Maxcom Telecomunicaciones de CV : 3Q17 Earnings Report

MAXCOM TELECOMUNICACIONES, S.A.B. DE C.V.

1

NOTE: The monetary amounts in this report have been presented in accordance with International Financial Reporting Standards (IFRS). Unless otherwise specified, the amounts are expressed in millions of current Mexican Pesos.

Figures in millions of pesos, except operating data

1 Includes long- term restric ted cash.

2 Debt is considered at face value and includes interest payable as of the end of the period

3 Revenue generating units

During 3Q17 the Maxcom´s performance shows a greater strength, even though the quarterly income suffered a reduction of Ps.200 million by the wind down process in the residential business and the decision to reduce participation in the international traffic business, the Company generated an EBITDA of Ps.74 million during the quarter, 3% higher than the figure reached on the previous quarter. Maxcom recorded 17% EBITDA Margin in the quarter, 6 percentage points above against the generated in last quarter, which reflects the impact of the strategies and operational efficiencies implemented.

Unlike the previous quarter, during this quarter the exchange rate volatility has been an important effect over the Maxcom's net income, because the positive trend of the results seen during the first half of the year has partially reversed. In the same way, the exchange rate volatility has generated an increase in Net Debt/EBITDA ratio, carrying it from 4.8 times to 5.3 times.

On the other hand, the negative variation in both customers and RGUs is direct consequence of orderly divestiture that is being made in the residential business, mainly.

Regarding with the Ordinary General Shareholders' Meeting held on August 21, 2017, it was agreed the capital increase, in variable part, for the amount of Ps.154 million, through the issuance of 25,700,000 shares and was concluded at the end of the 3Q17 with a subscription and paid of 12,758,195 at a price of Ps.6.00 per share, receiving Maxcom the amount of Ps.98 million at these period. However, at the beginning of October the remaining Ps.56.2 million was successfully paid.

With the objective of increase the profitability and maximize the operational cash flow, Maxcom continues with the satisfactory execution of the wind down process in the residential business, which began in September 2016 with the partial sale of its customer portfolio and which is expected to be concluded at the end of 2018. The company also continues to consolidate its growth efforts in the commercial segment, particularly in large and medium size business, call centers, government and carriers. As part of this effort, Maxcom has redefined its market strategy to focus its acquisition efforts on customers with an average revenue greater than Ps.40 thousand per month.

The result of these efforts is translate into a generalized reduction of RGUs, accompanied by a significant improvement in the operating margins of the company:

• Total Revenue Generating Units or RGUs decreased 17% to 316,216 in 3Q17 compared to the same period of the previous year. The Company registered negative RGUs net additions of 64,616 during the period. The Company's customer base decreased 24% to reach 90,775 customers.

• When comparing with the same period of the previous year, voice RGUs had a decrease of 12%, reaching 217,213.

  Voice RGUs include residential voice, business voice, and wholesale lines.

• The data RGUs of residential business unit decreased 25% to reach 72,177 compared to 96,645 in 3Q16, while in the commercial segment they decreased 7% to 3,202.

• The total base of mobile RGUs reached 889 units that is 72% lower than the recorded number 3Q16.

• The number of Pay TV RGUs reached 22,453 units, a decrease of 27% over the figure recorded in 3Q16.

• The proportion of RGUs per commercial customer increased from 57.7 in 3Q16 to 81.6 at the close of 3Q17.

3Q17 Item 3Q16 3Q17 Item 3Q16

89,198 Residential Customers 116,557 128,742 Commercial RGUs 129,405

The efforts to consolidate revenue growth in the commercial segment have created a substantial increase in their share of the total revenue mix, passing from 24% in 3Q16 to 42% in 3Q17. Revenues totaled Ps.181 million, an increase of 5% compared to Ps.173 million recorded during 3Q16. For the nine months ended September 30, 2017, revenues from the commercial business were Ps.524 million, representing an increase of 5% compared to Ps.501 million recorded in the same period of 2016. There is a positive trend in the performance of this business unit, resulting from the start of services with new customers and to provide new services to existing customers. On a sequential basis, revenues grew Ps.8 million.

84.0

RGUs / CUSTOMER

70.0

56.0

42.0

28.0

14.0

Commercia l Segment

448439

57.769.1

467

81.6

480

400

ARPU

320

240

160

80

- -

3Q16 2Q17 3Q17

ARPU RGUs / CUSTOMER

Commercial business ARPU during 3Q17 was Ps. 467, 4% above of the Ps.448 recorded in 3Q16 and 6% higher compared to the figure recorded in 2Q17. The rate of RGUs per commercial customer increased 41 to 81.6 UGI per customer, against the 57.7 reached in 3Q16

As already mentioned Maxcom, as of June 2017 the volume of the wholesale business was reduced in order to maximize the cash flow. As a result of this decision, in 3Q17, wholesale revenues were Ps.148 million, a decrease of 60% compared to the same period in 2016.

For the nine months ended September 30, 2017, revenues from the wholesale business was Ps. 976 million, a 22% increase compared to the Ps.799 million recorded in the same period of the previous year. The growth in this business unit was due to the increase in international traffic carried through our network. Sequentially, income decreased 60% due to lower operating volumes. The average monthly revenue from this business unit so far this year was Ps.108 million, while the monthly average of the last three months was Ps.49 million.

The segment has been experiencing a reduction in the customer base derived from the sale of customers to Megacable at the end of 3Q16 and the wind-down process that began at the end of 2016, for this reasons represented 24% of revenues generated in 3Q17. Compared to 3Q16, the income in this business unit had a decrease of 37% or Ps.64 million. For the nine months ended September 30, 2017, revenues from the residential business totaled Ps.305 million, a decrease of 44% compared to Ps.540 million recorded in 2016. Sequentially, the revenues of this business unit decreased Ps.13 millions.