Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB) Q3 2023 Earnings Call Transcript
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB) Q3 2023 Earnings Call Transcript October 30, 2023
Operator: Greetings and welcome to the OMA Third Quarter Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Emmanuel Camacho, Investor Relations. Thank you. You may begin.
Emmanuel Camacho: Thank you, Doug. Hello, everyone, and welcome to OMA's Third Quarter 2023 Earnings Conference Call. Participating today are CEO, Ricardo Duenas, and CFO, Ruffo Perez Pliego. Please be reminded that certain statements made during the course of our discussion today may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our control. And with that, I'll turn the call over to Ricardo Duenas for his opening remarks.
A busy airport terminal, highlighting the company's strong transportation arm.
Ricardo Duenas: Thank you, Emmanuel. Good morning, everyone. We appreciate your presence on this call today. I will begin by discussing the impact that Hurricane Otis had in our Acapulco Airport and then we'll comment on recent developments in the regulatory landscape of our airport concessions. Afterwards, we will move on to our quarterly results. On the night of October 25, Hurricane Otis struck Acapulco City with Category 5 intensity. The hurricane caused some damage to the terminal building of the Acapulco airport. However, the airport remains operational and is currently focused on humanitarian operations. We are working closely with local and federal authorities to fully restore the regular operations of the airport, which we expect to be relatively soon.
In 2022, Acapulco contributed with 3.6% of our total passenger traffic and 3.4% of OMA's total aeronautical and non-aeronautical revenues. Regarding recent regulatory changes, on October 4th, 2023, the Civil Aviation Agency, an autonomous body under Ministry of Communication and Transportation notified us about immediate modification established in Annex 7 of the tariff regulation basis of our airport concessions. Over the two weeks that followed, we conducted a thorough review of this new guidelines and engaged in closed and constructive communication with the Ministry and the AFAC to clarify certain points. During these interactions, the Mexican government was open to dialogue leading to agreements finally reflected in the modified basis that we received on October 19th and subsequently made public to the market.
We don't expect significant impact on this. Another matter that I would like to mention concerns the concession tax. On October 25, the Senate approved the new 2025 federal duties law. This law includes provisions to increase the concession tax from 5% to 9% based on airport revenues effective January 24. It is worth mentioning that under new tariff regulation, the increase in the concession tax affecting the '24 and '25 period will be recognized in the next tariff negotiation of '26 to '30 period through the reference value. It is also essential to understand that the concession tax is part of the calculation variables for determining maximum tariff. This new basis did not change this relative to the original basis. After all these events, we anticipate that OMA will uphold its commitment to adaptability, resilience and the sustained and successful track record of its financial and operational results.
Turning to our main third quarter of this year results. OMA continued to deliver solid financial and operating results during the third quarter. Adjusted EBITDA grew 33% in the quarter to MXN2.5 billion and adjusted EBITDA margin reached 79.4% largely as a result of the increase in both aeronautical and non-aeronautical revenues on our successful cost control strategy. In the third quarter, OMA's passenger traffic reached a record number of 7.4 million, an increase of 19% versus the third quarter of last year. Outstanding results were guided by the performance in Monterrey, which accounted for 62% of OMA's total passenger growth as compared to the third quarter of last year. The main destinations at road traffic growth were Toluca, Queretaro, Cancun, Santa Lucia and Mexico City.
Most of them consider business routes. On aggregate, these five routes added 255,000 additional passengers in the quarter, an increase of 17% versus the third quarter of last year. Primarily as a result of the star passenger traffic performance, our aeronautical revenue grew by 31% in the quarter to MXN2.5 billion. On the commercial front, revenues increased 24% compared to third quarter of last year, driven by restaurants, parking, car rentals and VIP lounges. Occupancy rate for commercial space stood at 94.7% at the end of the quarter. Diversification revenues increased 8%. Our hotel services contributed most to this growth. In the second quarter of this year, occupancy rate of our Terminal 2 NH was 86.3%, while the Hilton Garden Inn Hotel had an occupancy rate of 73.3%.
On the capital expenditure front, total investment in the quarter, including MDP investments, major maintenance and strategic investments were MXN964 million. During the quarter, some of the most relevant projects we are working on are the expansion and remodeling of the Monterrey Airport Terminal, a building as well as Ciudad Juarez, Torreon, Culiacan and Durango terminal buildings. Reconfiguration of the Mazatlan terminal building. Major rehabilitation and reconfiguration of platforms and taxiways in several airports and construction of four industrial warehouses. I would now like to turn the call over to Ruffo Perez Pliego, who will discuss our financial highlights of the quarter.
Ruffo Perez Pliego: Thank you, Ricardo. Good morning, everyone. I will briefly review our financial results for the quarter, and then we will open the call for your questions. Turning to OMA's third quarter financial results. Aeronautical revenues increased 31% relative to the third quarter of '22, driven primarily by the 18.6% increase in passenger traffic and higher revenue per passenger. Non-aero revenues increased 17.6%. Commercial revenues increased 23.6%. The categories with the largest growth were restaurants, parking, car rentals and VIP lounges. Restaurants and car rentals rose 40% and 28% respectively, mainly due to higher revenue sharing and the impact of the opening of new spaces and improved contractual conditions on renewals.
Parking increased 16.4% as a, result of an increase in passengers and higher penetration rates in Ciudad Juarez, Chihuahua, Culiacan, Monterey and Reynosa Airports. VIP lounges increased 31.5% as a result of an increase in passenger traffic and the opening of the Reynosa lounge in August 2023 as well as the Tampico lounge in May 2023 and Ciudad Juarez in November 2022. Diversification activities increased 8.3%, a strong hotel revenue growth was partially offset by a decline in OMA Carga which was affected by a decline in revenues related to our ground import cargo. Total aeronautical and non-aeronautical revenues grew 27.9% to MXN3.2 billion in the quarter. Construction revenues amounted to MXN719 million in the third quarter, an increase of 10% as a result of higher MDP investment execution.
The cost of airport services and G&A expense increased 2.8% relative to the third quarter of last year, mainly due to an increase in minor maintenance, contracted service and basic services costs as a result of higher activity in our airports and inflationary effects. Major maintenance provision was MXN95 million compared to MXN51 million in 2Q'22. OMA's third quarter adjusted EBITDA was MXN2.5 billion and the adjusted EBITDA margin was 79.4%. Our financing expense was MXN272 million, mainly due to a higher interest expense as a result of additional debt issuance and the higher cost of debt. Consolidated net income was MXN1.3 billion in the quarter, an increase of 28% versus 3Q'22. Turning to our cash position. Cash generated from operating activities in the third quarter amounted to MXN1.3 billion and cash at the end of the quarter stood at MXN2 billion.
On September 20th, we made the payment for the second installment of the ordinary dividend amounting to MXN500 million. In accordance with the resolutions of our shareholder meetings in April. At the end of the quarter, total debt amounted to MXN10.7 billion and we ended the quarter with a healthy net debt to adjusted EBITDA ratio of 1.0 times. This concludes our prepared remarks. Now, please open the call for your questions.
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