Good morning, and welcome to Grupo Rotoplas' Results Conference Call. Please note that today's call is being recorded, and all participants are currently in listen-only mode to prevent background noise. The host will open the floor for questions later. Today's discussion contains forward-looking statements. These statements are based on the environment as we currently see it, and as such, there may be certain risk and uncertainty associated with such statements. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, further events, or otherwise. Please allow me to remind you that the company issued its earnings press release yesterday after market close. It can be found in the investors' section of its website.
Also, the presentation for the call and the webcast link are in the investors' section. Today's call will be hosted by Mr. Carlos Rojas Aboumrad, Chief Executive Officer, and Mr. Andres Pliego, Chief Financial Officer. I will now turn the call over to the speakers.
Good morning, everyone, and thank you for joining us today. This quarter, while challenging, we remain focused on executing our four strategic priorities. Although the external environment continues to be complex, we're beginning to see positive sequential trends in our results, an encouraging sign that reflects the strength of our strategy and the discipline of our execution. We have moved into a more comfortable position thanks to consistent efforts in expense control, cash and debt management, and overall operational discipline. These will remain key areas of focus in the quarters ahead. In Mexico, we continue to evolve our product portfolio with the launch of the vertical tinaco and an IoT-enabled water level meter. These innovations strengthen our offering and are already gaining positive traction in the market. Our e-commerce platform also gained traction this quarter, supported by enhanced customer service using AI-based tools.
In the United States, we made further headway with double-digit year-over-year revenue growth and a fourth consecutive quarter of EBITDA margin improvement. These gains reflect stronger execution and improved commercial discipline. Our service platform, particularly bebbia and RSA, delivered strong performance this quarter. Bebbia surpassed 143,000 active subscribers and continues to scale efficiently, driven by an improvement in unit economics. These results validate the long-term vision behind our expansion into value-added water services. We advanced our digital journey with the continued rollout of e-commerce, IoT-enabled solutions, and AI pilots. Our B2B and B2B2C e-commerce platforms are scaling up. We implemented a national logistics control tower in Mexico, improving operational coordination and visibility. Our AI-driven predictive sales pilots are helping us test new approaches to customer engagement and planning. These capabilities are strengthening our foundation for scalable, tech-enabled growth.
In terms of business sustainability, we achieved a sequential improvement in EBITDA and EBITDA margin, reflecting the impact of strict cost control. Combined with prudent management of cash, Capex, and debt, this allowed us to strengthen our net debt position. Operating cash flow improved year- over- year. We closed the quarter with stronger liquidity, giving us greater flexibility to navigate ongoing challenges while continuing to invest selectively in growth opportunities. Tomorrow, we will hold our annual shareholders' meeting, during which the following proposals will be presented. The appointment of Bill Russo as an independent board member. Bill brings over 30 years of global experience in strategy, operations, and transformation. He previously led McKinsey's transformation practices in Mexico and Africa, and also served as Chief Nuclear Engineer for the US Department of Defense.
If approved, our board will be composed of 14 members with 50% independence. The designation of members to audit, corporate practices, and compensations committee, and the approval of the audited 2024 financial statements, which include adjustments related to IAS 29 hyperinflation accounting in Argentina, will provide additional context on this shortly. At this time, no dividend will be declared, as we are prioritizing cash preservation. However, we do not rule out the possibility of a future distribution later in the year, as we gain more clarity in our markets. Finally, this has been a quarter of steady improvement compared to the previous periods, and we will continue focusing on what's within our control: tight cost management and driving operational efficiency. We're confident that the combination of better operational execution and the maturity of our strategic investments will allow us to continue creating long-term value.
Thank you, and I'll now turn the call over to Andres.
Thank you, Charlie, and good morning, everyone. As Charlie already highlighted some key figures of the quarter, I'll take this opportunity to expand on a few points from a financial perspective. Since our day, we've been clear about two financial priorities: expense control and disciplined cash management. While we recognize we're not yet where we want to be, the team's efforts are starting to reflect positively in our numbers. We faced a tough comparison base coming off one of our most profitable quarters in history, Q1 of 2024, which benefited from a momentum tied to the electoral cycle and the first signs of drought in central Mexico. In contrast, the current quarter unfolded in a highly uncertain political and economic environment, marked by exchange rate volatility and a wait-and-see sentiment, pending clarity around potential tariffs.
