving operational problems, which in regards to the contracts in which we have a lower margin.

So we expect now in fourth quarter, a continuous improvement, especially in the negative impact that those contracts had and that continues now, getting into 2014 -- 2020. So we expect a continuous improvement in the next quarters of EBITDA because of a very specific action in a set of contracts on how this financial performance that's impacting.

Now with regards to the closing of this year, this year, there was a strong campaign of sales in company in Brazil, which generated in the 9 months up to now, a result of growth of almost 30%, 29.6% of growth in reais or 20% in dollars compared to 2018. And also when we compare quarter against quarter, in Q3, there was an increase of 10% compared to Q2.

Highlighting Q3, the signature of a very important contract, a very large contract, the largest contract this year in Brazil with Banco Brasil for the outsourcing of printing. Last year, we had signed a new contract with Caixa, which are the 2 large state banks in Brazil. And this year, we gained and now we signed, now we're starting the implementation of this very important contract with Banco Brasil. And also the emphasis in selling with better margins.

So 45% of all the things that we sold this year, in 9 months, our contracts with sales with margins of more than 20%, effectively having an impact in the backlog for forward-looking revenues of the company. Now talking about the closing, also an important increase of pipeline and now looking for -- with a large emphasis into looking for large contracts in the private sector too.

Historically, the government sector is the one bringing the largest contracts. This year, we signed in the private sector, what has to do with the largest contract in the private sector in IT in Brazil, in the area of data center and added services of data center, and there are some others that are very important also in the pipeline.

So with all of that, we see 2020, starting with a good pipeline. And also with good backlog of the sales that were generated during this year and expecting effectively to be in 2020 with an EBITDA of more than 2 digits for the next year. All of this is very in line with all the strategy, which is to look for new digital transformation services, which Christian Onetto is going to talk about more.

And in the industry, taking business solutions to customers in a more comprehensive way, in the portfolio that we have in Brazil. We have a very broad portfolio in Brazil. And we're looking to sell contracts where we have a very large integration, which generates added value to the customers, and for us, a better margin in regards to what we had before.

So all of that is part of the execution of the strategy that we defined and that we are implementing. Having said that, I want to give the floor now back to Rafael and to Christian Onetto to continue with the presentation. I will be available for your questions. Thank you all.

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Rafael Osorio Peña, Sonda S.A. - CFO [4]

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Thank you, Affonso. Now Christian Onetto, is going to give us an overview of what's happening in transformation and digital transformation.

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Christian Onetto, Sonda S.A. - VP of Transformation Services [5]

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Yes. Good morning to all of you and effectively as what Affonso was saying, during these 9 months, as what it was proposed, more a transition for us this year the division has also been to be able to connect these efforts made in -- multiple efforts in different countries as is the case of Brazil. And so we are also able to take practices in a traceable way to different countries, specifically the 4 main countries with a focus (inaudible) besides Brazil, Colombia, Mexico and Chile.

And I continue starting from scope that we see Slide #21, starts from a consulting view, what we're looking for is to work with customers to show them in a very strategic way, what should be their transformation pathway, digital transformation, connecting to transformation of our business core and with a digital strategy path.

But again, going on to a path which is the DNA of Sonda, where we also envision and build agendas and technological solutions, those processes of digital transformation strategy. And finally, a scope of digital transformation, which should also put in line capabilities, skills, soft skills as well as hard skills and collaborators inside our customers, which also allow to evolve the different work spots and roles in the transformation of companies.

And if we go to Slide #22. This is supported from a very strong aspect with an ecosystem. As we said, ecosystem is going to be something very relevant within what we want to do. And that's supporting not only by large companies that nowadays are part of the strategic ecosystem, but also of niche enterprises in different regions where we're operating. And companies, even companies of solid optical systems, which nowadays are generating sales to market that's very accelerated in regards to skill those companies.

In Slide #23, we've made a summary of what the path we have been so far as what we mentioned from -- since the first day since the first meeting, building a team, but we've continued to evolve in a very accelerated way in different countries. Working very actively with the 10 countries, with teams in different countries.

Working in an offer, which has been a path of being able to consolidate something that we've been doing that for Sonda, as what we said several times, this is not something new. Innovation and transformation is something that we've been doing for many years already. And we've got a lot of cases and what we'll be doing is to consolidate that offer with a very strong practice and also generating internal outfit as well as in the sales part with our partners in an aggressive way.

And also something that can help us tell the market what we're doing in a more open way and in a more aggressive way. To finally push to all the sales process, which nowadays is betting, I would say, in a more and more accelerated way as we saw in this first 9 months on 100% of new businesses towards the company.

