Corporación América Airports S.A. (NYSE:CAAP) Q2 2022 Earnings Conference Call August 19, 2022 10:00 AM ET
Company Participants
Patricio Inaki Esnaola – Head, Investor Relations
Martin Eurnekian – Chief Executive Officer
Jorge Arruda – Chief Financial Officer
Conference Call Participants
Filipe Nielsen – Citi
Operator
Good morning and welcome to the Corporación América Airports’ Second Quarter 2022 Earnings Conference Call. A slide presentation accompanies today’s webcast and is available in the Investors section of the Corporación América Airports Investor Relations website. As a reminder, all participants will be in listen-only mode. There will be an opportunity to ask questions at the end of the presentation.
At this time, I would like to turn the call over to Patricio Inaki Esnaola, Head of Investor Relations. Please go ahead.
Patricio Inaki Esnaola
Thank you. Good morning, everyone and thank you for joining us today. Speaking during today’s call will be Martin Eurnekian, our Chief Executive Officer; and Jorge Arruda our, Chief Financial Officer.
Before we proceed, I would like to make the following Safe Harbor statement. Today’s call will contain forward-looking statements and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.
Now, let me turn the call over to our CEO, Martin Eurnekian.
Martin Eurnekian
Thank you, Inaki. Hello everyone and welcome to our second quarter 2022 earnings call. We reported another strong quarter as passenger traffic continues its recovery trend. Adjusted EBITDA increased to $111 million, driven by sustained improvements across our operations and up from $9 million in the same quarter last year.
Adjusted EBITDA margin ex-IFRIC has recovered to 36.2%, up from mid-single-digit margin in the second quarter of last year. Robust commercial revenues stand out this quarter meeting pre-pandemic levels by 20% and Jorge will discuss this in more detail shortly. We have also made significant strides in enhancing our leverage with our net debt-to-adjusted EBITDA ratio declining sharply on track to continue turning down.
Now, looking at traffic trends on slide four. Pent-up demand and lifting of travel restrictions continue to support the positive traffic recovery trend with a total of 15.1 million passengers traveling across our airports during the quarter and reaching 76% of second quarter 2019 levels. This momentum continued into July with traffic at nearly 80% of pre-pandemic levels.
Armenia, which only operates international travel, again, led the rebound with traffic surpassing second quarter of 2019 levels by 6% in the quarter, accelerating to plus 12% in July. Note that all COVID-related requirements were lifted last May.
Despite the increased activity, we continue to remain vigilant on the geopolitical situation in the region. Traffic in Italy was up by more than five times year-on-year to nearly 85% of second quarter of 2019 levels, benefiting from the start of the summer season and the full lifting of travel restrictions, which was in effect last June. This solid performance continued into July with traffic over 90% of pre-pandemic levels and we expect a strong summer season.
In Brazil, traffic stood at 76% of second quarter of 2019 levels, slightly below the 77% posted in the first quarter as rising fuel prices added pressure on aircraft. Traffic growth picked up in July to 85% of pre-COVID levels. Argentina and Uruguay increased to 76% and 65% of second quarter of 2019 levels, respectively during the second quarter. Traffic continued the recovery trend in July. In particular, Argentina is benefiting from the elimination of COVID test requirements to entry into the country, which was in effect in early April.
Ecuador posted steady growth in the quarter reaching 94% of pre-pandemic levels, while domestic flights were impacted by cancellations in June due to social unrest, routes through Europe and the US and Panama continued to post a solid performance with international traffic at 97% in the second quarter of 2019 level. Total traffic accelerated in July to 96% of pre-pandemic levels.
Moving on to the next slide. Cargo operations continue to recover, reaching close to 84% of second quarter of 2019 volumes. Noteworthy, this quarter are the performances of Italy and Uruguay, which posted cargo volumes exceeding pre-pandemic levels, while Argentina reached 86% of the second quarter of 2019 levels.
Now let me turn to Jorge who will review our financial results. Please Jorge go ahead.
Jorge Arruda
Thank you Martin, and good day, everyone. As shown on slide 6, we delivered a robust top line performance again this quarter with revenue ex-IFRIC12 reaching 98% of second quarter 2019 levels. Aeronautical revenues more than tripled year-on-year supported by traffic growth across all geographies reaching 81% of pre-pandemic figures. Armenia again delivered a strong performance with aeronautical revenues up 10% from second quarter 2019 levels. Commercial revenues were up 99% year-on-year surpassing second quarter 2019 by 20%. This was mainly driven by higher cargo and revenues in Argentina together with higher fueling services in Armenia. Cargo revenues in Argentina benefited from the tariff adjustments introduced in 2020 and more recently in April this year. These trends combined contributed to the increase in revenue per passenger to $20.2 this quarter, up from $15.6 in the second quarter of 2019.
Now turning to our cost structure on slide 7. Total operating costs and expenses ex-IFRIC12 increased 57% year-on-year, reflecting the strong recovery in our business activity. Note, however, that this increase was significantly below the 149% revenue growth. Also when compared to 2019, operating costs and expenses ex-IFRIC12 for the quarter declined by 2%. Efficiencies in most of the cost line items more than compensated the higher cost of fuel in Armenia due to the strong increase in fuel sales in the quarter and to a lesser extent higher salaries in Argentina as local inflation rate was above the currency depreciation. Excluding the cost of fuel in connection with fuel sales in Armenia, which are passed through to our clients, operating costs were down 9% against pre-pandemic levels.