These contexts contributed to a slight decline in total sales, primarily driven by a slower start in our core products business in Mexico. That said, all geographies, including Argentina, posted growth ranging from modest to double-digit increases. On profitability, gross margin was impacted by a lower cost absorption and current currency volatility, particularly with a weaker peso. While operating expenses as a percentage of sales showed sequential improvement versus the past two quarters, they still grew above the rate of revenue, which led to a double-digit decline in EBITDA. However, I'd like to emphasize two important points. First, we're seeing a positive shift in EBITDA margin, which improved compared to the previous two quarters, a sign that our efforts are starting to take hold.
Second, the quarter included one-off severance payments associated with the closure of our Anáhuac plant and the transition to our new facility in lxtapaluca, a non-recurring expense that will not impact future quarters. Lastly, net income was also impacted by an increase in financial expenses. Return on invested capital closed the quarter at 5.1%, mainly impacted by the trailing 12-month period of NOPAT. We expect this metric to gradually improve in the coming quarters, supported by better operating performance and continued financial discipline. Let me now walk you through our performance by region. As previously discussed, in Mexico, the product segment had a slow start of the year, while services, particularly bebbia and RSA, remained the main drivers of growth. In Argentina, after a very challenging 2024, with double-digit declines in Mexican peso terms, we saw a slight recovery in this quarter.
While we're not yet seeing a broad-based rebound in construction, there was an improvement in volumes, led by water flow solutions, followed by storage, while heaters remained the most affected. This is also partially seasonal, as the colder months are just starting. Before moving on to the U.S. operations, I'd like to address the adjustments Charlie mentioned earlier regarding our 2024 audited financial statements. Following the audit, certain figures were modified, mainly an increase in cost of goods sold due to an adjustment to beginning inventory in connection with hyperinflation, partially offset by a benefit in the comprehensive financial result. These changes stem from the restatement of figures in Argentina. It's important to highlight that these are non-cash adjustments and have no tax impact. For further details, the audited financial statements will be available on our website, and please feel free to reach out to our investor relations team.
Turning to U.S. operations, we delivered growth in local currency and even stronger growth in Mexican pesos. Our lean operations strategy and sharpened focus are starting to pay off, reflected in our continued sequential improvement in EBITDA margin, still negative, but trending in the right direction for the fourth consecutive quarter. Finally, our other geographies, which include three markets: Peru, Central America, and Brazil, posted double-digit growth with healthy profitability across the board. On segment performance, services, which represented 10% of the quarterly sales, posted double-digit growth. Bebbia added 10,000 active subscribers during the quarter, while water treatment plants in both Mexico and Brazil continued to show solid momentum. Product sales grew across all international markets. On profitability, the product segment was impacted by the weaker performance in Mexico. Services continued to improve, while still negative.
EBITDA losses are narrowing, driven by increased scale and improved unit economics, particularly in bebbia. Regarding our cash position, we increased cash and cash equivalents by 5% during the quarter. Our net debt decreased quarter- over- quarter, reflecting our continued efforts to manage both cash and debt responsibly. Due to our lower trailing 12-month EBITDA, our financial net debt to EBITDA ratio stood at 3.1 times. We view this as a temporary situation and expect this ratio to return below two times in the coming quarters. Total debt stands at MXN 4.6 billion, down 1% versus December. This includes MXN 635 million in short-term obligations, primarily related to working capital, and MXN 4 billion in long-term debt, which includes our fixed-rate sustainable bond. The blended cost of our debt remains stable at 8.8%.
Regarding capital allocation, total CapEx represented 3.7% of sales, in line with the level recorded in the Q1 of 2024. 86% of these funds were allocated to services in Mexico and Brazil, primarily for the construction of wastewater treatment plants and the acquisition of bebbia purification systems. Aligned with our cash management strategy, CapEx is focused on essential maintenance for our core businesses. While most of the investments in services are tied to projects with secure revenue streams, meaning we only allocate capital once a contract is signed or a client is confirmed. This ensures greater predictability and clear ROI . In terms of ESG progress, we invite you to explore our 2024 integrated annual report, which we will publish in the next couple of days.
