Telefônica Brasil S.A. (NYSE:VIV) Q3 2024 Earnings Call Transcript

Telefônica Brasil S.A. (NYSE:VIV) Q3 2024 Earnings Call Transcript November 6, 2024

Operator: Good morning, ladies and gentlemen. Welcome to Vivo’s Third 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. To access, you can press the globe icon on the lower right side of your Zoom screen and then choose to enter the Portuguese room after that select mute original audio. [Foreign Language] We would like to inform that all attendees will only be listening the conference during the presentation, and then we will start the question-and-answer session 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 those 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. Joao Pedro Soares Carneiro, IR Director. Now I will turn the conference over to Mr. Joao Pedro Soares Carneiro, Investor Relations Director of Vivo. Mr. Carneiro, you may begin your conference.

Joao Pedro Soares Carneiro: Good morning, everyone, and welcome to Vivo’s third quarter 2024 earnings call. [Technical Difficulty] will walk us through Vivo’s performance in connectivity and digital services by business segments, B2C and B2B as well as present our ESG advances and recognitions. Then our CFO, David Melcon, will give more details on Boston CapEx management, free cash flow generation, followed by an update on shareholder remuneration for 2024. With that, let me turn the call over to Christian.

Christian Gebara: Thank you, Joao. Good morning, everyone, and thank you all for joining us today. It is with great pleasure that I present the results for the third quarter of 2024. This period has been marked by a robust performance with all key lines posting real growth, a trend that’s here to stay. Our leadership position in the market remains untouched, reflecting the trust our customer place in our high-quality services and the effectiveness of our commercial strategy. In postpaid, our customer base increased 7.6%, which shows our ability to upsell our mobile products while capturing new customers. In fiber, our homes connected with FTTH grew 12.5% this quarter. Total revenues were up 7.1%, mostly due to the mobile service revenues, which grew 8.8% this quarter, our robust sales coupled with lean cost resulted in a strong EBITDA, which increased 7.4% year-over-year in the quarter, a growth higher than last quarter.

By maintaining our CapEx particularly flat, we were able to reach BRL10 billion in operating cash flow since the beginning of the year with a double-digit growth of 12%, expanding our margin to 24.2% of revenues, while accumulating BRL7.1 billion in free cash flow in the period. Likewise, our year-to-date net income reached a double-digit expansion of 10.4% year-over-year, a result that will be entirely distributed to our shareholders. On Slide 4, we’re zooming our revenue evolution that continue to grow in real terms backed by the differential provided by a unique brand and diversified portfolio of services and solutions. Mobile service revenues comprising two-thirds of total revenue in the quarter, kept last quarter’s fast paced growth at 8.8% as postpaid reached double-digit growth of 10.4%, while prepaid continued to be in the positive territory, even with customers continuously trading up to hybrid.

Our fixed services positive performance was once again driven by the expansion in fiber and data, ICT and digital services revenues as both lines together already represent 73% of this segment’s results. B2B digital services summed with B2C new businesses already represent 10% of Vivo’s total revenues, which shows the importance of different value proposition for both our B2C and B2B customers. This performance is driven by our ability to provide high-quality services and the growing demand for digital transformation. Moving to our mobile operations on Slide 5. Our customer base continues to grow. At the same time, we improved its profile with postpaid access up by 7.6% year-over-year, increasing our exposure to customers that spend more and stay longer with us.

We registered almost 1 million hybrid plus per postpaid net adds in the quarter, growing 77% year-over-year being the highest organic expansion we ever had in a single quarter, reinforcing our leading position in the segment. Looking at the postpaid churn, we can see that it still remains around 1% mark, boosting the lifetime value this unique customer base will deliver us. The combination of our steady upselling activity and the strength of our totalization strategy led to our highest mobile ARPU lever at BRL30.3. Moving on the next slide, we want to give you more color on Vivo’s recent developments and superior performance in 5G. We recently received the 5G Global Winner award presented by Opensignal being rewarded for having the fastest 5G download speed in the world among all operators located in large land mass countries, thus providing the very best 5G experience to our customers.

