Telefônica Brasil S.A. (NYSE:VIV) Q1 2024 Earnings Call Transcript

Telefônica Brasil S.A. (NYSE:VIV) Q1 2024 Earnings Call Transcript May 8, 2024

Telefônica Brasil S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen. Welcome to Vivo’s First Quarter 2024 Earnings Call. This conference is being recorded, and the replay will be available at the company’s website at ri.telefonica.com.br. The presentation will also be available for download. This call is also available in Portuguese. [Operator Instructions] We would like to inform that all attendees will only be listening to the conference during the presentation, and then we will start the question-and-answer section when further instructions will be provided. Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company’s business prospects, operational and financial projections, and goals are the beliefs and assumptions of Vivo’s Executive Board and the current information available to the company.

These statements may involve risks and uncertainties as they relate to future events and therefore depend on circumstances that may or may not occur. Investors should be aware of events related to the macroeconomic scenario, the industry, and other factors that could cause results to differ materially from those expressed in the respective forward-looking statements. Present at this conference, we have Mr. Christian Gebara, CEO of the company; Mr. David Melcon, CFO and Investor Relations Officer; and Mr. João Pedro Soares Carneiro, IR Director. Now, I’ll turn the conference over to Mr. João Pedro Soares Carneiro, Investor Relations Director of Vivo. Mr. Carneiro, you may begin your conference.

João Pedro Soares Carneiro: Good morning, everyone, and welcome to Vivo’s first quarter 2024 earnings call. Today, our CEO, Christian Gebara, will walk us through Vivo’s performance in connectivity and digital services for both B2C and B2B, as well as present our ESG advances. Then, our CFO, David Melcon, will give more color on cost and CapEx management, free cash flow generation, followed by an update on shareholder remuneration for 2024. With that, I’ll turn the call over to Christian.

Christian Gebara: Thank you, João. Good morning, everyone, and thank you all for joining us today. Before starting, I would like to express our solidarity with the population, our employees, customers, partners, and everyone affected by the tragedy in the state of Rio Grande do Sul. We are directing all efforts to restore our services in the affected areas as quickly as possible, acting on several fronts in this time of crisis. We joined forces with all operators and enabled roaming so that the customers of other telcos can connect to our network. In addition, we are offering data bonus of 10 gigabytes to our prepaid and hybrid customers in the region, and considering the difficulty of accessing some of the most impacted communities, we are providing the civil defense of Rio Grande do Sul with 60 satellite phones aimed at using extreme situations.

Moreover, through Fundação Telefônica Vivo, we launched a national match funding campaign open to the entire population to help with items of greatest needs such as food, hygiene, and cleaning products. Regarding the operation, we are evaluating the impact on infrastructure stores and the provision of service as a whole as we also face difficulties in accessing some locations to the roadblocks as well lack of electricity and damage provoked to our network. Now moving to the results. We kick off 2024 reporting another robust quarterly result with revenue, EBITDA, and net income growing above inflation. Our customer base expanded in our main products. Postpaid access were up 6.6%, while homes connected to FTTH grew double digits by 12.3%. Total revenues increased by 6.5%, mainly driven by an outstanding performance of mobile service revenues that were up 9.3%.

Our profitability figures were also highlight. EBITDA grew 6.8% year-over-year and net income expanded by 7.3% on an annual comparison. As a result of the strong operating momentum coupled with stable CapEx intensity, operating cash flow summed up R$3.4 billion, while free cash flow generation reached R$2.4 billion in the first quarter of the year. The strong start to 2024 reaffirms Vivo’s solid position to continue delivering sustainable growth and returns. On Slide 4, we show the breakdown of our top-line expansion. Mobile service revenues that represented 64% of total revenue in the quarter grew at a fast pace fueled by double-digit increase of postpaid revenues. Fixed revenues post a positive evolution as FTTH expanded at the mid-teen rate compensated the seasonal volatility of B2B digital revenues and the decline of other legacy service such as fixed voice and [copper] (ph) broadband.

This solid performance derives from our best-in-class value proposition for both B2C and B2B customers, combining connectivity with the broadest portfolio of services beyond the core. In first quarter 2024, B2B digital service summed up with B2C new businesses represented 9.5% of Vivo’s total revenue, up 0.9 percentage points year-over-year, that confirms the trends seen so far of the escalating significance. Turning to Slide 5, we highlight the main levers of our ongoing growth in mobile. Postpaid access continue to gain share in our customer base mix. While within the postpaid segment, the upselling for hybrid to pure postpaid increased by 75.7% year-over-year. As Vivo is in a unique position to meet customers’ ever-growing needs for connectivity, we see them staying longer and spending more with us.

