Good morning, and welcome to Axtel's Third Quarter 2026 Earnings Webcast. My name is Nancy Llovera, Axtel's Investor Relations and Corporate Finance Manager.

And today, I'm joined by Armando de la Pena, CEO; and Adrian de los Santos, CFO. Financial information for both Axtel and Controladora Axtel, including the unaudited third quarter report is available on our corporate website.

We will begin today's session with an overview of our business performance, followed by a Q&A segment. For your convenience, this webcast is being recorded and will be available on our website.

Before we begin, please note that today's discussion may include forward-looking statements. These statements reflect management's current views and expectations and are subject to risks and uncertainties that could cause actual results to differ.

Axtel assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I will now hand the presentation over to Armando.

Thank you, Nancy. Welcome, everyone, to our conference call.

I hope everyone is doing well. Let me begin with an overview of our performance and key developments of the third quarter.

During the quarter, the Board of Directors of Axtel and Controladora Axtel received proposals to acquire 100% of the shares of each company through separate tender offers. While supporting the information requirements associated with both processes, we have remained focused on executing our business strategy and advancing our priorities of accelerating revenue growth, improving profitability and consistently generating operating cash flow.

As previously disclosed, transaction of this nature involve multiple work streams and remain subject to independent decision of each shareholder as well as the required regulatory approvals. The interest from investors reflects the strength of Axtel's business model, confidence on its long-term strategy and above all, the results achieved through the commitment and dedication of our employees over the past several years.

On the third quarter results, the results were positive, reflecting 8% growth in combined Enterprise and Government segment revenues, together, with an 8% reduction on the company's expenses, excluding reorganization costs. The improvement in expenses offset the impact on contribution margin, which declined due to a stronger growth in nonrecurring revenues compared to recurring revenues.

During the quarter, we continued working on the reengineering of key processes incorporating artificial intelligence as an enabler of efficiency, scalability and continuous improvement. Our efforts have been focused on processes with the greatest cost impact and the highest automation potential.

As part of this effort, we deployed our first AI power solutions within service assurance and customer support. These tools provide a unified view of relevant information for multiple platforms, reducing manual activities, accelerating diagnostics and improving response times.

The first phase contributing to an 8% headcount optimization and supported improvements in profitability. As a result, the company recognized a nonrecurring reorganization expense of MXN 144 million in September.

The acquisition of new contracts in Enterprise segment is currently 5% below the cumulative level reported through September of last year. This performance reflects caution in our customers' investment decisions, particularly in the first half of the year.

Recurring contract acquisitions have shown improvement in recent months, evidenced by a growth of 20% in the third quarter compared to the first quarter of the year. Nonrecurring contract acquisitions increased 53% over the same period, helping to offset the revenue gap.

The Government segment delivered a strong quarter with recurring and nonrecurring revenues increasing 25% and 84%, respectively. This performance was driven by a successful execution of projects and the continued expansion of opportunity across digital infrastructure, telecommunications and data center services.

Based on current activity levels and our commercial pipeline, we expect positive momentum to continue throughout the remainder of the year. Performance in the Wholesale segment was affected by lower revenues from dark fiber sales contracts.

On the positive side, recurring revenues from high-capacity transport services remained stable compared to the third quarter of last year and increased 5% sequentially, delivering the strongest quarter of the year. We continue to see a strong demand for wavelength services, helping offset the decline in network links purchased by international carrier customers.

Axtel participated in Mexico Connect 2026, promoting cross-border digital infrastructure. During this event in Mexico City, we held more than 60 meetings, exchanging perspectives on Axtel's ability to enable scalable and resilient connectivity between Mexico and the United States, supporting today's most demanding digital ecosystems.

During the quarter, we formalized a strategic alliance with Tec de Monterrey to establish an AI research laboratory within its innovation district. Through this initiative, we seek to create a collaborative ecosystem among academia, industry and technology organizations to accelerate innovation, to develop solution with tangible business impact and to contribute to the transformation of the specialized talent required by Mexican digital economy.

Axtel continue to strengthen its cybersecurity capabilities through collaboration with Fortinet. We integrated SOAR, Fortinet's Security Orchestration, Automation, and Response platform, enable faster detection, automated remediation and more efficient security operations.

Among more than 270 initiatives worldwide, Axtel was recognized at PegaWorld for the Alestra Order Management project, reaffirming our capabilities in automation and digital transformation. Performance in Enterprise and Government segments, together with continued demand for wavelength services in Axtel demonstrated ongoing improvements.

In addition, efficient operational management and disciplined capital allocation continue to support strong cash flow generation and balance sheet [indiscernible]. Management is focused on accelerating revenue growth, optimizing resource allocation and implementing more agile and efficient processes for the benefit of our customers and shareholders.

Now I will pass it to Adrian.

