TIM SA Q3 FY2026 earnings call

• Strategic Execution: The company is on track to deliver its 2026 guidance, demonstrating consistent discipline in executing its strategy while maintaining a solid financial position and converting operating performance into cash.
• Product Evolution: In B2C, TIM is evolving its portfolio across mobile and broadband, creating value through differentiated propositions. HostPaid continues positive trajectory, and FreePaid shows recovery signs despite competitive pressures. In B2B, the company is broadening its portfolio through new partnerships in verticals like connected vehicles (BYD partnership) and smart cities (Smart Rio project).
• AI Integration: Practical progress in AI application includes customer care agents reducing billing handling time by 86% and network predictive maintenance preventing 93% of identified failures. These initiatives are being expanded to offers and sales.
• Financial Discipline: OPEX grew only 3.9% in Q3, below revenue growth. Gross debt declined by 3.7% YoY, and leverage remained at low levels. The company ended the quarter with R$ 5.2 billion in cash, preserving financial flexibility for investments.
• Future Priorities: Focus remains on evolving B2C value propositions, expanding B2B presence in established verticals, and renewing social initiatives focused on technology, education, and equity.

Service revenue increased by 5.8% year-over-year (YoY), reaching approximately R$ 6.9 billion in Q3, with normalized business growth of 6.8%. In the B2C segment, mobile revenue grew 4% YoY, driven by ARCO expansion; Ultrafiba broadband revenue surged 12.7% YoY with double-digit customer base growth for three consecutive quarters. The B2B segment showed strong momentum, with revenue growing 19.3% over the last 12 months, increasing its contribution to the overall revenue mix. Profitability metrics improved significantly: reported normalized EBITDA expanded by nearly 7% with margins above 52%, while absolute EBITDA grew close to 8% with margins expanding by approximately 1 percentage point to 41.3%. Operating cash flow for the first nine months reached almost R$ 5 billion, an 11.6% YoY increase.

• The company reaffirms its commitment to delivering its full-year 2026 guidance, citing consistent revenue growth, profitability improvement, and cash conversion throughout the first nine months.
• Shareholder remuneration guidance for 2026 is confirmed, with a strategy that prioritizes distributing more cash to shareholders as operating cash flow grows.
• No specific upward or downward revisions to numerical financial targets were announced, but management expressed confidence in maintaining the current trajectory based on strong operational execution.

• Competitive Pressure: The post-paid market environment remains 'edgy and nervous' with unchanged competitive dynamics, impacting ARPU dynamics and limiting front-book price updates.
• Bad Debt Exposure: Bad debt expenses increased 30% YoY, driven by B2B client reviews and macroeconomic headwinds, although management expects deceleration going forward.
• Macroeconomic Uncertainty: Potential impacts from Brazil's rising long-term rates and inflationary pressures could affect cost categories and pricing strategies, particularly regarding the pass-through of inflation to back-book clients in 2027.
• Regulatory Risks: The Fistel dispute remains unresolved with legal paths (STF process) being the longest route, posing ongoing regulatory uncertainty.
• Tax Reform Impact: The ongoing tax reform requires significant review of supplier contracts and tax credits, though management aims to maintain margins and zero impact on free cash flow.

Q: Analyst asked about post-paid competitive dynamics and prepaid traction for the new 40 reais offer.

A: CEO stated post-paid competitive dynamics remain unchanged from Q2, with no new major launches affecting front-book prices, which pressures ARPU. For prepaid, the new 40 reais offer has shown positive traction in Q3, with competitors reacting modestly (e.g., one offering 35 reais). While Claro reinstated WhatsApp benefits, the overall response to TIM’s prepaid moves is viewed positively, indicating resilience in consumer spending despite macro challenges.

Q: Analyst inquired about capital allocation priorities for 2027 given rising interest rates and bad debt pressures.

A: CEO confirmed capital allocation strategy remains unchanged, prioritizing shareholder remuneration proportional to cash flow growth. M&A activity will be selective and opportunistic, focusing on complementing existing B2B and broadband strategies rather than transformational deals. Regarding bad debt, CFO noted a peak impact in Q2 for B2B, but expects deceleration going forward. CEO added that prepaid operations show resilience with rising spending, and collection curves for post-paid and broadband remain solid despite macro headwinds.

Q: Analyst sought details on the Team Ultracombo broadband performance and dialogue with new controller.

A: CEO reported that Team Ultracombo launch is driving broadband growth, boosting mobile attachments, and selling at higher price points. Churn metrics are positive for convergent products versus non-convergent ones, though longer-term data is needed. The offering is expanding beyond physical stores. Regarding the new controller, CEO highlighted a representative on the board since March, noting supportive alignment with strategic priorities, including dividend expansion and targeted M&A in B2B and broadband without changes to core strategy.

Q: Analyst asked about margin and capex outlook for 2027 broadband acceleration and tangible AI gains.

A: CEO assured that organic broadband expansion will not negatively impact profitability or free cash flow goals, maintaining the priority of expanding profitability at all levels. CFO explained that AI initiatives currently reinvest some savings into further development but have achieved net positive outcomes. AI-driven customer care handles 100% of invoice complaints, providing significant efficiency gains. CEO emphasized that cost control for AI is well-managed, ensuring sustainability of these margin improvements.

Q: Analyst questioned satellite partnership prospects and building blocks for service revenue growth.

A: CEO outlined three revenue building blocks: accelerating mobile volumes entering 2027, continuing fast-paced broadband growth, and expanding B2B. Mobile focus is on improving operational KPIs to drive revenue with a lag. Regarding satellites, TIM is evaluating partnerships with SpaceX and AST. CEO prefers AST due to its complementary model to mobile operators, whereas SpaceX’s basic tech services offer poor trade-offs. Both options are expected to be commercially viable by late next year, with TIM aiming to announce a partnership by year-end.