It will be available on our website in both Spanish and English, and it offers a comprehensive view of our most important achievements. Some of the top ESG and operational milestones from 2024 that reflect our commitment to sustainable value creation include: we made strong progress in water efficiency, achieving 17% reduction in water intensity across our operations, 12% reduction in scope one and two CO2 emissions intensity per ton of processed resin and metal, aligned with our decarbonization roadmap. Our shift toward renewable energy gained momentum, increasing from 2% to 28% of total consumption. By the end of 2024, four of our plants operated entirely on renewable sources, and as of now, that number has grown to five. We invested MXN 17 million in high-impact social initiatives, reaching more than 290,000 people in Mexico, Peru, and Argentina.
These are just a few of the ways we're turning strategy into action and purpose into measurable outcomes. Thank you once again for joining us and for your continued interest in our company. Looking ahead, we'll continue to prioritize the areas where we can make the most impact to improve profitability with a focus on sequential improvement. While we still face a tough comparison base for the next quarter, cost discipline and cash flow management will remain key priorities at the group level. With that, we're now ready to open the floor for your questions.
Thank you. We'll now open the floor for questions. Our first question comes from Félix García from Apalache Research. Thank you very much for the call and congratulations on the results. Additionally, I would like to inquire about the revenue growth expectations for Mexico and how you anticipate margins will evolve throughout this year.
Hello, Félix, and thank you very much for joining. Mexico includes our services business of wastewater treatment plants and bebbia, which are doing really well. Bebbia continues to grow very well, and the growth of bebbia and water treatment plants improves not only the revenues but also the margins. That looks very positive. On the other hand, construction in Mexico has been very slow. I think it is pretty unclear on how it is going to evolve going forward. We do think that sequentially, comparing to the Q3 and Q4 of last year, which were the quarters where we had the very heavy rains of last year, that might be a comparison, a benchmark where we can do better going forward. Some mixed feelings between macroeconomic uncertainty and very positive on what has been doing really well in the last quarters, and particularly the last quarter.
Andres, anything else that you'd like to share?
Yeah, probably reinforce what you mentioned, Charlie. I think that the Q2 will still be a tough comparison, but the third and the fourth will be an easy comp. Hopefully we see, as we've been seeing, hopefully we continue to see sequential improvement in all the businesses, including Mexico. Thanks for your question, Félix.
Thank you, guys. Next question is from Emilio Antón, GBM. His question is regarding the migration from the NAWAC plant to lxtapaluca. Could you provide more details on the timing, rationale, and operational implications of this transition?
Thank you very much for joining, Emilio, and for your question. The timing rationale was, in this plant, the NAWAC plant was the first asset Rotoplas had. When we started to manufacture water tanks in the NAWAC, this was an area of Mexico City where it was surrounded by other industrial and agricultural facilities. It was an adequate spot, but today it is a spot surrounded by residential and very difficult to grow in. For the blow molding, we could not do it at that facility because it did not have the space to receive much larger machines, such as the blow molding machines, compared to the rotational molding machines. We had to build a new manufacturing plant. This one is at the edge of Mexico City for those who are not familiar with lxtapaluca, on the exit to Puebla, which is very well located for logistical purposes.
Building that new facility obviously took us longer to implement versus implementing blow molding versus implementing in the other facilities where we could still make adequations in those facilities. This was the last one to the part of our market in Mexico to be able to convert into blow molding. That is the reason for the timing. It has already been fully transferred from NAWAC to the rest of the manufacturing of other products, such as the larger tanks, which are rotational molded, from NAWAC to lxtapaluca. That is pretty much done. We did have some big expenses on that in the Q1 because we had a little bit of double running in the Q1 and some of the severance for employees, which were also some of the oldest employees in the company. That is basically done. I hope this answers your question, Emilio.