Thank you, Armando, Nancy, and good morning to all. In August, we executed a new $65 million 3-year term loan with Export Development Canada to refinance an existing facility.

This agreement has an option to extend for an additional year on the first anniversary and, if exercised, a second 1-year extension on the second anniversary. Concerning our ongoing hedging strategy, we have maintained over 60% of our U.S.

dollar-denominated CapEx and interest payments hedged throughout the third quarter of 2026. We executed new hedging contracts for the fourth quarter and will proactively monitor our market conditions to continue our rolling forward strategy for the remaining of the year and first quarter 2027.

Let me now move on to review our financial results for the third quarter. Third quarter revenues increased 3% year-over-year, primarily driven by growth in the Enterprise and Government segment.

Enterprise segment revenues increased 2% compared to the same period last year. IT and cybersecurity revenue grew 15% supported by continued cloud adoption among existing customers and nonrecurring cybersecurity projects in the financial and commercial sector.

These projects reflect the ongoing investments organizations are making to enhance business resilience against evolving threats and the modernization of their technology infrastructure. Telecom revenues decreased 1% year-over-year, mainly due to lower collaboration and connectivity solutions revenue, partially offset by growth in managed networks and mobile services.

Voice revenues declined 11% and represented approximately 6% of Enterprise segment revenue, reflecting continued migration towards digital communication platform and collaboration solutions. Government segment revenues increased 41% year-over-year supported by the implementation of new digital infrastructure and data center projects within the federal government.

Recurring revenue increased 25%, driven by strong demand for telecom connectivity services, while nonrecurring revenues increased 84%, reflecting higher system integration revenue. Year-to-date, the revenue mix was approximately 77% from federal entities and 23% from state and local government.

Wholesale infrastructure revenues declined 18% year-on-year, reflecting a challenging conversion against the third quarter of 2025, which reflected a benefit from a large upfront revenue, dark fiber contract recorded in that year. Excluding for this contract, wholesale access revenues remained stable compared to the prior year and delivered a stronger quarter of 2026.

Growth in high-capacity wavelengths services, particularly offset a gradual reduction in legacy direct active services provided to international carriers, serving their multinational customers in Mexico through Axtel. This trend reflects the continued evolution of network architectures and customer requirements toward higher capacity next-gen connectivity solutions.

Cost of revenues, excluding depreciation and amortization, increased 21% year-over-year, primarily driven by higher activity levels in the Government and Enterprise segments. As a result, gross profit decreased 4%, while gross margin was 67% compared to 72% in the prior year quarter.

Enterprise segment costs increased 13% year-over-year, resulting in lower contribution margins. This was mainly driven by a higher proportion of nonrecurring revenues compared to the prior year which typically carry lower margins than recurring revenue.

Government segment cost increased 42% year-over-year, in line with revenue growth. Gross profit increased 40%, maintaining stable margins compared to prior year.

Performance benefit from growth in both recurring and nonrecurring revenues, maintaining the same revenue mix. Wholesale segment costs increased 25% year-over-year despite lower revenues.

As a result, gross profit declined 28%, reflecting lower margin revenues from dark fiber contracts which carry a higher margin. Turning to expenses.

Total expenses declined 8% year-over-year. Commercial and operating expenses, which are allocated to the 3 business segments decreased 4% year-over-year, reflecting continued focus on operational efficiency.

Corporate expenses, which remain centralized, decreased 36%, reflecting efficiencies from the organizational restructuring initiatives implemented in the first and third quarters as well as a onetime benefit related to employee benefit provisions. During the quarter, we reported a MXN 144 million in reorganization expenses associated with the personal optimization initiative previously discussed.

Excluding this expense, comparable EBITDA reached MXN 917 million in the quarter, increasing 1% year-over-year and 6% sequentially. Year-over-year growth reflects a combination of lower contribution from the wholesale segment and higher nonrecurring revenues in the Enterprise segment largely offset by the 8% reduction in total expense.

As a result, comparable EBITDA margin stood at 29% in the quarter compared to 30% a year ago. CapEx for the third quarter totaled $20 million, equivalent to 11% of total revenues compared to $30 million or 18% of revenues in the same quarter of last year.

Cash balance at the end of the third quarter was $44 million compared to $38 million at the beginning of the quarter. Free cash flow was positive $23 million during this quarter, resulting from $53 million in EBITDA, $3 million of negative working capital, $20 million in CapEx and $8 million in interest expense.

Additionally, during the quarter, we recorded $8 million in debt amortization and $8 million in reorganization expenses. At the end of the quarter, net debt stood at $454 million, resulting in a net debt to comparable EBITDA ratio of 2.4x compared to 2.3x a year ago.

With that, we conclude our presentation and open the call for questions regarding Axtel and Controladora Axtel. Nancy, you could please go ahead and open the webcast for questions from participants.

