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. Andrés Pliego, Chief Financial Officer. I will now turn the call over to the speakers.
Good morning, everyone, and thank you for joining us. Let me start with what matters most about this quarter. We saw a meaningful improvement in our performance. Sales grew almost 10%, our fastest pace in several quarters. EBITDA grew 35%, with a margin of 13.2%, 250 basis points above last year. Our net result was practically at break-even, and leverage came down to 2.2 x from 3.2x a year ago. We did it in an environment that did not help. Resin costs stayed elevated, consumer confidence was low, and construction remained weak in Mexico and Argentina. These results did not come from a better market. They came from better decisions we have made over the past months and from how our teams executed them. There is a concept we have been discussing a lot inside the company, ambidexterity.
A company that wants to last for decades has to do two things at once. It has to exploit what it already knows how to do, run the core better, faster, and with fewer errors. It has to explore what it does not know yet. Place bets today that become tomorrow's growth. Neither one is enough alone. This quarter, we saw progress on both fronts. The core business operated more efficiently, while new products and services we have developed over the past few years started to contribute more meaningfully to our results. Let me walk you through what we saw across our four strategic priorities. All of our regions grew this quarter. In Mexico, sales grew close to 5% and EBITDA margin expanded 150 basis points to 18%, in a market that remains weak, with low customer confidence, lower construction, and heavy rains.
What made the difference was execution. Tight expense control, sharper commercial discipline, and the rollout of new strategic solutions beyond our traditional core portfolio, such as vertical tanks, rainwater harvesting systems. In Mexico and Central America, these new solutions already account for close to 8% of Grupo sales. Resin costs did weigh on our gross margin, which contracted 60 basis points. We managed pricing with agility, and our expense discipline more than offset that effect. The diversification we have been building is now showing up in the numbers. The United States grew double digits and posted its sixth consecutive quarter of positive EBITDA, supported by a vertical-focused commercial strategy and stronger demand in water storage and in industrial and chemical applications. In other countries, performance was solid, led by Peru and Central America. In Argentina, the operational improvements we have been implementing were reflected in the quarter.
Despite very low demand, EBITDA was at break-even, an improvement from the loss reported last year. This reflects the work we have done on pricing and efficiency rather than the recovery in the market. Water innovation and market disruption is where the work we have done over the past few years is most visible. Services grew 10%, and EBITDA was positive MXN 4 million compared to a loss of MXN 63 million a year ago. bebbia passed 208,000 active subscribers, adding more than 14,000 new subscribers in the quarter, with its unit economics improving. Our water treatment plant business grew in Mexico and Brazil. In Mexico, stricter water regulation is also creating demand for compliant solutions. These are recurring higher-value businesses. They are the explore side of the company becoming real. We treat technology as operational capability, not as a support function.
AI and digital tools are now part of the daily work in sales, service, planning, and finance. Our teams are learning to use them in concrete tasks. At the same time, we're building the foundations for the next stage of growth. A newer ERP, starting with bebbia, a more integrated digital experience for our customers, and stronger data and AI capabilities. These projects are progressing, sorry, according to plan. For us, growth and impact go hand in hand. The more people we serve with water and sanitation solutions, the greater the impact we can create and the greater the value we bring to the markets and communities where we operate. A recent example is Rotogotas de Ayuda, our campaign that started in Cuetzalan, Puebla, together with our ambassador, Luz Valdez.
In this first delivery, we supported Masehual Siuamej, an organization of indigenous women artisans benefiting more than 100 families facing water vulnerability. Let me show you a short video.
[Presentation]
It fills me with pride to share this video and to see the great things we can achieve through our business. We continue to make progress against the targets we have set under our AGUA Strategy across our environmental, social, and water-related priorities. The same discipline we apply to improving our operations also helps us use resources more responsibly and reduce our footprint. This progress is being recognized externally as well. This quarter, Expansión ranked us among the 10 most responsible companies in Mexico, number nine out of 183 participants. In Peru, we were once again recognized as a water responsible company. In Argentina, we partnered with Habitat for Humanity to deliver sanitation kits to families, and we launched the second edition of Trasciende:M ujeres con Impacto, our development program for women in our team, with 39 across four countries.