In Slide #4, also to tell you -- 24 to tell that we're building this benchmark at a regional level in different countries. References in different areas and different focuses that we have this year as, for instance, cybersecurity, where nowadays, as an example, in Chile, inclusion in Chile, very important in the health care.

We're working in a cybersecurity strategy, which is looking to give traceability and visibility to all different elements or items from the administrative areas down to more technical areas and also going through operational risks of the company 24/7. So that's helping mitigate a lot of risks that as companies they are facing.

As for instance, what we're doing in the environment of education in Brazil. For instance, we're working with higher education institutions. And one of the most ambitious projects that we have where we have -- we're taking 100% of their applications to different clouds, which starts with clouds like the one of Sonda. But we're working with the mark of national and some of the web services, which are our strategic partners. And that requires a special capability and special knowledge, and that's something that Sonda is offering these customers now.

As for instance, Affonso was mentioning, we've been doing a pioneering work in Brazil. We're looking to recruit the rest of the region with customers of a banking sector, where we're building projects, including all -- everything regarding calculation of risks and assets and with a right solution and specifically in risk management, which is allowing us to give a very important value to the bank. And besides this allows us to be updated with the regulations of the country. That's something that, obviously, the rest of the countries where we have presence are going through.

And for instance, what we're going through nowadays in terms of the experience of the whole industry as it is the industry of milk and dairy products. In the case of Brazil, where we're mixing components of IoT add to an analytics solution in the cloud with an important dashboard that we have, which allows us nowadays to be able to trace all the process of the milk in order to do it in a better quality. And especially with the efficiencies required by the market and the arrival of dairy products in a better way to final end users.

And finally, what we're doing at the level of cities, we said last time that cities were going to be a strategic focus for our business. From the point of view of how we make it more sustainable, more -- and how to generate integration of cities and to be able to generate more accessibility from the economic and social point of view that our Latin American cities need so much.

And at the level of Brazil where focus is smart [lifehood] which not only generates benefits for cities, but especially generating citizen security. For instance, we're working in a very active in Uruguay, where we've deployed more than 44,000 units in Montevideo, which allows us to decrease or to increase the security and decrease in 30% the crime rate in the public areas.

And finally, to share with you in Slide #25, our most recent news, something that we're starting to share starting from today with the market, which has to do with an announcement of incorporation to Sonda of a company in the environment of digital automation.

Digital automation is the last unit that we've created by itself and with the level of investment and focus, which is important and we're being able to incorporate a company as (inaudible) is a company that had been operating in the Brazilian market and with some customers at a regional level. Where we are adding now to Sonda, its contracts with customers, and we're also adding now to a great part of or this -- the vast majority of human resources and consultants and technical specialists. And of course, all the relationships and all the history with main partners in digital automation, among other things, (inaudible) Unipack among others.

That clearly -- this move helps us as Sonda's transformation to accelerate our positioning in the market and everything regarding digital automation. We not only want to offer robotics and process automation, this goes way beyond as it is shown in this slide. This is our scope and our vision in regards to what has to do with digital automation, which is a great opportunity because for the year, we're waiting -- we're expecting a growth rate of 81% of the market, global wide.

And obviously, this is key for all digitalization process and the process of 4.0 industry or industry 4.0. And this goes from a capture of information as a use case of digital automation as well as something that's very common now.

It has to do with insurance as well as banking, which is process automation, but also how to automate all the great amount of data and how to manage that from an automated point of view. So that finally, we can get to artificial intelligence includes how we can build new and digital interactions with final customers for instance as the retail industry.

And finally, to be able to take into different experiences. And these experiences to go from the mobile phones having also analytics, because there we have a great opportunity with data that's been incorporated, the new data to include all the analytics and all intelligence on this data and with integration of different channels.

We are sure that this is going to be a great opportunity to be able to accelerate this growth in terms of transformation. And to tell you very soon of new projects -- about new projects, which now at a pipeline level, at least in the last 2 months, we've been able to raise more than $20 million just from a new pipeline. An incorporation of PR, as part of our integration team. Okay. Well, thanks a lot. Now we're attentive to any questions you want to ask.

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Rafael Osorio Peña, Sonda S.A. - CFO [6]

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We'd like to thank you for your attention. Now we would like to start the Q&A session, questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We've got Mr. Rodrigo Villanueva from Bank of America.

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Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [2]

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My question is regarding the CapEx. It's my understanding that the CapEx distribution for the next 2 years is going to be different. What I wanted to ask you, Rafael, if there's a little bit more breakdown in terms of that -- of this because with around $70 million invested in 2019, probably you'll be investing in all the year around $95 million or $100 million this year. And this would imply that next year, you will be basically investing around $190 million.