Now moving down to the P&L on Slide 8. We delivered adjusted EBITDA of $111 million, up from $9 million recorded in the same quarter last year and only 7% below pre-pandemic levels. As we mentioned in previous quarters, adjusted EBITDA continues to recover at a faster pace than passenger traffic on the back of strong commercial revenue growth and healthy cost structure. We achieved positive adjusted EBITDA in all our territories with margin expansion year-on-year. When compared to second quarter 2019 levels, adjusted EBITDA margin ex-IFRIC12 was only 1.5 percentage points below. This was mainly explained by the change in revenue mix due to the significant growth of our fueling business which has a lower margin.
Turning to Slide 9. We ended the quarter with a total liquidity position of $448 million, compared to $646 million at the end of March 2022. During this quarter, we redeemed a portion of the preferred shares equivalent to $100 million, which are deducted from our CapEx obligations under the AA2000 concession agreement.
Moving on to our debt and maturity profile on Slide 10. Total debt at the end of the quarter was $1.5 billion, while our net debt stood at $1.2 billion. The net debt to last 12 months adjusted EBITDA ratio continued to trend down, showing a decline to 3.5 times from 5.1 times at the close of the prior quarter and approach historical levels.
This is the result of the adjusted EBITDA recovery and our successful liability management initiatives, which allowed us to maintain stable net debt levels. These initiatives allow us to significantly improve our debt profile with no major debt maturities until late 2024.
I will now hand back the call to Martin, who will present our closing remarks on Slide 12.
Martin Eurnekian
Thank you, Jorge. Please turn to Slide 12. Looking ahead, we expect pent-up demand and the elimination of restrictions to continue supporting the recovery in passenger traffic trends across our airports during the year. In the near-term, we expect to continue benefiting from high summer holiday travel in Europe, while remaining vigilant on the overall macro and geopolitical situation and its potential impacts.
We remain focused in advancing on two key value creation initiatives. First, the economic re equilibriums processes in Brazil and Armenia; and secondly, in the selection of value creation investment opportunities. All in all, we are well positioned to continue to experience passenger growth and positive trends in commercial revenues, while we continue to have a strict cost control standing.
We remain fully committed on providing our passengers with a superior and thorough experience across our 53 airports, while further integrating sustainability into our operations and infrastructure. We look forward to updating you on our sustainability initiatives in our upcoming sustainability report to be published over the coming weeks.
With this, I would like to thank you for your attention. We are now ready to answer your questions. Operator, please open the lines for questions.
Question-and-Answer Session
Operator
Of course. [Operator Instructions] The first question today comes from Filipe Nielsen from Citi. Filipe, please go ahead.
Filipe Nielsen
Hi, everyone. Good morning or afternoon. Thanks for taking my question. So I have two questions on my side. First, I would like to ask if you have any additional colors on the big asset sale that went into the cash flow statement this quarter. If you can give any details on that?
And the second one is regarding your interest in new airport projects. So there are — we hear that there are Barbados opportunity — opportunities in Barbados, some opportunities with — to buy investment funds. We also had some biddings — new airport biddings in Brazil yesterday and we noticed that you guys weren’t there. So, I’d like to see if you have any additional callers regarding new projects going forward. Thank you.
Martin Eurnekian
Hello and thank you for your call — for your questions. Martin here. Regarding your second question about new projects, as we always say, we keep very active in the market and we keep looking for opportunities to bring in accretive projects to our portfolio.
So you probably see us in Barbados in a different basis, many of these bids have significant delays through — because of the pandemic. But we have a very active team looking at different opportunities in different geographies now. So, yes, we will have interest in the — and also always looking for potential partnerships for the success of those projects.
So that is the mood of the company and where we are now. Although, our focus is on improving the operations that we currently have in the recovery of the pandemic and all of what accounts for operations that were almost stopped and now recovering really fast. I’ll pass it on to Jorge for your first question.
Jorge Arruda
Hi. This is Jorge. Thanks for your question. I’m not 100% sure I understood your question, because, I mean, we haven’t actually sold assets that we have. But maybe your question is related to the utilization of cash.
And the main one-off items that occurred in the quarter were the redemption of the preferred shares in Argentina, which we redeemed a significant amount. There is still a pending amount, but we reduced approximately $100 million in preferred shares in Argentina so far. And secondly, we paid and prepaid a syndicated loan facility in Armenia.
Filipe Nielsen
Great. That was great color. Thank you guys.
Operator
Nothing further in the queue at present. [Operator Instructions] As we have no further questions, I’ll hand back to you, Martin Eurnekian, for any closing remarks.
Martin Eurnekian
I just wanted to thank everybody for joining us today. Remember that our team remains available for any questions that you might have in the future and please enjoy the rest of your day. Bye-bye.
Operator
This concludes today’s call. Thank you very much for your attendance. You may now disconnect your lines.
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