Since third quarter 2023, 5G access in Vivo more than doubled, reaching 13.8 million and already representing 70% of our mobile access, excluding machine-to-machine and dongles. This important expansion has been made by the acceleration of our coverage as our 5G network is already available in now almost 400 cities that comprise 57% of Brazil’s population. As a result, our market share continues to increase, nearing 40% of all 5G access in the country, reflecting customers’ preferences of being connected through Vivo as we empower them for innovation. Now moving to our fiber operation. In September, we reached 28.3 million homes passed with Vivo’s FTTH, up 12.7% year-over-year, already delivering 98% of our goal of reaching 29 million premises by the end of the year.

Along with our accelerated footprint expansion, we have been able to keep our homes connected growing consistently at 12.5%. This quarter, we reached 6.7 million users after adding 192,000 new access during third quarter ’24, representing a network penetration of 24% countrywide. In addition to our rapid customer base growth, we maintain our FTTH ARPU at BRL90, growing 1.2% year-over-year. Our convergent offer, Vivo Total maintains its excellent performance. In September, we surpassed 2 million fiber customers, growing 92.2% over the year. Vivo Total provide us a product with a lower churn than fiber and mobile separately. Specifically compared to standalone fiber, Vivo Total’s churn is 1 percentage point lower. In addition to that, currently 83% of FTTH sales in our own stores are with the convergent plan, and we see that we still have space to grow given that, for example, that 42% of our convergent customers are still not in Vivo’s total base.

Now moving to B2C revenues on Slide 8. In the last 12 months, this segment represented around 77% of Vivo’s total top line and grew 7.5% in the period by combining our core services with our new businesses which amounted to BRL1.6 billion in the last 12 months and grew 30.2% year-over-year with important recent developments in verticals such as financial services, and health and wellness. This broad and unique B2C ecosystem enables us to capture more value from our customers and assets. The 57 million individuals that currently are Vivo’s B2C customers generate an average monthly revenue of BRL61.5. This customer-centric approach emphasizes the multitude of products that we offer and solidifies our customer lifetime value with Vivo. On Slide 9, we can see the B2B performance, a segment that represents 21% of our total revenue, growing 6.5% year-over-year.

This was mainly driven by our B2B digital services, which generated BRL3.8 billion in revenues and grew 17% over the last 12 months. Looking forward, we see a promising scenario for our B2B services since only 15% of our 1.7 million B2B customers acquired digital services and solutions for Vivo, meaning that we have significant space to grow and capture our captive addressable market. We are always looking to expand our presence. And in this sense, during this quarter, I would like to highlight results related to our agribusiness vertical, Vivo Agro. We had 112% year-over-year increase in the number of sites sold to Agro customers, enabling digitalization in the sector. Moreover, through Vivo ventures, we invested $1.5 million in Agrolend, a fintech that provides credit to small and medium rural producers across Brazil.

Moving on to our ESG actions, it’s important to highlight the advances with our supply chain partners. By the end of the quarter, we were able to engage 87% of our suppliers on climate-related activities, seeing an increase of 23 percentage points in carbon-intensive suppliers that implemented emission reduction targets since the beginning of our Net Zero program. We also launched the Plural Partner Program, Programa Parceiro Plural, with the goal of developing the best ESG practice of our business partners. On the people side, our employee engagement continues to be a key aspect of our culture. We are ranked by Great Place to Work as one of the Top three best companies to work in Brazil, a recognition that makes us very proud. We will also include in the top 100 FTSE Diversity Inclusion Index being considered one of the public traded companies around the globe with the most inclusive and diverse workplace.

On that matter, during the quarter, we opened more than 50 vacancies in the women of fiber program and more than 250 vacancies in the Youth Apprentice program with 50% reserved for black talent. Thank you. And now, David will comment on our financial performance.