Postpaid churn remained at its lowest historical level, 0.97% per month, while increased ARPU by 7.7% year-over-year, considerably above inflation. Now moving to fiber. Vivo’s FTTH footprint is available to 26.8 million homes and businesses throughout Brazil, getting close to our target of 29 million home passed by the end of this year. We continue to outpace the market in add additions with more than 170,000 new access during the quarter, totaling 6.3 million homes connected. As we offer a more premium portfolio in terms of speeds and digital services, FTTH ARPU reached R$91.4, its highest value in the last few years. Average FTTH speed sold is accelerating going from around 260 megabits to over 310 megabits. Vivo Total is an important driver of our outstanding performance in fiber and postpaid.

Our convergent offer totaled 1.5 million customers, more than doubling versus the previous year while presenting churn that is 1 percentage point lower than the standalone fiber. Vivo is in a privileged position to further increase its FTTH take-up rate — ratio, sorry, leverage its distinctive capability of offering a combined fiber and mobile plan to a nationwide basis. As we commented at our Vivo Day, we want to start giving you more color on our results split by customer segment, underscoring how new businesses are contributing to the top-line expansion. On Slide 7, we show the evolution of our B2C revenues in the last 12 months that represented around 76% of Vivo’s top-line. B2C revenue grew almost double the inflation in the period because of our second-to-none connectivity that’s been complemented by the advance of our new business portfolio.

Revenues coming from these services summed up R$1.4 billion in the last 12 months, up 34% year-over-year, representing 2.6% of our total result. The distribution of 2.7 million subscriptions of video and music OTTs generated R$597 million in revenues, whereas financial services contributed with R$425 million in the last 12 months. One of the highlight was Vivo Money that ended the quarter with a portfolio of R$420 million in personal loans. Our credit portfolio will further accelerate with the advent of new products, such as financing of fixed transactions paid in multiple installments. On Slide 8, we showed increasing relevance of digital service over total B2B revenues. During the last 12 months, B2B digital service reached R$3.5 billion in revenues, up 20% year-over-year, representing 31% of our B2B business and almost 7% of Vivo’s top-line.

In the first quarter of the year, we bring forth our absolute leadership in B2B by developing customized private network solutions for some of the most relevant companies in Brazil. We are confident about the opportunities to further increase the relationship we have with our 1.6 million B2B customers as we combine the best connectivity in the market with an [unrivaled] (ph) ecosystem composed of top-notch partners to support the digital transformation of Brazilian companies. Turning to Slide 9, I highlight some advance of our ESG agenda. CDP that has already considered Vivo as part of A list on Climate Change also recognized us as the only Brazilian telco leading in supplier engagement. Additionally, we rose three positions year-over-year in Merco’s Corporate Reputation Business Monitor that placed us in the top 20 companies with the best reputation in the country.

On the social front, Vivo continues to invest in black talents. For our Youth Apprentice and Internship programs, half of the positions were reserved for black students, and the latter ended up having 60% of opposition filled by black candidates. I’m also glad to share that Vivo was awarded by the United Nations for this initiative regarding the movements of 2030 ambition, Race is Priority, and Mind in Focus. Due to these and many other ESG accomplishments that we achieved during the years, we were considered the most sustainable company in Brazil among all sectors in the latest ISE B3 ranking. Now, David will comment on our financial performance.

David Melcon: Thank you, Christian, and good morning, everyone. On Slide 10, we show the cost evolution in the first quarter of the year. We were able to increase OpEx below revenues, even with an enhanced business performance. The increase of cost of services and goods sold was driven by greater revenues from digital services and sale of consumer electronics. The evolution of cost of operations was mainly related to higher commercial activity and customer base expansion that was partially compensated by the advances of our digital channels such as the launch of Vivo new app in March this year. We also point out that we registered a lower level of the other revenues in the quarter due to the reduced tax recoveries and sale of unused equipments versus last year.

Going forward, we are confident in our ability to further improve our cost efficiency, while supporting the growth of new businesses. Moving to Slide 11, CapEx totaled R$1.9 billion in the quarter, representing a CapEx to sales ratio of 13.8%, in line with the trend of lower CapEx intensity expected for the next years. 5G deployment continue to be one of our investment priorities, with Vivo being the only telco that cover all Brazilian cities with more than 200,000 inhabitants using this technology. This combination of robust operational performance with controlled CapEx translated into a strong operating cash flow generation, amounting to R$3.4 billion in the first three months of 2024, leading to an operating cash flow margin of 23.6% for the last 12 months.