Behind these results, there is discipline in how we operate, in how we allocate capital, and in how we choose where to grow. That discipline brought leverage down to 2.2 x net debt to EBITDA, a full turn below a year ago, and it gives us the flexibility to keep investing in the business that will shape the Rotoplas of the coming years. Andrés will take you through the details. To close, two things. First, we are not satisfied yet. The environment remains challenging, and there is still work ahead. Second, this quarter confirms that the strategy is working, a quarter that is more efficient, new businesses, new products that are contributing, and a stronger balance sheet. Behind every number, there are families, schools, and communities with better access to water, and that purpose keeps us focused on the long term. Thank you for your trust.
I will now hand it over to Andrés, who will walk you through the financial results.
Thank you, Charlie, and good morning, everyone. I will go through the results in more detail, focusing on what drove margin expansion and our cash generation. Net sales reached MXN 2.9 billion, up almost 10%, with both products and services growing around 10% and growth in every region, led by other countries and the United States. Gross margin was 41%, 60 basis points below last year. Our pricing strategy remained agile, but given market conditions, it did not fully offset the increase in resin costs. Where we made the biggest difference was in expenses. Operating expenses grew less than 3% against almost 10% growth in sales. That operating leverage took operating income up 51% and EBITDA up 35%, with a margin of 13%, 250 basis points above last year. This is our fifth consecutive quarter of year-over-year EBITDA improvement.
Below the operating line, net financing costs fell to MXN 164 million from MXN 354 million a year ago, mainly due to lower foreign exchange effects in Argentina. Of the total, MXN 121 million corresponds to interests, commissions, and leases, and MXN 43 million to foreign exchange effects. Together with the higher operating income, this brought net results close to breakeven. For the first nine months, sales grew almost 5% to MXN 8.6 billion. Gross margin expanded 20 basis points to 42%, supported by a pricing strategy amid volatility in raw material costs. Operating income grew 20% and EBITDA grew 18% to MXN 1.1 billion, with a margin of 13%, 150 basis points above last year. The improvement came mainly from Mexico and the U.S., while Argentina narrowed its losses. In Mexico, as Charlie mentioned, demand remained soft, and even so, sales grew almost 5%.
Growth was driven by our new strategic solutions and continued momentum in our services platform. EBITDA margin expanded 250 basis points to almost 18%, reflecting operating leverage and a better services margin. Argentina's sales grew 24% in local currency and 7% in Mexican pesos. This growth came from pricing and was below inflation, so sales declined in real terms. Volumes contracted this quarter, reversing the modest recovery we saw in the second quarter as construction activity remained weak. EBITDA was at breakeven compared to a loss in the third quarter of last year. That said, we remain cautious on Argentina. In the United States, sales grew 21% in pesos and around 31% in dollars, driven by our focus on specific end markets with stronger demand for storage tanks and for industrial and chemical applications.
EBITDA margin was around 3% versus around 5% a year ago, reflecting a supplier cost increase that we passed through only partially, and entry pricing for new key accounts as we prioritize growth. Recovering margin will be a key focus for us next quarter. Even so, this is our sixth consecutive quarter of positive EBITDA in the United States. Peru, Central America, and Brazil together grew 25%. In Peru, growth was supported by improving customer investment sentiment. El Niño-related heat weighted on water heaters but boosted demand for storage. Central America continued growing at double digit across the region, and Brazil kept building out its water treatment platform. EBITDA in this segment grew 19% with a margin of 19%, 100 basis points below last year, mainly due to the timing of projects in Brazil.
Together, the United States and other countries now represent 27% of group sales, up from 24% a year ago. Products grew almost 10% with growth across all regions. EBITDA grew 10% with a stable margin of 15%, supported by better results in Mexico, Argentina, and other countries. Year to date, products EBITDA grew 16% and the margin expanded 160 basis points to 16%. Services sales were up 10%, driven mainly by bebbia, which ended September with more than 208,000 active subscribers after a record 14,000 net additions in the quarter. Segment EBITDA was MXN +4 million, a MXN 67 million improvement versus the third quarter of last year, reflecting bebbia's continued progress in unit economics, which is helping absorb the cost of growth.