David Melcon: Thank you, Christian, and good morning, everyone. First, we would like to highlight our cost performance. Our OpEx trend remains solid with total cost growing 6.8% year-over-year and decreasing in comparison to the previous quarter, which allowed us to increase the EBITDA margin on a year-over-year basis. Cost of services and goods sold grew less than 1% with services increasing due to more sales of B2B digital solution, a greater customer base while cost of goods sold decreased as a result of less handset subsidies and increased share of consumer electronic sales. The evolution of our cost of operation was impacted by factors such as the growth of our customer base, which in turn generates higher commercial and infrastructure costs and by a tough comparison base in the provision for bad debt and other revenues and expenses line as during last year third quarter, we had a positive onetime effect helping both.

All things considered, we finished the third quarter with an EBITDA margin of 42.4% and EBITDA itself growing 7.4% year-over-year. Moving to Slide 12. Our CapEx summed BRL6.7 billion since the beginning of the year, remaining stable in comparison to the same timeframe in the previous year. In addition to that, CapEx intensity fell 1 percentage point in the same period as we are in a path of reducing capital intensity. The combination of a greater EBITDA and a flat CapEx resulted in an operating cash flow of BRL10 billion in the last nine months, with a double-digit growth of 12% year-over-year contributing to reach an all-time high operating cash flow margin of 24% in the last 12 months. If we consider leases in the calculation, we grew 14.9%, reaching BRL6.3 billion in the first nine months of the year.

On Slide 13, we can see that the net income accumulated over the last nine months reached BRL6.8 billion, increasing 10% year-over-year with the strongest performance in 2024 being registered in the third quarter. At the end of September 2024, Vivo’s cash position was still above financial debt by BRL1.7 billion, even considering leases leverage remain at 0.5 times EBITDA. Free cash flow generation reached BRL7.1 billion by the end of the quarter, leaving a free cash flow yield of 8.4% over the last 12 months. Overall, our healthy financial position an ever-improving results provide us an important platform to enhance shareholder returns while investing in new and profitable revenue streams. Moving to our last slide. We reinforced our commitment to shareholder remuneration and to meet our guidance.

So far, during this year, we paid out BRL2.2 billion of interest on capital declared in 2023, BRL1.5 billion in capital reduction and BRL1.1 billion in share buybacks, which all sum up to BRL4.8 billion. Finally, yesterday, November 5, we initiated the second phase of the capital reduction process in the amount of BRL2 billion to be executed next year. These initiatives shows Vivo unique ability to enhance shareholder value through operational excellence. Thank you. And now we can move to the Q&A.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Carlos Sequeira with BTG. You can open your microphone.

Carlos Sequeira: Hi, thank you. Hey, Christian, David, Joao, everybody good morning. Thank you for the opportunity to ask questions. So I have basically two if I may. One is on the competitive environment and pricing. And specifically, when we look at the controlled plan prices, the entry-level plans, we can see that Vivo and Claro, the price are very similar — price has been moving one company after the other, everything is okay. But then came a new bank and announced an offer that is — it’s like BRL 10 lower than the price points we are seeing for the entry-level plans. And we know that for some clients in that category, they can be very price sensitive. So my question to you is how you see this new price point and how it might change the equilibrium that we have seen recently?

And if you plan to do anything about it or how you’re approaching that situation? So that’s the first question. The second one is on lease expenses, if I may. They grew a lot in the third quarter. And it would be great if we can get a better view on what happened and what is behind it and how we should look at the lease expenses going forward, please? Thank you.

Christian Gebara: Carlos, Christian here. I’m going to go through the first one. I think the new banks entry, it’s like an extra competitor, of course, but it’s something that we are very used to have. We’ve been facing competition since the beginning, we still have it in fiber and mobile. So for us, it’s another competitor. As you know, they have an MVNO model that is the credit one. So in any launch, it’s very be aligned with the operator that is providing the network. So I understand that the offer can be competitive, but we need to understand it in more detail. It’s a prepaid offer with a hybrid characteristics. So again, they can be a little bit more aggressive in pricing because they won’t have the related bad debt. But in the end, it’s not a hybrid, it’s a prepaid.