We will now open the floor for questions. [Operator Instructions] Our first question comes from Emilio Fuentes with GBM.

Could you share your current revenue split between recurring revenue and nonrecurring revenue and if possible, at a business segment level?

Thanks for your question. Approximately 90-plus percent of revenues in the Enterprise segment are recurring.

That's a number that moves a little bit from quarter-to-quarter and has been on average, historically close to 93%, 94% on the Enterprise segment. In the Government segment, the recurring revenues are more volatile from year-to-year.

On average, they tend to be about 50-50 although this year and last year, nonrecurring revenues have come higher as contracts have less duration. Federal government has been entering into 1-year contracts rather than 3-year contracts.

And this year, year-to-date, recurring in the government improved from last year. We're now about 80%.

And in the wholesale segment except for dark fiber contracts, everything else, it's recurring revenues. And this year, the dark fiber contracts have been reduced vis-a-vis last year, for example.

So this year, it is above 80% compared to an average more or less in that range. So that's the average mix that we have for this segment.

Our next question comes from [ Isaac Gonzalez ] with GBM.

Could you provide us an update of the competing tender offers and the expected time line for the potential transaction?

This is Adrian. We don't have time line.

The processes are under the control of the investor -- potential investors not really under the control of the company. What I can say is that and as Armando mentioned, we have been helpful providing information that's necessary to move with the processes.

But really, we were focused on doing our business, continue focusing on our objectives, our strategy because we can control this. And at the end of the day, we would have to continue running the business.

Having said that, the processes continue progressing, but it's difficult for the company to give you a precise time line or estimate.

Our next question is regarding results. What drove the contraction in contribution margin this quarter?

Yes. Thanks for the question, Nancy.

The contribution margin was affected by mainly 2 elements as the first question from Emilio, the higher mix of nonrecurrent revenues carry lower margin vis-a-vis recurring revenues. Nonetheless, there's no CapEx behind the nonrecurring revenue.

So on a cash flow basis, there is not significant impact in the company. So after CapEx, I will say that is the 2 kind of revenues tend to generate similar cash flow for the company.

But that's -- on a contribution margin, that's the main effect that we see when we have higher nonrecurring revenue vis-a-vis recurring revenues. And the second is the dark fiber contracts.

Compared to last year, we have recorded approximately MXN 150 million year-to-date in lower dark fiber contracts. These revenues carry high margin.

There's significant CapEx behind it. So again, as I mentioned, the effect on the contribution margin, obviously has that implication.

We've been able to be more efficient and maintain expenses under control. So a significant portion of the lower contribution margin has been offset by lower expenses.

Thank you, Adrian. Another question is, what are your expectations for Axtel going forward?

And what are the key growth drivers?

In the Infrastructure business segment, the 2 main drivers are wavelengths. Wavelengths are high-capacity services provided to local or Mexican and international operators.

We have seen demand. We have a robust pipeline, and it continue it's growing.

This -- in the third quarter, wavelengths offset the decline in legacy access for multinational companies provided through international operators, that's a service that it's disconnecting over time, and the wavelengths are becoming to offset that. And the other driver is dark fiber contracts.

These tend to be long negotiations, 3, even up to a year in -- during -- in the negotiation process. We have a couple of relevant potential dark fiber contracts in the pipeline.

Hopefully, we are successful in closing all of these or part of these in the year. And also, there are some dark fiber opportunities for next year.

So we have a good funnel of opportunities in Axtel for both wavelengths and dark fiber contracts. As a matter of fact, the comparison to last year, it's difficult because last year, we were very successful with a project, with a large global company regarding the dark fiber contract, which is difficult to replicate every year, but we have good prospects for the segment.

Let me add on that one, Adrian. The prospects are mainly based on our connection with new fiber from Queretaro to McAllen.

As stated last year, we invest in more than 1,000 kilometers in order to connect Queretaro data centers with Texas. And the other is the alliance that we made with Trans American Fiber that will enable us with a submarine cable to connect with the East of the United States and Central and South America.

So some of these potential customers that Adrian was referring are based on our investment and alliances that we have made in the past months or years.

Thank you, Armando. Regarding guidance, how do you see the EBITDA figure for the fourth quarter or full year 2026?

Guidance, it's still achievable. As I said, if we are successful in these dark fiber contracts closing in the fourth quarter.

We could reach our guidance. However, these are -- this is a process that we don't control the timing.

We're pretty close in a couple of projects. But we depend on those to get to the guidance.

If we're not able to close either these projects, we perhaps might be slightly below or just there in terms of EBITDA. In terms of revenues, we think we will be pretty close, again, in the enterprise and government segment.

And on wholesale, it will depend, as I said, on the dark fiber contracts that are on the track.

And let me add on that one. When we estimated the guidance for this year, we were expecting a totally different ball game.

