Axtel Reports 2Q08 Earnings

2008-07-24 17:08:00

Axtel Reports 2Q08 Earnings

    SAN PEDRO GARZA GARCIA, Mexico, July 24 /EMWPresswire/ --

Axtel, S.A.B. de C.V. (BMV: AXTELCPO; OTC: AXTLY) ("AXTEL" or "the

Company"), a leading Mexican fixed-line integrated telecommunications

company, announced today its unaudited second quarter results ended June

30, 2008(1).



    Highlights:



    -- AXTEL's geographic expansion continued during the second quarter,

with operations commencing in Matamoros, Nuevo Laredo, Culiacan, Mazatlan,

Coatzacoalcos and Minatitlan, reaching thirty-three cities with integrated

voice, data and Internet services.



    -- During the second quarter, AXTEL became the first telecommunications

company in Mexico to provide data, Internet and voice services to business

and residential customers using WiMAX.(8)



    -- AXTEL successfully adapted its network and related systems to jump

start participation in local number portability, introduced in Mexico on

July 5, 2008. AXTEL has been able to bring in new customers, with their

existing numbers from other companies, thus ensuring the "carrier-class"

reliability of AXTEL's network.



    Revenues from operations



    Revenues from operations totaled Ps. 2,933.2 million in the second

quarter of year 2008 from Ps. 3,116.0 million for the same period in 2007,

a decrease of Ps. 182.8 million, or -6%.



    Revenues from operations totaled Ps. 11,849.7 million in the

twelve-month period ended June 30, 2008, compared to Ps. 9,880.5 million in

the same period in 2007, an increase of Ps. 1,969.2 million, or 20%.



    Sources of Revenues



    Local services. Local service revenues contributed with 46% of total

revenues during the second quarter, compared with 43% in the second quarter

of 2007, totaling Ps. 1,363.9 million for the three-month period ending on

June 30, 2008, representing a 3% increase compared to the same quarter in

2007. During the quarter, cellular revenues and monthly rents increased 9%

and 4%, respectively, compensating reduced measured service revenues

resulting from further penetration of commercial offers including free

local calling. For the twelve-month period ended June 30, 2008, revenues

from local services totaled Ps. 5,386.9 million, an annual increase of Ps.

516.5 million, or 11%, from Ps. 4,870.4 million recorded in the same period

in 2007. Monthly rents, measured service and value-added services revenues

represented 62% of local revenues during the twelve-month period ended June

30, 2008.



    Long distance services. Long distance service revenues totaled Ps.

341.7 million in the quarter ending June 30, 2008, compared to Ps. 419.4

million in the same quarter in 2007. During this period, long- distance

revenues per minute marginally declined from Ps. 0.82 to Ps. 0.81. For the

twelve-month period ended June 30, 2008, long distance revenues grew to Ps.

1,383.8 million from Ps. 1,162.4 million registered in the same period in

2007, an increase of Ps. 221.4 million or 19%.



    Data & Network. Revenues from data and network revenues amounted to Ps.

618.4 million for the three-month period ended June 30, 2008, compared to

Ps. 628.4 million in the same period in 2007, a decrease of Ps. 9.9

million. Dedicated Internet and VPNs represented 89% of data & network

revenues during the quarter. For the twelve-month period ended June 30,

2008, data and network services revenues totaled Ps. 2,503.2 million from

Ps. 1,577.3 million registered in the same period in 2007, an increase of

Ps. 925.9 million.



    International traffic. In the second quarter of 2008, International

traffic revenues totaled Ps. 228.7 million, declining Ps. 101.7 million or

31% versus same quarter of previous year. Reduced tariffs explain this

variation. For the twelve-month period ended June 30, 2008, international

traffic revenues totaled Ps. 1,054.1 million from Ps. 932.2 million

registered in the same period in 2007, an increase of Ps. 121.9 million or

13%.



    Other services. Revenue from other services represented 13% or Ps.

380.5 million of total revenues in the second quarter of 2008, compared to

Ps. 411.7 million registered in the same period in 2007. The decline is

mainly explained by less activation fees caused by lower additional lines

compared with the same quarter of 2007. For the twelve-month period ended

June 30, 2008, other services revenues totaled Ps. 1,521.7 million from Ps.

1,338.2 million registered in the same period in 2007, an increase of Ps.

183.5 million.



    Consumption



    Local Calls. Local calls totaled 626.6 million in the three-month

period ended June 30, 2008, an increase of 16.9 million, or 3%, from 609.7

million recorded in the same period in 2007. A higher number of lines in

service during this quarter explain this increase. For the twelve-month

period ended June 30, 2008, local calls increased to 2,476.5 million from

2,246.6 million registered in the same period in 2007, an increase of 229.8

million calls or 10%.



