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Operator: Greetings, and welcome to Grupo Aeroportuario del Centro Norte OMA First Quarter 2024 Earnings 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] I will now turn the conference over to your host, Emmanuel Camacho of Investor Relations. You may begin.

Emmanuel Camacho: Thank you, Shimali. Hello, everyone. Welcome to OMAS First Quarter 2024 Earnings Conference Call. We’re delighted to have you join us today as we discuss our company’s performance and financial results for the past quarter. Participating today are CEO Ricardo Duenas and CFO Ruffo 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, not 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 for his opening remarks.

Ricardo Duenas: Thank you Emmanuel. Good morning everyone. We appreciate your presence in this call today. This morning, Ruffo and I will review our quarterly operational financial results and then we will be pleased to answer your questions. In the first quarter, OMA’s passenger traffic reached 5.9 million, a decrease of 1.5% versus the first quarter of last year. Excluding the Acapulco airport, where hotel infrastructure continues to be affected by the impact of Hurricane Otis that hit in October 2023, terminal passenger traffic in our other twelve airports increased by an aggregate of 0.9% during the quarter. Excluding Acapulco, OMA experienced a decline in domestic traffic of 1.2% in the quarter, driven by lower domestic seat capacity which declined by 9.1%.

The main airports affected were Culiacán and Ciudad Juárez airports, notably on routes such as Culiacán to Tijuana and Ciudad Juárez to Mexico City. International passenger traffic recorded a strong performance, with a 10% increase compared to the first quarter of last year, driven by airlines expanding capacity and international routes. During the quarter, international seat capacity grew by 7.1%. This international growth was primarily led by the Monterey Airport, which saw a 14% rise in international passenger traffic. The routes with the highest increase from Monterey were to Atlanta, Toronto, Las Vegas, Bogotá, and Dallas. These routes, along with San Luis Potosito, Houston, and Zihuatanejo and Zacatecas to Dallas, routes contributed to approximately 80% of the international passenger traffic increase during the quarter.

Furthermore, in the first quarter, we launched four new international routes, three of which were based at the Monterey Airport. In terms of airline participation, VivaAerobus represented 48% of our total traffic during the quarter. With a notable 16% increase in terminal passenger numbers compared to the first quarter of 2023, while Volaris, which accounted for 20% of our total traffic, experienced a 24% decrease during the quarter, largely due to the Pratt & Whitney engine recall affecting their fleet. Moving on to OMA’s first quarter financial highlights. Aeronautical revenues increased by 5.3%. And aeronautical revenue per passenger rose 7% in the quarter. Commercial revenues increased 12% as compared to the first quarter of last year, driven by car rentals, restaurants, and parking.

The car rental and restaurant line item benefited from the opening and consolidation of new businesses’ units across our airports during the past quarters. Occupancy rates for commercial space stood at 95.3% at the end of the quarter. On the diversification front, revenues increased 21%. Hotel services contributed most to this growth, mainly as a result of an increasing operation in both hotels. In the first quarter, occupancy rate at our terminal 2NH was 89%, while the Hilton Garden Inn Hotel had an occupancy rate of 77%. OMA cargo increased 2%, mainly as a result of an increasing revenue related to import cargo services. OMA’s first quarter adjusted EBITDA increased by 3%, to Ps.2 billion, and the adjusted EBITDA margin was 74.6%. For comparative purposes with the first quarter of last year, we exclude the surplus of the concession tax over aeronautical revenues, resulting from the rate increase from 5% to 9% for this concept pursuant to the Mexican Federal Duties Law, which amounted to Ps.86.3 million and was recorded as a concession tax expense in the quarter, along with its impact on OMA’s financial results.

Our adjusted EBITDA would have been Ps.2.127 million with a margin of 77.7%. On the capital expenditures front, total investments in the quarter, including MDP investment, major maintenance and strategic investments were Ps.1.1 billion. During the quarter, some of the most relevant projects we are working on are the expansion and remodeling of the Monterey airport terminal A building, as well as the Juarez Torreón, Culiacán, and Durango Terminal Buildings. Reconfiguration of the master plan Terminal building, major rehabilitation and reconfiguration of platform and taxiways in several airports and construction of four industrial warehouses. Lastly, I want to mention that tomorrow we will hold our 2024 annual shareholders meeting. Shareholders will vote on several matters including the declaration and payment of a Ps. 4.25 billion cash dividend.