We are close to achieve our guidance in a new operative and strategic model that we foresaw in the past. As you can see, we have been very active in nonrecurring revenues that have lower margins.

So we have to take that in consideration. Also, we had to do some AI implementation to improve our service and to be more agile and more efficient.

So the guidance that we will achieve or close to achieve it's based on a different mix of the strategy that we expected or we foresee at the beginning of the year.

Thank you, Armando. Again, our next question is regarding this quarter's organizational charge.

What are the annual savings do you expect? And when will they materialize?

The savings in terms of more efficient expenses or reduced expenses, we expect payback of approximately 1 year. So that's the expected benefit in terms of contribution to EBITDA.

Let me add on that one. We have been measuring the efficiency or the profitability of our collaborators.

And since 2022, in the last 4 years, we have improved by 3x the revenues per employee. So all the decisions that we have to be made in order to supported by automation and are helping us to be a more agile and leaner organization.

Perfect. Thank you again, Armando.

Now in relation to the tender offer proposals, what is the deadline from Transtelco Holding to submit its formal financial offer?

The management really is not making decisions on these processes. It's up to the Board of Directors.

But at the end of the day, the Board of Directors' role is to look after the best interest of shareholders in general. And probably there is no deadline as such as long as the processes are moving, I will say that timing depends on one and another rather than a deadline.

This was not a result of our of an open competitive bidding process where we have set a deadline and so that's why there is no such thing as a deadline. However, as I said, how fast one moves, obviously, has to be the reference for the other process.

Thank you. And regarding the price, what is your point of view?

Does it reflect the company's real value?

Given the processes and the situation in that respect right now, I wouldn't say much about that. It's an obligation that once there's a tender offer in the market, the Board of Directors will have to comment on the merits of the offer about 10 days into the tender offer.

So we'll have to wait until then. And yes, that's something we can't comment at this moment.

Thank you, Adrian. Now going back to our business, could you clarify Axtel's role in the new AI and data center projects and the associated investment requirements?

Let me get that one. First, let me talk about AI.

We have 2 strategies. One is related to our internal operation and IT infrastructure, and we have been very proactive in order to have both an optimization of our core processes as Axtel, transformation of Axtel.

And the other one is related to foster individual or area-wise use of AI tools. So it's a hybrid -- hybrid strategy in order to get the most of having AI and employee participation and to improve specific areas or specific things that we have to improve.

And in the other part, the core process of the company, that's inside Axtel. And going to the market, we have seen a very big opportunity in helping medium size or medium big Mexican companies not international, that they need a lot of help because there's some implementation of foundation that has to be improved before trying to get into AI and its benefits.

So we see a big opportunity for us there. We have been very proactive in order to define marketplace of solutions in order to serve the market.

Related to data centers, let me tell you that the investment that we have made to connect Queretaro to the border is a very important one. We still have a lot of capacity on that route in order to serve the data centers.

Also, as you know, we have a long distance fiber all over Mexico and with the partnership that we have with Trans American Fiber as well. So if there's any opportunity as the one that we have from Queretaro to McAllen to connect other parts of Mexico with border or through sea cables.

We will look into it, and we'll make the financial evaluation. But we are seeing as a big opportunity, mostly for Axtel and for the IT services that we provide.

We are not thinking at this moment to build a big data center or anything like that. We have enough capacity to serve our customers in our own data center.

And also, we are helping our customers to go into the public cloud as well.

Just to complement on that. Axtel does not serve hyperscalers, LLMs, that kind of clients of significant capacity in data centers.

We use our cloud and data center capabilities to serve enterprise clients.

Thank you, Armando. Thank you, Adrian.

Another question is, could you give us an overview of the evolution of the pipeline of new contracts in the IT enterprise segment and the drivers to sustain such evolution?

Yes. The 2 segments are among the fastest growing in terms of revenues in Axtel, average 15%, 17% annually.

Also, the industry is growing similar, slightly below broadly. And the trend and pipeline of projects is related to cloud.

The cloud continues to grow both hybrid with the sort of solutions that we have with AWS and Azure as well as within our data centers. Everything that comes with cloud, with connectivity, there is a cybersecurity need behind it.

So cybersecurity. Also, it's growing.

The threats are moving probably at a faster pace than the capability to try to protect from them. So these are the 2 sort of services within -- and solutions within IT enterprise segment pipeline.

In terms of sectors, financial sector, definitely, it's the one that it's always investing and moving ahead of any other industry for obvious reasons. Retail, department stores, the business models that have large presence, large distribution are obviously also at the forefront of the IT requirements to become more efficient and also to protect their data that's widespread across all their premises.

So that's more or less the description of opportunities in IT enterprise segment.

Thank you. There are no further questions at this time.

Thank you all for your interest in Axtel for joining us today. If you require additional information, please feel free to reach out.

Have a great day.