Moving to Slide 12, net income expanded 7.3% year-over-year, reaching close to R$900 million in the quarter. Vivo’s cash position at the end of March this year surpassed financial debt by R$1.9 billion. In April this year, we used part of our cash position to pay R$2.2 billion in interest on capital. Even considering IFRS-16 leases, leverage remain under control at 0.5 times EBITDA. Free cash flow generation reached R$2.4 billion in the first quarter of the year. The year-over-year comparison is negatively impacted by the compensation of tax credits amounting to almost R$500 million last year. Overall, Vivo’s strong financial position provides flexibility to combine an attractive return to shareholders while investing across our main revenue drivers.

Slide 13 shows the main components to meet our guidance of paying out at least 100% of net income in 2024, ’25 and ’26. In March this year, we announced our new share buyback program, planning to invest up to R$1 billion until March 2025. As of today, we already bought back R$53 million in our own shares. The first tranche of the capital reduction in the value of R$1.5 billion will be paid out on July 10th this year. On April 23rd this year, we paid out R$2.2 billion of interest on capital declared during the previous year, while the interest on capital declared in the first four months of 2024 amounted to R$680 million. These initiatives demonstrate that Vivo is on track to meet its shareholder guidance, reaffirming its unique position as one of the top Brazilian companies regarding growth, profitability and shareholder remuneration.

Thank you. And now, we can move to the Q&A.

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Q&A Session

Operator: We are going to start the question-and-answer session for investors and analysts. [Operator Instructions] Our first question comes from [indiscernible] with Bank of America.

Unidentified Analyst: Hi. Good morning, everyone. Thank you for taking my questions. I have two here. The first one is on the net adds dynamics. You have had a very solid mobile service revenue growth for the past few quarters, which was also boosted by the net adds. How can we think about net adds going forward? Is there room to continue having positive net adds, not only on postpaid, but in the absolute numbers? Why are we seeing still a growing base of users in the market as a whole? Is that something that you think could be sustainable, and for how long? And second, on prepaid, we have seen a lot of price movements and some price — some offers being restructured, but we haven’t seen hikes in terms of the minimum you have to pay to be connected for a month. So, I wanted to know if there’s space for price hikes in prepaid still in the short term or not, and how are you seeing the dynamics for the prepaid competitive market? Thank you.

Christian Gebara: Okay. Lucas, it’s Christian. Okay? I will start with the one. In the net adds, what we see is, like, we are gaining customers, so we see a positive trend. But more than just talking about the absolute number, we see a very healthy and very positive migration across the segments that are relevant to us. And also, in prepaid, what we are trying to envision here is much more migration to hybrid, and we’ve been doing that in a very positive way. That’s why you also see a very good evolution of the overall mobile ARPU, 77.7%. But more importantly, we also migrating within the hybrids. So that’s why we just launched it, I think some few months ago, the new hybrids that have, like, entertainment, health, or education embedded in the value proposition.

But more importantly, we are migrating hybrid to postpaid. And that’s a movement that if you follow, like, for the last, like, years, that was not so usual, and it became very relevant in our in our strategy. So, if you see the number that we had, this number of migrating — this quarter of migration of hybrid to pure postpaid was more like 75% higher than what we had in the first quarter of the previous year. Not to talk about the penetration of digital service, the new business that we described or the Vivo Total that is the conversion. So, we are very positive about movements in the mobile. We’re keeping a very, very, very low churn, below 1%, and our abilities now not only attract new customer that we are doing, but also being able to migrate and upsell to the customer base that we have.

So, these two movements are going in a very strong direction and the right direction, so we are confident about our ability to be able to continue to monetize and keep customers even more loyal, having more products to the same customer base. Regarding prepaid, we had, like, a several, like, different movements in the pricing. So, I don’t know if I got your question, but we have now entry level of R$17 in the biweekly offer, used to be in November last year at R$15. We also increased the face value of our top up. It’s — most of channels outside Vivo is R$20. And so, we are moving up. And, also, we are continuing to migrate customers from prepaid to hybrid that’s driving ARPU up. Otherwise, we wouldn’t see 7.7% of ARPU evolution in the period.

Unidentified Analyst: Oh, very clear. Thank you.

