Telefonica Brasil SA Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Mobile Operations: Customer base growth continued, with postpaid access up 7.6% year-over-year. Almost 1 million hybrid plus per postpaid net adds in the quarter, growing 77% year-over-year. Postpaid churn remained around 1%, and mobile ARPU was at BRL30.3.
• 5G: Received the 5G Global Winner award, with 5G access more than doubling to 13.8 million, representing 70% of mobile access, available in almost 400 cities.
• Fiber Operation: Homes passed with FTTH up 12.7% year-over-year, homes connected grew 12.5%. FTTH ARPU was at BRL90, and Vivo Total surpassed 2 million customers, with lower churn than standalone fiber.
• B2C and B2B: B2C segment grew 7.5% in the last 12 months, with new businesses showing strong growth. B2B digital services saw significant growth, and Vivo Agro had a notable increase in sites sold.
• ESG: Engaged 87% of suppliers on climate-related activities, launched Plural Partner Program, ranked Top three best companies to work in Brazil, and opened vacancies in women of fiber and Youth Apprentice programs.

Segment Performance

• Mobile Service Revenues: Comprised two-thirds of total revenue in the quarter, grew 8.8%. Postpaid saw a double-digit growth of 10.4%, while prepaid remained positive with customers trading up to hybrid.
• Fixed Services: Positive performance driven by expansion in fiber and data, ICT and digital services; both lines together represent 73% of the segment's results.
• B2C: Represented around 77% of Vivo's total top line, grew 7.5% in the last 12 months. New businesses within B2C amounted to BRL1.6 billion in the last 12 months and grew 30.2% year-over-year.
• B2B: Represents 21% of total revenue, grew 6.5% year-over-year. B2B digital services generated BRL3.8 billion in revenues and grew 17% over the last 12 months. Vivo Agro had an 112% year-over-year increase in the number of sites sold to Agro customers.

Guidance

• EBITDA increased 7.4% year-over-year. Operating cash flow reached BRL10 billion year-to-date with a 12% growth. Free cash flow was BRL7.1 billion. Net income was up 10.4% year-over-year, with 100% or more of net income distributed to shareholders. BRL2 billion capital reduction initiated for next year.

Risks

• Competition: New banks entering the market with competitive pricing, especially in prepaid offers, posing potential impact on equilibrium.
• Regulatory: Uncertainties surrounding the migration from concession to authorization process, including timeline and potential impact on OpEx and CapEx.

Question and Answer

Q: About competitive environment and pricing, lease expenses.

A: Christian and David discussed competition, new banks' impact on pricing, and volatility in lease expenses due to negotiations with tower companies.

Q: About mobile service revenue growth, pricing outlook, user base expansion.

A: Christian stated sustainable growth, migration from prepaid to postpaid, and strategy leveraging new services and value-added offerings.

Q: About CapEx outlook, EBITDA margin.

A: Christian and David discussed CapEx reduction trend, OpEx mix optimization, and expectations for EBITDA margin improvement.

Q: About B2B ambition, margins; handset and electronics COGS.

A: Christian discussed B2B growth potential, margins in different services, and structural changes in COGS due to better mix in electronics.

Q: About prepaid segment, legacy fixed revenues.

A: Christian talked about prepaid strategy, migration to monthly tariffs, and limited impact of legacy fixed revenues due to technology replacement.

Q: About 2025 growth, sustainability.

A: Christian expressed confidence in growing above inflation and continuing current trends in revenue and margin growth