Thank you, Charlie. We'll take another question from Emilio Antor. Seeing the continuous bebbia growth and the strong performance in the water treatment plants in Mexico, could we expect the EBITDA breakeven sooner than expected in the services division?
Thanks again for your question, Emilio. We're very excited about getting very close to breakeven. It's very, very close. It also depends on the growth rate of bebbia. We've been having a tremendous growth rate, and with this growth, the current growth rate, we can be very close to breakeven. We also would hope for a higher growth rate. A higher growth rate as we have a CAC in bebbia, that breakeven of EBITDA would be potentially postponed. We're currently uncertain as we continue to implement very transformational capabilities for the business, which both improve the profitability of the business, but also improve the growth rate. That has a little bit of uncertainty on that aspect. Today, we have tremendous certainty on the future success of these businesses, which we're very excited about.
They're contributing to the company's growth in a now more significant way, which does move the needle versus when they were much smaller. Andres, anything else that you'd like to share regarding breakeven on bebbia?
No, I think it's very clear.
Thank you, Emilio.
Thank you. Now we have a question from Martin Lara, Miranda Global Research. It's about Argentina. How do you see Argentina's revenues and EBITDA evolving during the rest of the year?
Pretty hopeful. It's very difficult to also predict the construction rate in Argentina. What we can tell you is the construction evolution of the last year and the last quarter. Last year, there was a big, big contraction. It was in this last Q1 of 2025 that we saw some signs of recuperation, which is something we're very excited about. In Argentina, when we look at the evolution of the country, the transformation of the country, we think it's potentially very positive. We're excited about it, but it's a bit of a roller coaster. I think the news about removing the cepo and the IMF agreement with Argentina is very promising, but difficult to tell with precision on how it will look for the second half of the year.
We do think that it's likely to be better, to be in a trend of growth, but to be seen. We are making decisions in Argentina with a much higher cadence. We review the performance of the country of the last 15 days, and we make decisions based on the last 15 days, and we do it with very high discipline. Anything else, Andres?
Yeah, I mean, I guess the trends, as in many of our businesses, the trends in Argentina are also, I would say, slightly positive, but still cautiously optimistic, as Charlie mentioned. I think the country has gone through a significant change in the way that the country and the economics were managed, and we obviously felt that last year. Hopefully this year turns more positive for our business in particular. We know most of the consumption has recovered. Credit has recovered as well. We are hoping that, as Charlie mentioned, construction continues to recover in our favor. General consumption for us as well continues to improve. We are optimistic about this year for Argentina.
Thank you. Now moving from Argentina to the U.S., Martin Lara is asking, in the U.S., do you expect to reach positive EBITDA in 2026?
Yes, we do think in 2026, yes, we do think that we should be positive in 2026. In the shorter period, I think we should be seeing an EBITDA positive sooner than 2026. The U.S. has been having continuous sequential improvement on EBITDA, and so we do think that we will accomplish that milestone sooner. Andres, any comments on your side?
No, agree. I think we're very close, and hopefully we bring that positive news before 2026.
Thank you very much for your questions, Martin, and for joining.
We have one last question from Martin, and it's going a little bit back about NAWAC and lxtapaluca. Do you anticipate additional severance costs related to the NAWAC plant?
Andres?
Yeah, not really. We've done most of the migration from the NAWAC plant to lxtapaluca. We don't expect any big, I mean, any more severance impact on that front. Yeah, I wouldn't anticipate that. Thank you, Martin.
Moving on, we'll take a question from Rodrigo Salazar, AM Advisors. Could you provide more color on the strong sequential improvement in profitability within the services segment? First, how much of the improvement is attributable to bebbia versus water treatment plants? Second, given the notable acceleration in bebbia customer additions, do you expect this pace to be the new quarterly run rate going forward?
Thank you, Rodrigo. As you know, we do not break down services business that much. Both bebbia and RSA have had strong growth in the last quarter. On bebbia customer additions, I think, as Charlie was mentioning before, we are seeing strong acceptance and a very strong product deployment and very strong field services capabilities from our team. We have, I would say, all the capabilities to continue growing very fast. Yes, I think that the trend should continue in this direction. Hopefully, I mean, we do need to invest as we grow, and that will impact, obviously, profitability. If we continue growing faster, we will impact profitability probably a little bit more. The idea is to continue growing at this pace. I do not know, Charlie, if you want to add something.