We extend our sincere gratitude to our shareholders for their invaluable participation and unwavering commitment to our company. I would now like to turn the call over to Ruffo Peresplego who will discuss our financial highlights for 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. Aeronautical revenues increased 5.3% relative to the first quarter of 2023, even primarily by higher aeronautical yields as well as the increase in international passenger traffic. Non aero revenues increased 13.3%. Commercial revenues increased 11.6%. The categories with the highest growth were car rental, restaurants and parking. Car rentals rose 25.4%, mainly due to an increase in revenue as a result of the consolidation of initiatives implemented in past quarters. Restaurants increased 18.6% due to an increase in fixed rent, as well as the consolidation of initiatives also implemented in previous quarters.

Parking increased 8.3% driven by an increase in average tariffs in our airports as well as higher penetration in the Ciudad Juarez, Chihuahua and Monterrey airports. Diversification activities increased 20.6%, mainly due to higher revenues from hotel services as occupancy levels increased in both hotels. Total aeronautical and non-aeronautical revenues were 7.2% to Ps.2.7 billion in the quarter. Construction revenues amounted to Ps.1.01 million in 1Q 24 as an increase of 53% as a result of higher MVP investment execution. The cost of services and G&A expense had a 6.4 growth versus the first quarter of 2023, primarily driven by 6.5% increase in payroll and a 16.5 growth in contracted services as a result of overall inflationary increases and the effect of minimum wage increases.

Additionally, our cost of hotel services grew by 20.7% due to the increase in operations in both hotels. Concession tax increased 87% to Ps.223 million as a result of a change in the rate from 5% to 9% applied on revenues generated by airport concessions. Under the tariff regulation basis effective October 2023, payments made to the government related to aeronautical revenues in excess of those included in the most recent tariff revision will be added to the reference value to be used in the next maximum tariff revision. Therefore, starting in January 2026, these excess concession tax payments will begin to be recovered through the maximum tariffs. In the first quarter of 2024, the 4% surplus on the concession tax on the aeronautical revenues amounted to Ps.86.3 million, equivalent to Ps. 3.1 of the sum of our aeronautical and non-aeronautical revenues.

This surplus is included in the Ps.223 million recorded as concession tax expense for the quarter. Excluding this amount, our adjusted EBITDA would have been Ps.2.12 billion with a margin of 77.7%. We continue to analyze alternative accounting treatments of the recovery amount of the excess concession tax. However, until a final decision is made, we decided to record it as an expense. Major maintenance provision was Ps.71 million compared to Ps.77 million in the first quarter of 2023. Our EBITDA was Ps.2.0 billion and the adjusted EBITDA margin was 74.6%. Our financing expense was Ps.276 million, mainly due to a higher interest expense as a result of an increase in financing costs and the variation in the present value of the major maintenance provision.

Consolidated net income was Ps.1.1 billion in the quarter, which was flat relative to last year. Turning to our cash position, cash generated from operating activities in the first quarter amounted to Ps.1.5 billion on cash at the end of the quarter stood at Ps.3.4 billion. At the end of the quarter, total debt amounted to Ps.10.7 billion and we ended the quarter with a healthy net debt to adjusted EBITDA ratio of 0.8 times. This concludes our prepared remarks. Shamali, please open the call for your questions.

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Guilherme Mendes with JPMorgan. Please proceed with your question.

Guilherme Mendes: Thank you. Thanks for taking my question. Hi, Ricardo, Ruffo, Emmanuel. My question. My first question is regarding the traffic outlook. Ricardo, you call on the last conference call, you mentioned about an expectations of having a flattish traffic performance in 2024 when compared to last year. Is this still the case? I mean, how should you think about traffic performance going forward, given the latest assessment on the aircraft groundings? And the second question also related to this, it’s on Acapulco specifically. We continue to see how it performed naturally, but how should we think about the pace of recovery going forward? Thank you.

Ricardo Duenas: Thank you. Thank you. Guilherme. We’re monitoring very closely traffic. It’s really depending on how the Pratt & Whitney engine issue evolves. We’re looking right now for the year, in terms of traffic, somewhere in the mid-to-low negative single digit. As for Acapulco, we’re currently seeing. We’re operating around 50% of the capacity that we were handling pre-Otis. We’re also monitoring theirs very closely, and it will depend on the recovery of the city.

Guilherme Mendes: Got it. Thank you very much.

Operator: Thank you. Our next question comes from the line of Alejandro Flores [ph] with Utah. Please proceed with your question.

Unidentified Analyst: Thank you. Hello, Ricardo, Ruffo, Emmanuel and team. Thank you for call and congrats on the results. I have two quick ones from my side. First, looking at the release, I was curious to see that the national tour was up 5% year-on-year. I was wondering how we can relate this in context of last year’s tour, which for the last few months of the year was 10% down. Right. Even if we put inflation, how do we get to the plus 5% on the national tour? That’s the first question. And then the second one, on the non-aeronautical revenue per passenger was up 15% year-over-year. I believe you had very good results. Congratulations on that. Maybe I was wondering if you can share with us a little more color on these different strategies that we’ve been implementing the last few quarters, and maybe if VINCI is also adding to this strong performance, anything that you could comment.