Christian Gebara: Sure, Lucas.

Operator: Next question from Marcelo Santos with JPMorgan.

Marcelo Santos: Hi. Good morning, Christian, David. Thanks for the opportunity for making questions. I have two. The first, to Christian, I wonder if you could comment a bit on the fiber ARPU dynamics. It was up 2% year-over-year. In the fourth quarter, it was up 3%. Maybe you could discuss a bit the adjustment schedules? Provide some color on how this line should go forward without any guidance, of course? And the second question is on the CapEx outlook for David probably. David, could you provide us some view on how CapEx should behave this year? Should we expect a similar number to the previous year? Or are there any variables that should change that in this year? Thank you very much.

Christian Gebara: So, Marcelo, thank you for the question. Also, yes, you are right. There are many, many factors in the ARPU evolution. First, we’ve been able to be the winner of net adds of the market in the last quarters. So, this last — in the first quarter of 2024, it was the same. So, we are the one capturing more customers, and we are capturing customers in a very rational way. So, this rational way combines, having the right pricing for the quality of the service that we’re offering and also the ability to upsell through higher speeds. So, the average speed that we sold last year was close to 250 megabits and we are now above 300 megabits. Secondly, we are being able to put more digital services together with fiber.

So, when we talk about the 2.7 million subscriptions that we have in the video and music OTTs, there is a lot that is connected to the fiber sale. And then, there is Vivo Total, that is the last one that I also mentioned during my introduction that we reached more than 1.5 million customers already in this plan. That is also important because it is improving ARPU in general, the client ARPU, because here is together blending mobile and fiber, but also keeping customers more loyal to us as also we described here. There’s 1 percentage point lower churn when a customer is with fiber in the Vivo Total versus the standalone one. So, going forward, what we believe is that we are going to be able to continue to drive more speed up and also more services to the fiber, customer.

Going beyond just the connectivity, we are very keen on, what we call, smart homes. So, we are selling more services that are driven by WiFi connection in different rooms, also services that are connected to installing smart devices. So, we are very positive about ARPU evolution. Regarding price increase, we had one in for part of our customer base in January. We’re going to have another part of our customer base in June. So that’s more or less the two rounds that we have of price increase. January and June, I’m going to keep with them because we have inflation in the period. But more than just inflation, I think the ability of offering more services to our customer base is going to be what’s going to be driving our ARPU up and the evolution of our revenues in general.

I leave David for CapEx. I don’t know if you have more questions here, Marcelo?

Marcelo Santos: No. Just on this, I mean, what about last year? Did you also increase in January and June? Was the same pattern of increase or just want to understand the seasonality here?

Christian Gebara: Yes. More or less, exactly the same months, more customer base now that we have that’s going to be impacted by the increase because our customer base increased.

Marcelo Santos: Thank you.

David Melcon: Hi, Marcelo. So, regarding the second question, as we say on our Vivo Day, the plan for 2024 is to reduce the intensity of CapEx. So last year, we closed the year with a CapEx intensity of 17.2%. The plan for this year is to reduce it versus last year. So, in the first quarter, you see that we are showing intensity of 13.8%, and the comparison with the previous year is that we are anticipating accelerating investment to maximize the return of this CapEx, between the year, for the next nine months. So, bear in mind that, that the revenue is coming from new businesses. They are not consuming CapEx. So at the end of the day, this is one of the key levers that we will use to make sure that this intensity continues reducing.

Marcelo Santos: Perfect. Thank you very much for both answers.

David Melcon: Thank you.

Christian Gebara: Thank you, Marcelo.

Operator: Next question from Marco Nardini with XP Investimentos.

Marco Nardini: Hello. Good morning, Christian, David and Vivo team. Thank you for taking my questions. So, the first one is a quick follow-up regarding fixed broadband from the last question. FTTH ARPU is growing consistently over the last few quarters. Can you comment here on churn, please? And regarding EBITDA margin, can you comment on the flattish performance year-over-year? And what can you expect from EBITDA margin performance for the next quarters, please? Thank you.

Christian Gebara: Marco, regarding the churn, we don’t give the number of churn. What we are giving you now is, like — and then I think it’s a good data, that it’s — we have 6.3 million FTTH customers. 1.5 million are in Vivo Total and is increasing quarter-over-quarter. If you look at what we had in the first quarter of last year, it was 0.7 million. So, we have doubled Vivo Total. And Vivo Total, the fiber churn is 1 percentage point lower of the standalone fiber. So, we have 25% more or less of our customer base already in Vivo Total, and more than 80% of the sales of Vivo fiber in our stores come with Vivo Total. So, we have a very strong positive trend of churn going down. So, that’s basically what I can share. And additionally to everything that I told Marcelo before, if you have any specific question about the what I told him, of course, I can contribute.