Maybe just to provide a little bit more color. We're super excited about how these businesses are doing. I think one notable thing that you could look at is the new e-commerce, which we've launched very recently, the bebbia e-commerce, what we call it bebbia 3.0. It's an e-commerce that is improving conversion rate in a very significant way. It offers a much better customer journey, customer experience on the purchase side. On the implementation of the solution, the field services side, we've also finished with the implementation of multiple different technological platforms. The way we're serving customers is much better than before. Today, we're doing over 20,000 services per quarter. The way we're doing these services is, sorry, per quarter.
The way we're doing these services is in much better, with much better punctuality, with much better response time, and with much better customer satisfaction measured by our Net Promoter Score and Net Satisfaction Score. We have developed capabilities that enable higher adoption rates of new solutions such as bebbia for our customers and to do it in a way where we can really serve them in much larger volumes. Today, we're serving much more customers with better service. That's incredibly positive and exciting for us. Also, on water treatment plants, the way we're being able to serve our customers, the way we're being able to design plants, the way we're implementing them and how we're serving them, leveraging these digital capabilities. One of them is AI. It's incredible. We're being able to train our staff in ways that are much more efficient.
Our staff is being able to get support in a much better way. We are resolving opportunities for our customers with our water treatment plants much more quickly and much more with higher efficacy. Very excited about these two businesses.
Thank you. We have another question from Rodrigo, and it's about CapEx. What are your expectations for full-year investment levels? Should we expect a catch-up in spending in the coming quarters, or is this the new shift in your capital deployment strategy?
Thank you, Rodrigo. Yeah, we've been speaking about this a lot in the last couple of quarters. We will continue to be very diligent with how we spend money in general, in both CapEx and OpEx. In terms of CapEx, we do see a lower level of CapEx this year compared to last year. We do not have an exact number given that we are approving CapEx, I would say, on a day-by-day or week-by-week basis, as we want to invest very prudently and very diligently in projects that give us the higher return in the shortest time.
Andres.
Go ahead.
I was just going to comment on what you said earlier on your presentation. Most of the Capex was for services on the Q1 , no, Andres? What was the number, 80?
97.
Yeah. There has been a big shift of CapEx from the products business to the services business. CapEx going forward is also very much related to services. That is an important change. Products CapEx has been coming down significantly.
Yeah, in terms of spending, we will continue to push spending a lot and to be very, again, very prudent and diligent and judicious about spending. Yeah, hopefully we continue to manage these levels and even have improved levels in terms of spending. Yeah, thank you, Rodrigo.
Okay. We have one last question, and it's from Gerardo Campos, Punto Casa de Bolsa, and it's about Argentina. Are there any plans for adjustments or exit in light of the highly adverse macroeconomic environment?
Hello, Gerardo. Thanks for joining and for your question. Like we said, we consistently, just as we said this a few meetings ago, we consistently and as a discipline, we evaluate the potential for value creation of all of our businesses. Based on that potential for value creation and how we're doing in being able to materialize that potential, we make decisions on which businesses we should participate in. We also look at timing. In Argentina, we particularly think that the likelihood of the country for changing a very long-time trend into a trend that is of lower inflation and higher growth is very positive. I think it would be wise to make a decision when there's higher clarity on that. Today, the EBITDA of Argentina is low, and it wouldn't also be a good idea to consider that at the moment.
I do think that we will have better clarity of what is the best path for Argentina in the future. We are looking at it closely, and it is obviously something, just as any other business, that we will consistently be considering whether it is the right place to be in or not.
Okay. I think that was the last question. Thank you to everyone who asked questions today. Should we have any follow-ups, please feel free to reach out. Anything else to add, Charlie or Andres?
I just appreciate everyone's participation. Thank you for joining.
Thank you, everyone.
Thank you all for joining. You may disconnect now.