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Rafael Osorio Peña, Sonda S.A. - CFO [3]

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Yes. Thanks for the question effectively. And that's our expectation. I'll remind you that the plan that we showed in December last year, 1/3 of it is corresponding to integration projects. Of course, it had to do with data center and development of apps and everything regarding services, around 2/3 like 60%, 70% of this plan is associated to CapEx for contracts that we gained.

So there is a third that's associated to the construction of our sensors. So effectively, there are some of these contracts, which have been postponed from the point of view of CapEx for the next year. So I would dare to say today, probably, what we're talking about, by the end of the year on how 2020 will be, but we can ground it with more reality.

But what we estimate or expect is that, what we say CapEx was going to be for 2019. In 2020, nowadays, the add of both CapEx are going to be -- is going to be billed in the next 2 years, in one part of base in 2019 to 2020. So there are integration projects that are very large.

Nowadays, we're participating with a very large integration project, which is going to appear in the pipeline, next year. We're seeing that we can see -- if we can participate or not, but there, CapEx could be anything. So I would say that the addition of the 2 years is a good indicator nowadays, but of what could be the CapEx for 2019 to 2020.

I'm going to take advantage to answer some questions that were in English. One of the question says, what type of contracts are included in the pipeline of Mexico in terms of margins, deadlines and sectors?

Mainly in the case of specific contracts. There's one part of contracts that has to do with platforms. There is one part of a contract that has to do with IT services specially and there's one part that has to do with transport projects. And there are some contracts that have to do with digital transformation.

No doubt, in the pipeline what's most relevant is some integration contracts, especially because of the transports, and there's an important effort has been made, which does not only (inaudible). But it is possible to allocate it here and we are -- we have very good news in terms of, for instance, with an important financial institution.

We closed the contract for $6 million, which is being signed right now during the month of the first of fortnight of November with an important bank. It was not one of our banks, but a customer that we got now, and that's what's happening nowadays. There is a commercial activity in which we're very uncomfortable, but we're very uncomfortable with the pipeline that we're working.

A lot of pipelines right now in cities that before we were not that present in as, for example, Monterrey. So there are interesting things that are happening. Now the average margin of these contracts, of large contracts are above 20%. But likewise, there is a transition in Mexico, we have margins of lower than 4%, and we have higher than 15%.

But the mix of contracts that nowadays are on the pipeline to a gross margin of around 20%. Now nowadays, the reality that we have is that we're going to be closing contracts now. The deadlines of those contracts vary. Normally, contracts are being longer, and they vary between 3, 5 and even 7 years.

Then there is another query that we do -- the other question, which is, what is the pipeline of growth of business in the third quarter compared to last quarter of last year?

On a consolidated level, the growth is above 30%. The specific case of Chile, pretty much we're similar or flat. Brazil is flat compared to last year. But what's important from the case of Brazil, is to indicate again that sometimes the closing of businesses in a quarter are not a good indicator because effectively at a level of accumulated level, we're doing it in a very little [different way].

And in regards to third quarter of last year, it also grew in terms of closing of businesses. And in the case of Mexico, the growth was 16%, and in the case of OPLA there was a growth of 12% in terms of the closing of business in regards to the third quarter of last year.

One more question also that was in English. That how does the current situation of metro Santiago affect -- or effect?

Well, that does not affect it. Specifically, as with everything that we've gone through in Chile, we make -- we've made sure that the level of users of metro do not fall or drop or decrease. We've been working with people there. And really, customers have been extremely satisfied with the service. And they've overcome this emergency situation, which we've been going through. But there are no situations that may affect the contract that we have nowadays with AFT or with the Ministry of Transport.

And talks or he asks about fixed or variable revenues.

With the military, we have variable revenues, but it's very fixed revenues, which is given mainly because of the amount of buses in which we have our installed equipment. And in regards to the termination of revenues, but obviously, there are additional revenues that have to do with special services, but the question is specific situation that's happening nowadays is not affecting the revenues of the contract that we have in Chile with metro.

Okay, do we have any more questions?

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Operator [4]

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(Operator Instructions) There are no more questions. Therefore, we are finishing our meeting.

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Rafael Osorio Peña, Sonda S.A. - CFO [5]

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Great. So I'd like to thank you for participating in this conference call. I'd like to thank Christian and Affonso for your participation. And of course, we're available to answer any specific questions that you may have in regards to our results, and our team is available, and I'm also available to be able to assist you in anything you may need. Thank you, have a great afternoon, and we'll see each other next time.

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Operator [6]

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Thank you for your participation in this event. Now you can disconnect.

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Editor [7]

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Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.