So if you could see other prepaid offers in the market, I think we still have very competitive ones. And if you go to the hybrid, we may have like a difference in pricing. But again, hybrid has different characteristic than prepaid and our hybrid has evolved a lot recently. So we have hybrid content, we have hybrid with e-Health, we have hybrid with education and many other value-added service that we include in our hybrid offering. Actually, we’re also working hybrid plus fiber. So we see ourselves in a very different momentum. I think we are leveraging on having the stronger the combination of network quality and coverage, services and product portfolio and distribution channels. Again, we also sell SIM cards and the offer seems to be related to eSIMs. So again, I really don’t know if it has a great match with the market they are trying to target.

But again, another competitor as we are also in Vivo Pay, we’ve been since the beginning lending more than BRL 800 million with a credit scoring that I think is unique because we understand this market very well. So we understand that everyone has like a huge customer base distribution through digital, in our case, digital plus the physical channels, big data, so we understand our customers and a strong brand want to explore other business beyond the core. So natural movement, and we are very, very confident that we have all the assets to be as competitive as we’ve been in the last quarters. I move to David for the leasing, because if I answered what you wanted in the new cell one.

Carlos Sequeira: No, thank you. Thank you very much.

David Melcon: Thank you, Carlos, for the question. So looking to the evolution of the leases, more thinking on the P&L also looking to depreciation and interest accruals, we are in line with previous periods. And in fact, in the first nine months this year, EBITDA is growing 7.2% year-over-year and EBITDA after leases is growing at 7.1%, so very similar. However, when we look to the cash flow, when we look to the payments evolution, there is some volatility as we are constantly negotiating and renegotiating the conditions with the towers company, which sometimes require cash payments. So therefore, we cannot analyze any specific quarter figures to project to the future trends. So if we add up looking to the cash flow, the principal and interest we paid this quarter, which amount to something like BRL1.3 billion.

This number is higher than the amount we paid the previous year also in the third quarter, but it’s even lower than the amount we paid in the fourth quarter last year, which really proves and confirmed what I have just said that there is a huge volatility over the quarter. Now I think it’s also important to mention that operating cash flow after leases is very strong. And in the first nine months of the year, even considering those payments, we are growing 14.9% year-over-year. And although we are accelerating 5G coverage, as we already presented today, we have already covered 57% of the population. And there are initiatives in place, specific initiatives to reduce the cost related to tower leases that could benefit — will benefit future trends.

Carlos Sequeira: Perfect. Thank you so much. Thank you, Christian, David, Joao and team. Thank you.

Christian Gebara: Thank you, Carlos.

Operator: Our next question from Lucca Brendim with Bank of America. You can open your microphone.

Lucca Brendim: Hi, good morning, everyone. Thank you for taking my questions and congratulations on results. We have two questions around mobile service revenue growth looking forward. It has been expanding around 9% year-over-year for the past few quarters now. So we wanted to understand a little bit how sustainable that is and looking at the breakdown. So first for pricing, how are you thinking about the outlook for price hikes in 2025? Should it continue to be above inflation? And how should be your strategy on that? And second, we are also seeing very positive trends in terms of user base expansion and also the migration from prepaid to postpaid. Are those trends that should also continue at a similar pace going forward or should we see some change in that? Thank you.

Christian Gebara: Lucca, I think you answered the question. It is sustainable, no, because we’ve been improving the same numbers over the last quarter. So I don’t know how many quarters do we need to prove that is sustainable growth. So the growth comes from our strategy in all segments. So we’ve been able to migrate of course, from prepaid to hybrid. That’s part of the strategy. And we’ve also been able to migrate from hybrid to pure postpaid. And when we are in pure postpaid or even in hybrid, we’ve been also upselling, like giving more data or more services to customers. So I think our strategy of combining new services or digital services to the offering of a telco plan that’s based in data is being extremely successful.

And I’m not giving you here also the number that we have for fiber because fiber also when we have Vivo Total that is growing in a very accelerated way. It’s not only protecting our mobile customer base, but is also giving us more ARPU. I think there is one number that we started to describe this quarter that I think is important to highlight. We also gave the number of how much we are capturing of monthly B2C revenue and consider all the services we are selling. Also, we gave this is not the mobile or fixed ARPU, it’s a combined ARPU that also at the value-added service of 61.5. That’s our strategy to be able to not only attract more customers and our net adds is proving that we are going in the right direction, but also over the customer base that we have in the case of B2C, 57 million customers in the case of B2B another 1.7 million customers to be able to sell more services.