    Cellular ("Calling Party Pays"). Minutes of use of calls completed to a

cellular line amounted to 345.6 million in the three-month period ended

June 30, 2008, compared to 265.7 million in the same period in 2007, an 30%

improvement equivalent to 79.9 million minutes. For the twelve-month period

ended June 30, 2008, cellular minutes grew 291.3 million, or 31%, from

933.4 million registered in the twelve-month period ended June 30, 2007, to

1,224.7 million in the same period in 2008.



    Long distance. Outgoing long distance minutes amounted to 423.6 million

for the three-month period ended June 30, 2008 from 512.9 million in the

same period in 2007, a 89.3 million minutes reduction. The reduction in the

quarter continues reflecting our strategy of canceling high-volume

no-margin traffic. Domestic long distance minutes represented 95% of total

traffic during the quarter. For the twelve-month period ended June 30,

2008, outgoing long distance minutes amounted 1,689.2 million, compared to

1,483.1 million registered in the same period in 2007, an increase of 206.1

million of minutes, or 14%.



    Operating Data



    Lines in Service. As of June 30, 2008, lines in service totaled 972.0

thousand, an increase of 128.2 thousand from the same date in 2007. During

the second quarter of 2008, net additional lines totaled 6.6 thousand. As

of June 30, 2008, residential lines represented 67% of total lines in

service.



    Line equivalents (E0 equivalents). We offer from 64 kilobytes per

second ("kbps") up to 100 megabytes per second ("Mbps") dedicated data

links in all of our existing cities. We account for data links by

converting them to E0 equivalents in order to standardize our comparisons

versus the industry. As of June 30, 2008, line equivalents totaled 464.7

thousand, an increase of 39.8 thousand from the same date in 2007.



    Internet subscribers. As of June 30, 2008, Internet subscribers totaled

111.9 thousand, an increase of 5%, from 107.6 thousand recorded on the same

date in 2007. Broadband subscribers increased 33% totaling 86.6 thousand as

of June 30, 2008. We continue to upgrade customers from dial-up service to

broadband access solutions.



    Cost of Revenues and Operating Expenses



    Cost of Revenues. For the three-month period ended June 30, 2008, the

cost of revenues declined Ps. 164.3 million, compared with the same period

of year 2007, primarily due to Ps. 138.3 million and Ps. 32.6 million

decreases in long distance and links and co-locations costs, respectively.

For the twelve-month period ended June 30, 2008, the cost of revenues

reached Ps. 4,197.3 million, an increase of Ps. 685.2 million in comparison

with the same period in year 2007.



    Gross Profit. Gross profit is defined as revenues minus cost of

revenues. For the second quarter of 2008, the gross profit accounted for

Ps. 1,929.3 million, a marginal decrease of Ps. 18.4 million or -1%,

compared with the same period in year 2007. The gross profit margin

increased from 62.5% to 65.8% year-over-year is mostly due to improved long

distance and cellular margins. For the twelve-month period ended June 30,

2008, our gross profit totaled Ps. 7,652.4 million, compared to Ps. 6,368.4

million recorded in the same period of year 2007, a gain of Ps. 1,284.0

million or 20%.



    Operating expenses. For the second quarter of year 2008, operating

expenses totaled Ps. 928.7 million compared to Ps. 886.4 million for the

same period in year 2007. The 5% incremental expenses are mainly due to the

costs associated in the twelve new cities opened during the last

twelve-months. For the twelve-month period ended June 30, 2008, operating

expenses totaled Ps. 3,609.8 million, coming from Ps. 3,107.9 million in

the same period in 2007, an increase of Ps. 501.9 million. Personnel

represented 49% of total operating expenses during the twelve-month period

ended June 30, 2008 versus 46% in the year-earlier period.



    Adjusted EBITDA. The Adjusted EBITDA totaled Ps. 1,000.5 million for

the three-month period ended June 30, 2008, compared to Ps. 1,061.2 million

for the same period in 2007, a decrease of 6%. As a percentage of total

revenues, adjusted EBITDA represented 34.1% in the second quarter of 2008,

same margin as in the year-earlier quarter. For the twelve-month period

ended June 30, 2008, adjusted EBITDA amounted to Ps. 4,042.6 million,

compared to Ps. 3,260.5 million in the same period in year 2007, a positive

variation of Ps. 782.2 million, or 24%.



    Depreciation and Amortization(9). Depreciation and amortization totaled

Ps. 723.7 million in the three-month period ended June 30, 2008 compared to

Ps. 693.5 million for the same period in year 2007, an increase of Ps. 30.2

million or 4%. The larger depreciation and amortization charge is explained

by capital expenditures associated with the geographic expansion and

network deployments. Depreciation and amortization for the twelve-month

period ended June 30, 2008 reached Ps. 2,703.4 million, from Ps. 2,251.1

million in the same period in year 2007, an increase of Ps. 452.3 million,

or 20%.