For the first nine months, and excluding the one-time litigation impact in Brazil we discussed last quarter, services EBITDA would have been around MXN -37 million, compared to MXN -117 million in the same period last year. The result has improved quarter after quarter this year and will remain on track towards sustainable breakeven in services. Our capital structure remains simple after refinancing completed last quarter. Total financial debt closed at MXN 4.4 billion, 5% lower than a year ago, mainly the seven-year Bancomext loan, plus MXN 407 million in short-term working capital lines in Mexico. Net financial debt was MXN 3.3 billion, about MXN 500 million less than a year ago. Net debt to EBITDA closed at 2.2 x compared to 3.2 x a year ago and 2.3 x last quarter. The improvement came from higher EBITDA, higher cash balances, and lower debt.
We're moving in the right direction and there is continued work to be done. We ended the quarter with MXN 1.1 billion in cash, about MXN 270 million more than a year ago. Operating cash flow for the first nine months was MXN 1.2 billion, 17% higher than last year. CapEx totaled MXN 317 million, under 4% of sales, and within the 3%-4% range we have discussed. Most of it went to services in Mexico, where we invested as contracts and customers are confirmed. Working capital absorbed cash this year, mainly from higher inventory, which reflects resin purchase at higher prices and softer demand in Argentina. Bringing inventory days down is a working capital priority for the fourth quarter. Our stronger cash position also allowed us to return value to shareholders.
While we continue to deleverage, yesterday our Board of Directors approved a proposal for a capital reimbursement of MXN 0.33 per share, equivalent to approximately MXN 160 million, which will be submitted for approval at an extraordinary general shareholders meeting. Together with the MXN 0.17 per share paid earlier this year, total cash distributions for 2026 would reach MXN 0.50 per share. Overall, this was a quarter where trends we care most about kept moving in the right direction, margins, cash generation, and leverage. Going forward, our priorities remain margin discipline, deleveraging, and steady improvement in services. Thank you all. We are ready to take your questions.
Thank you. We will read the first question that comes from Orlando Alcantara from BTG Pactual. Hey, everyone. Thanks for the questions, and congrats on the results this quarter. I have several questions. The first one is, by your estimate, Mexico product sales grew roughly in line with inflation, which implies volumes are close to flat. What is the share of price and volume in Mexico sales? Is low to mid-single digit growth in Mexico the new normal?
Hey, Orlando. Thanks for joining. What happened recently in terms of water availability since 2024, and then 2025, and then 2026, is that we had much more rain, making the situation of water shortage change. I do not necessarily think that is going to be sustained. So in terms of growth rate, whether what we have today is the new normal, part of it is dependent on water availability. On the other hand, we do have, as I mentioned, what we call the strategic products, which are products beyond our core products, the traditional water tanks and the piping that we have, that have grown incredibly well. And today, those products are 8%, just the Mexico new products are about 8% of all of Grupo's revenues. So we do expect to see more growth in products going forward. Not necessarily because of more water shortages or more construction.
That would definitely drive revenues for this business. But beyond that, we have been getting closer and closer to customers. We have been, for years now, developing our practice of launching new products that are very aligned to those customer needs, and our go-to-market keeps getting better and better. Digital capabilities allow us to move with more agility and connect better with customers, and we do expect continued growth in products as a result of that. Andrés, anything else?
Nothing to add, Charlie.
Thank you. The second one from Orlando is, ROIC has been stuck in the mid to high single digits for five years, below cost of capital, even after heavy investment. Which invested capital now flat, what EBIT level gets you back above cost of capital, and by when? Also, services still lose money at the EBITDA level, but take most of the CapEx. At what number of bebbia subscribers does services earn its cost of capital, and would you slow CapEx once you get there?
Thank you, Orlando. We are very focused on ROIC and on getting back to cost of capital. The company has invested a lot in IT, in water treatment, and in bebbia for the last few years. We are still carrying the investment in the balance sheet, and the results are just starting to come together. I guess we are finally seeing what bebbia is doing in our results and what water treatment plants are doing in Brazil, for example. We have the positive effect this quarter. We will start to see better NOPAT or better results, operating results in the services businesses. And try to catch up with investment. The ROIC on products is a much healthier ROIC, so it is more of a growth story that is complicated to see through ROIC. But we will continue to focus on bringing it up to where the cost of capital is.
Charlie, anything else?
I think one of the main things to consider when thinking about ROIC for Rotoplas is ROIC had been a very good metric for Rotoplas, where products was by far the largest part of the business and where investments were lower on services. As services continue to become a more relevant part of our business, where investment is required, it's a different business model. We will try to increase clarity in terms of the different financial metrics between products and services. ROIC, I don't think is necessarily the right metric to look at services. For products, it will continue to be the main metric on how are we creating value, and it does very well for products. Services growth rate is very important, as well as the unit economics, and both continue to improve in very important ways.