So that’s part of the strategy that we believe will be driving our revenue up. And of course, we are passing through inflation, but that’s not the key piece of the strategy because that’s why we are proving our number that’s double the inflation of the period.

Lucca Brendim: Very clear. Thank you.

Christian Gebara: Thank you, Lucca.

Operator: Next question from Marcelo Santos with JPMorgan. You can open your microphone.

Marcelo Santos: Hi, good morning, Christian, David, Joao. Thanks for taking my question. The first question I wanted to ask you is about the CapEx outlook. So you mentioned that you’re in the path of reducing capital intensity. Could you make brief comments about how do you see this unfolding in 2025? And the second question is about the EBITDA margin. But instead of looking at the whole EBITDA margin, I would like to point to margin that you highlighted, the margin ex others. That margin had a very good improvement year-over-year. So is that improvement something sustainable? Have you achieved a new level of margin that we should look from now on? These are the two questions.

Christian Gebara: So, Marcelo, we are not giving guidance on CapEx. What we’ve been saying is that our ability to reduce our CapEx over sales. If you look at nine months 2023, combined revenues and CapEx, our ratio was 17.3%, and the same period now in 2024, our ratio is 1 percentage points lower, 16.3%. Here is a combination of optimizing CapEx deployment, but also more importantly, ability to grow in revenues. And we’ve been growing revenues in all lines, the traditional ones, but more importantly, we are also growing in the lines that we call new business or digital service that already represent almost 10% of our total revenues. And they are not — they don’t use CapEx. So we’re talking about the digital services and also both in B2B and B2C.

So that’s the trend. The service continued to grow. They represent more and we’ll be also able to optimize the CapEx, not taking any risk of giving up our leadership in the largest and most powerful network, both in fiber and mobile in the country. I will pass through David to answer your EBITDA question.

David Melcon: And, Marcelo, thank you for the question. So a couple of comments. So first of all, I mean, we prefer to look to the margins at the operating cash flow level because there are particularly the new businesses. As Christian already commented, they will bring without CapEx, so but they will bring a higher OpEx. But overall, if we look to the OpEx structure, we have the first block have to do with cost of goods sold that will continue to be growing as we will accelerate all those new businesses. And regarding the cost of operations, there are still many pools we can look for. And digitalization, simplification, this is something that we are — we believe that there are opportunities that the unitary cost to serve the customers and to digitalize back offices and channels should bring reductions. So we foresee a change in the mix on the OpEx that will improve the margin at the operating profit level.

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

Christian Gebara: Thank you, Marcelo.

Operator: Next question from Bernardo Guttmann with XP. You can open your microphone.

Bernardo Guttmann: Hi, good morning everyone. Thanks for taking my question. Actually, I have two on my side. The first one is regarding the migration process from concession to authorization, what are the economic benefits that we can expect in terms of the company’s OpEx and CapEx run rate? And what’s the expected time frame for regulatory approvals? If you can give us any color here, it would be great. And the second question is about competition in the fiber segment. All things are trending in this arena, any concerns regarding growth or ability to readjust price? Thank you.

Christian Gebara: So, Bernardo, on the migration, as you all know, we got the first approval of the negotiation committee that was comprised by Vivo, ANATEL, TCU and Ministry of Communications. We came like to this mutual understanding, regarding the proposed terms and condition, and then we had to go through the approval of TCU. So it is there, we have already a proposal that’s being analyzed by the Minister that is Jhonatan de Jesus. He had initially 30 days to prepare his report, he requested an extra 30 days. So we are now in this period of the extra 30 days. And also here like two weeks ago or 10 days ago, he requested an opinion of an AGU. And we expect that the AGU to come with the opinion and presented to the minister in the next days.