And we should expect to continue to see strong performance on the non-aeronautical side going forward? Thank you.

Ricardo Duenas: Hi, Alejandro. With respect to the aeronautical yield, it has to do with the basis of comparison. As you point out, in the end of last year, we started to have a 10% reduction in tours, in certain airports. We did some inflationary increases in January of this year, and we also plan to do them in January of next year. But last year our tariff base was adjusted until the end of March. So that’s why you see the benefit of the basis of comparison, primarily. And with respect to commercial initiatives, yes, we have been working very closely with VINCI since they become the major shareholder of the company. Part of the strategy is to develop extra aeronautical revenues. We have been aggressive in renegotiating packages of spaces in the food and beverage and retail segments, and also as new outlets become available given the expansions that we are finishing, probably in the Monterey airport, we expect the strong performance to continue in the next following quarters.

Unidentified Analyst: Thank you very much.

Operator: Thank you. Our next question comes from the line of Alan Macias with Bank of America. Please proceed with your question.

Alan Macias: Hi, thank you for the call. Just one question on the technical assistance. I guess expense is that what we saw in the first quarter, should we continue to expect going forward those levels? Thank you.

Ricardo Duenas: Hi, Alan. Yes. Technical assistance fee has not been modified. Currently it stands at 3% of the EBITDA generated by the airport concessions. So there is no modification in that respect going forward, it will depend on the level of EBITDA generated by the airport concessions, and whether it goes up or down, it depends on the airport’s performances.

Alan Macias: Great. Thank you.

Operator: Thank you. Our next question comes from the line of Rodolfo Ramos with Bradesco BBI. Please proceed with your question.

Rodolfo Ramos: Thank you. Congratulations on the results, OMA team. I have a couple on the traffic side thinking a little bit more long term, medium term. How do you see this slot reduction or like these bottlenecks that we’ve seen in Mexico City impacting your system, given that, how important the Mexico City metropolitan area is for the Monterey airport? So that would be my first question. And then second, I don’t know if you’ve heard any additional news around the Aedene [ph] airport in Monterrey. I think the transfer of operations to the military should have happened, or is about to happen any day now. Obviously, the military is not a good place, struggling with Mexicana and Felipe Ángeles, but how likely do you think it is for them to start commercial operations, and how could that impact? Thank you.

Ricardo Duenas: Thank you. Thank you. Rodolfo. In terms of a slot reduction in Mexico City, what we’re expecting is traffic. What the government is expecting is traffic from the Mexico City airport to shift into either Santa Lucia, probably to Luca. Mostly Santa Lucia. So what we’re expecting medium term, long-term, is that traffic will start either shifting to the other alternative airports like Santa Lucia, not 100%, but the rest will find a way around the network of airports. So that’s what we believe, that we are part of that solution. And traffic will start at some point, that excess traffic, that it’s not moving to other airports to bypass the airport of Mexico City. So we’re not expecting a medium term impact traffic. It’s challenging this year because of the Pratt & Whitney issue, but other than that, aside from that near shoring is still there, fundamentals are still there. So we’re bullish on traffic going forward.

Rodolfo Ramos: So, like network, just network development, do you think it’s going to be more key, like providing point to point Monterrey to other smaller cities? Did I get that correct?

Ricardo Duenas: Yes, yes, I think that’s fair to say.

Rodolfo Ramos: Okay.

Ricardo Duenas: And in terms of the airport in the north, at this point, there’s no we haven’t had. There’s no official announcement besides what we heard in December. We don’t know. There’s a lot of investment that the military would have to do. Monterey airport doesn’t have a capacity constraint, so the technical need, it would have to be analyzed. But at this point, we don’t see that that project right now. It’s in action.

Rodolfo Ramos: Thank you.

Operator: Thank you. Our next question comes from the line of Fernanda Recchia with BTG Pactual. Please proceed with your question.

Fernanda Recchia: Hello. Thank you for taking my question. Two from our side. The first, I wanted to get updates on the MVP negotiation. I know we are a bit far from the timeline for it, but considering all the moving parts that we saw at the beginning of this year, with the two others come increasing concession fee. Just wanted to get your latest view on the tariff that you should get on the next MDP. If you’re expecting a flattish tariff, as you were previously expecting, or if you’re now looking for a small tariff increase. And second, on margins. Margins were pretty decent considering all these moving parts, as you are expecting now at lighting lower traffic, do you still expect to keep these margins over 75% going forward? How should we look at it? Thank you.