I think it’s important to see about the ARPU again. ARPU is driven by the speed. ARPU is driven by the servers that we are packaging together, and we started with OTTs, but we are adding now the smart home services. It’s not only selling devices. We’re going to start also offering other type of service like smart devices installation, and that’s going to also contribute to a high ARPU. I don’t know if I answered your question, Marco, regarding…

Marco Nardini: Yeah, that’s perfect.

Christian Gebara: And EBITDA, David will talk about it, but it’s important also, that we are — now we have more than 9% of our revenues coming from new businesses, as David said before. New business are driving many things up. It’s driving revenue up. It’s driving loyalty up. And that’s our strategy that we just defended, like, long time ago that we would do that in B2B and now we are doing that in B2C. And also our ability to have a more complete and broader offering to our customer base. When we have 113 million access in your customer base, your key objective is try to monetize as much as we can offer more services and advantage and benefits to these customers going beyond our core of just offering connectivity. So that’s our strategy.

These services that represent more than 9%, they don’t have CapEx. Most of them are CapEx light or CapEx zero. Our acquisition cost to sell these services, in some cases, is almost zero when I use my app, but they have a different EBITDA margin. So let’s discuss absolute evolution that is beyond inflation as we’ve been presenting the last quarters. And, of course, when you look to the margin, operating cash flow margin, the free cash flow margin, that’s going to be the key indicators driving our strategy going forward.

David Melcon: Yes. Hi, Marco. Just to complement, as Christian mentioned, we are keeping focus on activities to reduce our OpEx on digitalization and simplification. But regarding margin, we look at operating cash flow margin, as you can see now Slide 11 in our presentation, we have the highest operating cash flow margin, which is 23.6%. You can see the trend, which is the highest over the last couple of years. And here we are including [EBITDA] (ph), but also CapEx. So, we look at operating cash flow margin, and you can see the positive evolution that we expect this to continue.

Christian Gebara: Yes. Then, I’m going to look at the operating cash flow margin also. That’s why also I’m like, I think I find it interesting because our operating cash flow margin was in the first quarter ’23, 21%. Now we presented one that is 23.6%. And operating cash flow that is positive in R$3.4 billion. When you look to the free cash flow, our free cash flow yields 8.8%. Free cash flow over sales, 14%, and it’s positive in R$2.4 billion also. So, just — we discussed, like, revenue and EBITDA, but it’s also very good to pay attention in the cash flow generated by Vivo and the evolution over sales in the last quarters.

Marco Nardini: Perfect. Thank you very much, Christian and David. Super clear.

Christian Gebara: Thank you, Marco.

Operator: [Operator Instructions] Our next question comes from Vitor Tomita with Goldman Sachs.

Vitor Tomita: Hello. Good morning, all, and thanks for taking our questions. Two questions from my side. The first one is if you could give us an update on how you are seeing the competition price competition in the fiber business? And the second question from our side, as a follow-up to the discussion on upselling and prepaid to hybrid migration, do you — now that you seem to be focusing increasingly more on migrating within prepaid — within postpaid, do you believe that you are already close to reaching a ceiling in terms of how many prepaid customers can be migrated to hybrid or postpaid, considering customers’ profile and suitability to hybrid plans since they imply some credit risk, and I have to believe that a large portion of the remaining prepaid customers just will never be suitable for postpaid? Thank you.

Christian Gebara: No. I don’t think so, Vitor. I think, on the contrary, I think our ability to migrate prepaid to hybrid is still there. But what I just highlighted is the same ability is also there for hybrid to pure postpaid and is also there for hybrid with new businesses embedded in package together. What we see here is that we have, like, a sales machine that is very difficult to replicate in any sector. We’re talking about 1,800 stores. We are talking about 23 million unique users going up in the app. We are talking about our WhatsApp that’s using artificial intelligence. We’re talking about our call center that are now driving much more sales than it used to do before. So, our ability to sell more to our customers and upsell, we think prepaid to hybrid, hybrid to pure postpaid, pure postpaid to Vivo Total, and then adding to this additional services is still there and it’s growing.