    Operating Income (loss). Operating income totaled Ps. 276.9 million in

the three-month period ended June 30, 2008 compared to an operating income

of Ps. 367.7 million registered in the same period in year 2007, a decline

of Ps. 90.9 million or -25%. For the twelve-month period ended June 30,

2008 our operating income reached Ps. 1,339.2 million when compared to the

result registered in the same period of year 2007 of Ps. 1,009.4 million,

Ps. 329.9 million or 33% above.



    Comprehensive financial result. The comprehensive financial gain was

Ps. 49.1 million for the three-month period ended June 30, 2008, compared

to a loss of Ps. 129.3 million for the same period in 2007. A net interest

expense decrease of Ps. 19.2 million due to reduced indebtedness and a

foreign-exchange gain of Ps. 215.5 million compared to Ps. 113.3 million in

the year-earlier quarter due to the appreciation of the peso, explain the

majority of the CFR difference. For the twelve-month period ended June 30,

2008, the reduced loss is explained by larger foreign-exchange and monetary

positions gain offset by increased net interest expense.



    Debt. The Ps. 811.4 million reduction in total debt versus year-earlier

date is mostly explained by the prepayment of certain lease obligations and

a more favorable exchange rate on June 30, 2008 compared to the same date

in 2007.



    Capital Investments. The investments associated with the six new cities

launched in this quarter, the preparation for the additional cities to be

opened in the second half of the year and the deployment of WiMAX, we

invested Ps. 1,010.3 million in network and infrastructure during the

second quarter of 2008, compared to Ps. 710.1 million in the year-earlier

quarter. The majority of our capital investments are devoted to access or

last-mile assets.



    About AXTEL



    AXTEL is a Mexican telecommunications company that provides local and

long distance telephony, broadband Internet, data and built-to-suit

communications solutions in 33 cities and long distance connectivity to

business and residential customers in over 200 cities. AXTEL provides

telecommunications services using a suite of technologies including FWA,

WiMAX, copper, fiber optic, point to multipoint radios and traditional

point to point microwave access, among others.



    AXTELCPO trades on the Mexican Stock Exchange and is part of the IPC

Index. AXTEL's American Depositary Shares are eligible for trading in The

PORTAL Market, a subsidiary of the NASDAQ Stock Market, Inc.




Visit AXTEL's Investor Relations Center on http://www.axtel.com.mx Other important information 1) Figures in this release are presented based on Mexican financial reporting standards (FRS). According to Mexican FRS, the restatement of financial reports into constant pesos was suspended as of December 31, 2007, the last date in which inflationary accounting for the financial reports was applied. For comparative purposes, all financial reports of prior periods are presented in constant pesos as of December 31, 2007. Financial information of year 2008 is presented in current pesos. The consolidation of Avantel figures started in the month of December 2006. 2) Revenues are derived from: i) Local services. We generate revenue by enabling our customers to originate and receive an unlimited number of calls within a defined local service area. Customers are charged a flat monthly fee for basic service, a per call fee for local calls ("measured service"), a per minute usage fee for calls completed on a cellular line ("calling party pays," or CPP calls) and value added services. ii) Long distance services. We generate revenues by providing long distance services (domestic and international) for our customers' completed calls from AXTEL lines. iii) Data & network. We generate revenues by providing data, Internet access and network services, like virtual private networks and private lines. iv) International traffic. We generate revenues terminating international traffic from foreign carriers. v) Other services. Include among others, activation fees, customer premises equipment ("CPE") sales and revenues generated from integrated telecommunications services provided to corporate customers, financial institutions and government entities. 3) Cost of revenues include expenses related to the termination of our customers' cellular and long distance calls in other carriers' networks, as well as expenses related to billing, payment processing, operator services and our leasing of private circuit links. 4) Operating expenses include costs incurred in connection with general and administrative matters which incorporate compensation and benefits, the costs of leasing land related to our operations and costs associated with sales and marketing and the maintenance of our network. 5) Adjusted EBITDA is defined as net income plus interest, taxes, depreciation and amortization, and further adjusted for unusual or non-recurring items. For additional detail on the Adjusted EBITDA Reconciliation, go to AXTEL's web site at http://www.axtel.com.mx 6) Earnings per CPO are calculated dividing the net income by the average number of Series A and Series B shares outstanding during the period divided by seven. The number of outstanding Series A and Series B shares was 96,636,627 and 8,672,716,596, respectively, as of June 30, 2008. 7) Net Debt to Adjusted EBITDA: The quarterly figure comes from dividing the net debt at the end of the period by the annualized run-rate Adjusted EBITDA. 8) 802.16e WiMAX is a new IP-based voice and data wireless technology designed to deliver voice and data solutions, under fixed, portable, nomadic and mobile environments, to residential and business customers. 9) Depreciation and amortization includes depreciation of all communications network and equipment and amortization of pre-operating expenses and cost of spectrum licenses, among others. For the full version of the release, visit Axtel's web site at http://www.axtel.com.mx.

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