Unit economics for bebbia continues to improve as two things happen. We learn more about the business, and we continue to improve our processes, our systems, how we operate. The other thing that drives unit economics is scale. That scale is increasing by doing centralized operating expenses. That's the only thing I would add.
Thank you both. The third question from Orlando Alcántara is, "U.S. sales grew about 31% in dollars, driven by water storage and industrial chemical demand. What is behind the storage demand, and is it structural or tied to specific projects?
It's a little of two things. Not necessarily specific projects are. Part of it is structural. How we are operating in the U.S. is fundamentally different from that vertical approach. With that vertical approach, we're getting closer to the customer. We are understanding better what the customer wants, and so we can better offer more complete solutions, which increases the average order value and improves customer satisfaction. From that perspective, structurally, it has improved and will continue to improve. Very proud of our U.S. team. Something else that did contribute is there was less precipitation, and just as an example, in the Colorado River Basin, there is much less water. There's a part that is driven by water stress caused by climate events. That part is something that is beyond our hands. Anything else, Andrés?
No, thanks.
I will read one question from Pablo Mulás from GBM. "Thank you, Carlos and Andrés, for taking my question, and congrats on the results." Actually, he has three questions related to services, and I am going to read each one of them. The first one is, "How sustainable is positive services EBITDA from here?" That would be it, the first one.
That one is dependent on the growth rate and the unit economics. Like I mentioned, unit economics continue to get better. Growth rate also continues to increase. Both are positive for our perspective on the business. Unit economics are delivering profitable customers. Every additional customer is contributing to a higher free cash flow, excluding investments for growth. We are already at a profitable customer or individual customer in terms of how much we need to invest versus how much they return to our business. The business in that sense is profitable, and in terms of growth, we do expect that the growth is not going to be as high as where we would not be profitable in services. But it is one of the things that we are pushing for, as much growth as possible as this is such a profitable business per user for us.
And there is such a high opportunity to improve how people consume water with more sustainable, practical, and better economical solutions for our customers. Andrés?
Yeah. Probably adding on water treatment plants.
Yeah
Beyond bebbia, we are seeing in Brazil, for example, we are getting to the scale where we now see profitable business as well. Also in Mexico with water treatment plants, we have been profitable for a while already. Yeah, in terms of water treatment plants, I think we are getting to the scale where profits can be much more stable for the future. And maybe as Charlie mentioned, it is a growth versus profitability balance that we need to manage.
Perfect. In line with both of your answers, I think I will read the two next questions from Pablo . The first one is, should we think of 3Q 2026 as a structural inflection, or could profitability remain volatile over the next few quarters? What are the main drivers of bebbia's improving unit economics?
Do you want to go ahead, Andrés?
Yeah, I guess. We already answered most of it. I think it is structural in the sense that we are getting scale both in bebbia and water treatment. Growth will be a big part of the stability, specifically of the EBITDA. If we look at unit economics, as Charlie mentioned, those continue to improve in a good direction in bebbia. Yeah, scale is definitely helping for both businesses, services businesses.
Perfect. So, another question from Pablo Mulás from GBM is, how are resin costs evolving into 4Q 2026, and what should we expect from working capital in the next quarters?
You want to go ahead, Andrés?
Yeah, sure. Thank you, Pablo. Resins continue to be very volatile. You see, very related to what the Brent does. It has been very volatile for the obvious reasons. We should be able to rotate more inventory in the fourth quarter. Right now we have inventory at higher levels precisely because of our recent resin purchases. We will continue to rotate that inventory. Resin prices will continue to be volatile, although they have kept below what we saw in the second quarter. Hopefully we see those stabilizing and the working capital continues to be more stable as we move along. I do not know, Charlie, if you want to add anything.
No.
Thank you both. We are not getting more questions, but we have a comment from Michael Birkel from Zenon Investments, and he said, "Congratulations and really encouraging results. No questions to ask beyond what already has been asked. Just sending my thanks and applause.
Thank you, Michael.
Thank you, Michael. Appreciate it.
Thank you all.
Yeah, I think that was it. If there's no further comment, then we can just finish the question, and you may disconnect.
Thank you very much for your time, everyone.
Thank you. Bye bye.
See you next time.