Ricardo Duenas: Yes, Fernanda, thank you for your question. You’re right. We’re still in an early stage of the MDP, as we will have to submit that until June of next year. Right now, we’re working on the projection, the traffic projections on the CapEx needs that we’ll be looking forward. We’re working very closely with VINCI development. This next MDP we’re using all their expertise, their experience that they have. They are very good and very efficient at optimizing CapEx, which is what we are currently working on. So it’s still early to say and have some guidance into where we think we would land on tariffs. And in terms of margins, I think something between 72%, 74% it’s fair to assume.

Fernanda Recchia: Perfect. Thank you.

Ricardo Duenas: Considering that the concession tax will be considered an expense.

Operator: Thank you. Our next question comes from the line of Pablo Ricalde with Santander, Mexico. Please proceed with your question.

Pablo Ricalde: Hi, Ricardo. Thanks for that question. Maybe a follow up on the concession fee. You didn’t recognize it as an intangible asset because you are, like, thinking on that. Or there’s something because the accountant didn’t approve that.

Ricardo Duenas: Sorry, Pablo, can you repeat the last part of your question? I couldn’t probably hear it.

Pablo Ricalde: Yes. Sorry about that. Maybe it’s regarding the concession fee register as an expense instead of an intangible asset. So I’m just trying to understand the rationale behind that, if it was a matter of, like, an internal decision or it was a matter of the accountants.

Ricardo Duenas: So we’re still assessing alternative accounting treatments for this line item. We haven’t reached a final decision. We’re still in conversations with our auditors in this respect and would expect to have a resolution in the upcoming quarters. The way we reported was the more conservative approach. And obviously, this does not have any impact in the recoverability of the excess amount paid pursuant to the tariff basis. But that’s still a discussion both internally and with our auditors.

Pablo Ricalde: Okay, perfect. That makes sense.

Operator: Thank you. Our next question comes from the line of Jay Singh with Citi. Please proceed with your questions.

Jay Singh: Hey, it’s Jay dialing in from Steven Trent’s team. Thanks for taking my question. Just two on my end. The first thing I want to ask is, is it too early to say whether the next administration will begin discussions to extend session contracts beyond 2048 rather than approving large tariffs increases every five years?

Ricardo Duenas: Hi, Jay. We haven’t had that conversation, and it seems that it’s too early to have that type of conversation considering the years remaining on the concession.

Jay Singh: Okay, and my next question is any general high level view over what investors could expect regarding tariffs and CapEx for the next regulatory review.

Ricardo Duenas: As we mentioned, it’s still too early in the process. We are submitting the next MDP until June. So we’re currently working in traffic and CapEx projections. We’re working with VINCI, our partners, to develop a very efficient and optimized CapEx leverage their international expertise.

Jay Singh: Sounds good. Thanks for the color.

Operator: Thank you. Our next question comes from the line of Gabriel Himelfarb with Scotiabank. Please proceed with your question.

Gabriel Himelfarb: Hi, good morning. Thanks for the call. Just a quick follow up question about the concession fee. It’s my understanding that the decreasing the concession fee will be somehow offset in the new master development plan in 2026. But in the meantime, is there any offsetting mechanism to offset the impact on profitability, the increase of the concession fee, or is just pure cost control? Thank you.

Ricardo Duenas: So, irrespective of the accounting treatment, the cash flow benefit will come until the next tariff negotiation, certainly not only because of this accounting treatment that we did, but also to compensate for some of the passenger laws that we’re experiencing. We continue to be very aggressive on our cost containment measures. We’re always looking to optimize our expense base, and that is part of the philosophy of running our company.

Gabriel Himelfarb: Okay. So in the meantime, there’s no kind of regulatory offset or even increasing a bit faster the maximum rate to, to 100% or something, just pure cost control.

Ricardo Duenas: Well, last year we ended up at 97.5% of maximum tariff recovery. This year, we are expecting to be above that. So in that sense, those are mitigant measures to compensate for the additional outflow of concession tax that we are experiencing.

Gabriel Himelfarb: Okay, thank you. Congrats on the results. Thank you.

Ricardo Duenas: Thank you, Gabriel.

Operator: Thank you. And we have reached the end of the question-and-answer session. I’ll now turn the call back over to Ricardo Duenas for a closing remark.

Ricardo Duenas: We would like to thank everyone for participating in today’s call. We appreciate your insightful questions, engagement and continued support. Ruffo, Emmanuel and I are always available should you have any further questions or require additional information. Thank you once again, and have a great day.

Operator: This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.