So, I’m totally, have the different view on that. I think the ability to do so is going to be up. And then the discussion, if it’s more hybrid to pure postpaid or more prepaid, I think what we need to do here is to offer the best value proposition to specific customer, and that’s why we also have a big data that is very powerful and allow us to be very well segmented and to offer the right offering to the right customer, but I hear is the ability to sell more and that’s what is driving us lifetime value that we increasing and with acquisition cost that is very, very, very low. Regarding price of the FTTH and the competition, we are rational in our pricing here. It’s difficult to talk about competition here. We are the number one, number one in network, the number one in the size of home passed.

We are reaching 29 million by the end of the year. We’re number one in the number of customers, 6.3 million customers. We’re number one in the share of net adds. And we are the one increasing the speed, we are the one increasing ARPU, and we are the one reducing churn. So, we know how to compete, and we know that we have a different value proposition. Then in my opinion, very, very, very difficult to replicate.

Vitor Tomita: Very clear. Thanks a lot for the reply.

Christian Gebara: Thank you, Vitor, for the question.

Operator: Next question from Carlos de Legarreta with Itau BBA.

Carlos de Legarreta: Good morning. Thank you for taking the question. I have two on my side. I guess probably for David. So, first of all, during the quarter, the effective tax rate was typically high, if I’m not mistaken. So, I was wondering what’s the nature of that. And secondly, on the size of the leases, I know they have been increasing for — by double digits year-over-year for the past couple of quarters. But at the same time, I know you’re also decommissioning sites from the Oi acquisition. So, I’m just wondering how to reconcile those two and how to think about the motion of leases going forward. Thank you.

David Melcon: Thank you, Carlos, for the question. So, regarding the first one have to do with the effective tax rates, tax rate is impacted by the value of the interest on capital that we distribute every year. So, if you look over the last — in Q1 last year, we declared R$396 million. This year, we declared R$300 million. So, that mean that’s R$96 million less, which has an impact — direct impact in the line of expenses. For Q2, we are seeing that so far, we have already declared R$380 million compared to the R$320 million from the previous year. That means that in the second quarter, we will have an opposite effect. So, it will be an opposite effect when comparing year-over-year. Regarding the leases, as you mentioned, last year, we accelerate the negotiation with the towers company from the contract we acquired from Oi. So, we decommission around two-third of those.

So at the moment, this is something that if you look to the liabilities we have in our balance sheet now in — at the end of March, you can see that they’re almost in line with the same number that we’ve had from previous year. So, we have R$13.4 billion at the end of March, and we have R$13.6 billion at the end of December. So this is going down. So, how to reconcile with the with the payments? Again, if you look to the evolution, we are being — just applying some efficiency initiatives, and the number that you see in the first quarter, we are paying R$651 million. And if you look to the average of the amount paid over the last 12 months, so the quarterly, and the average, we paid R$689 million. So that means that we have a reduction of almost R$40 million.

Going forward, we would also have the benefit or we expect the reduction on the interest rates, and this is something that will bring also some benefit in the future. Also, I don’t know if you were looking to the cost — Carlos you want a comment on financial expenses. I think it’s important when you analyze the year-over-year evolution is that in the previous year, we have a positive effect of around R$100 million coming from the monetary update of some of the tax credit that we have on the PIS/COFINS last year. So, if you compare year-over-year, we need to reduce — increase R$100 million last year, so we are seeing a reduction. Going forward, so far, what we are seeing in the month of April, we are seeing some upside. So, thinking of next quarter, we will see some positive evolution of some of these particular items on the financial expenses.

And, also, in terms of bad debt, just to cover here, this quarter, we have a quite low bad debt and reduced historic numbers over the last few years and this quarter represent 2.1% over gross revenues. If you compare to the previous year 12 months, it was around 2%, so slightly upside increase, but what we are seeing so far in the month of April and the first week, we are seeing some positive trends on the back of lower churn and also effective collection process. So, just to give you a view of the cost — key numbers.

Carlos de Legarreta: That’s very helpful. Thank you, David.

Operator: The question-and-answer section is over. We would like to hand the floor back to Mr. Christian Gebara for the company’s final remarks.

Christian Gebara: So thank you everyone for participating. Again, now we have, like, a very strong and solid quarter aligned with the strategy that we’ve been communicating over the last years. So if you have any additional question about numbers and any other topic, please feel free to contact us. So thank you again for participating in our call.

Operator: Vivo’s conference is now closed. We thank you for your participation, and wish you a nice day.