Question-and-Answer Session
Operator
Great, thank you. (Operator Instructions). Our first question comes from the line of Christopher King with Stifel Nicolaus. Please proceed sir.
Christopher King – Stifel Nicolaus & Company, Inc.
Good morning and thank you. I just was wondering if you could give us a little bit of color on what happened specifically in Mexico and Argentina during the month of March, since you initially gave guidance late February, I believe, and what caused the shift during that last month of the quarter specifically regarding the tick-up in churn. And then along those lines, what are your assumptions and expectations I guess going forward for the year? Do they assume kind of a March activity level in terms of a churn and gross adds and those two markets remaining fairly confident throughout the year versus where they were in March. And last question on a constant currency basis it looks like your margins were up about 200 basis points year-over-year despite the fact that it looks like gross adds were actually up a little bit year-over-year. What were the primary drivers for that margin improvement? Thank you.
Steven P. Dussek
Thanks Chris. Three good questions. This is Steve by the way, and I’ll take the first two, and I’ll let Gokul address the last question. So, let’s start with what happened and giving you some color with respect to that. Let me backtrack for just a moment to say when we reported on February 26 our fourth quarter results, our insight on January and February, our expectations were largely being met. And as we went through the early part of March the same conditions. As regarding to the middle of March, the economic and business conditions did weaken, and the impact, as you pointed out, mostly in Mexico and Argentina. It resulted in a number of things, and first, many companies downsizing and the impact of that to our forecasted productivity was felt. Many of the small to medium companies and individuals made decisions in terms of where their disposable income comes and goes, and had challenges in, quite rightly in paying their bill. And so, we look at some of the large account downsizing that took place, and partial account losses. So you look at it, and there are a number of things that resulted from the worsening economic situation. And those were specifically to Mexico, but also some of the same things existed in Argentina. And the majority of the increase was felt on the involuntary side, so it is truly driven by the economic conditions that we were facing. Now, obviously, that resulted in higher churn, some higher bad debt, and as a result of that on April 6, we gave you an updated guidance with respect to our net adds for the balance of the year, and that factored in what we had learned through our process in the latter part of March. So, that addresses the first question. The second question, in terms of assumptions and confidence going forward, I want to address that in two ways. First, to just remind you and give you a perspective of the way that we operate our business, the way that we run the business, and the diligence that we put forth in that effort. It is a constant day-to-day contact with our market teams through the various staff members here in the headquarters facility. We also have mid-month videoconference with the full management teams in all of the markets with our management team here. We conduct quarterly operations reviews, which we did at the conclusion of the first quarter. And we use all of that data, really for the basis of our assessment of the business health, the conditions moving forward, and as we factor that in to our forecast, and that really serves as the foundations of providing you with our guidance, as we did today. The second part of that in addition to the way we run the business, let me address specifically how we are thinking and the assumptions we are making moving through the balance of the year. First, we do anticipate that the economic and business conditions will remain weak in Mexico and Argentina. Conversely, in Brazil, we see a stable environment and we see very strong results from our team and we expect that that should continue as we move through the course of the year as well. We do assume that the customer behavior that we saw in the latter part of March will be relatively the same as we go through the balance of the year, we assume that the currencies will remain volatile as we go through the balance of the year. So, as we look at those assumptions and we pair it up with our ability to diligence that we put forth in running our business, those in combination give us the ability to look at our business, forecast our business and revise as we did, our net add guidance downward on April 6. You also saw a revised CapEx number this morning, then we took our CapEx down to $750 million to $800 million range. And we also saw this morning that we maintained our revenue and our OIBDA guidance for the balance of the year. So, we believe that with those assumptions and our day-to-day, and weekly, and monthly, and quarterly reviews of our business operations that we are appropriately reflecting the weaker economic and business conditions in our markets and resulting in our guidance. So, obviously, we’re going to monitor all of this as we continue through the balance of the year and should things change, we will certainly act accordingly.
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