So if everything goes in this right schedule, we may expect that to be voted by the Board of TCU by the mid-end November. So that’s what we expect right now. But again, we are just clarifying what — where we are right now. So we are in the 30 days, extra days requested by the minister to report his analysis and go for approval in the Board. We don’t talk now about the benefits for the company. We are pretty sure that we’ll be able to optimize costs and investments, but we prefer to have it approved to give you more color on the impact that we foresee. On the second question and on the fiber, I don’t know a specific one. We are very confident about our strategy. We’ve been growing the footprint. So as I stated before, we reached 28.3 million home pass.

We’re going to get to 29 million by the end of this year. We increased at 12.5% homes connected. So we reached 6.7 million customers. The ARPU, because we are like reaching new cities and new areas, we may be more aggressive in the entry point, but we — although we keep growing ARPU when we compare 1 year ago, 1.2%. And again, here, there is also the combination of the convergent offer Vivo Total that sometimes may impact as a little discount. But what’s good is to show that we grow revenues in total, as you saw, a very robust growth in revenues for FTTH. And net additions, I think we have a very solid number, 192,000 in the quarter. Going forward, we continue to grow Vivo Total customer base. Today, it’s 2.1 over the 6.7. It doesn’t mean the convergent is only that.

We still have much more — more than double this number that is convergent, but it’s not in Vivo Total. So here, there are two movements. First, try to have all of them convergent and also have all of them in Vivo Total because it has a very strong impact in lowering churn. Vivo Total’s churn in fiber is 1 percentage point lower than the stand-alone fiber. Apart from that, I don’t know what specific question would you have for the market. The market is still there, a lot of players. Consolidation will happen. We don’t know what, and so — and we’re still looking if there is any target that may interest us. So far, nothing happened. So again, we continue to grow. And if we have the migration from the concession to authorization, we may have still more ability to overlay copper by fiber in the state of Sao Paulo.

Bernardo Guttmann: Very clear, Christian. Thank you very much.

Christian Gebara: Thank you, Bernardo.

Operator: Next question from Daniel Federle with Bradesco BBI. You can open your microphone.

Daniel Federle: Thank you. Good morning, everyone. My first question is a follow-up on the CapEx question because I understand the company is concluding an important project in deploying BRL29 million homes passed with fiber. And also a lot of the 5G rollout has been concluded in the main cities. So my question is more which areas could require additional or more CapEx, more CapEx in the upcoming years to like to offset the reductions in those — in the FTTH and 5G rollouts? And the second question is, if you see any reason to not distribute 100% of your free cash flow to the shareholders if you’re seeing any, like, potential cash disbursements in the future? Thank you.

Christian Gebara: Daniel, thanks for the question. Our guidance for the next three years, ’24, ’25, ’26 is 100% or more of net income. So that’s what I can state right now. We just announced another BRL2 billion capital reduction that I believe is a great news, if it’s approved. And in our — in the — up to next year, July, we’ll be able to pay it. So I think it’s good news. And apart from that, I cannot share what is our ambitions as a business. Now strategically, we may have other options to use the free cash flow difference. And so I cannot share. And regarding the CapEx, I don’t know if I got your question, but yes, we got BRL29 million. It doesn’t mean that we’re going to stop on that. So we may have more fiber to deploy.

Here, we have alternatives. Now the alternative is organically growth, the usage of neutral fiber network, eventually also M&A. So that’s our vision going forward that we’re not going to be on the BRL29 million, we’re going to go further. And the CapEx to connect customers is four times higher than deploy home passed. So again, you have to consider that we still have CapEx for that. Although prices are going down, the cost of connection is going down. We’re still talking around BRL800. So the penetration level that we have today is not what we aim to have because we are deploying new areas. So we’re going to grow the penetration over the BRL29 million that we may have in the end of the year and also in the new areas that we may deploy in the future.

So part of the CapEx will still be there to increase penetration of the overall network. In 5G, we have 57% of the population covered. We need to have more. We’re going to go there, and we’re going to do that while we see the penetration of the 5G devices going up. So if price of the devices are more reasonable, and we see more people adopting, as I stated here in the beginning, we have today around 17% of our mobile access with a 5G device. We need to have much more and to deploy much more. The good thing about the 5G deployment is where I’m putting 5G and reducing significantly CapEx on 4G, there is a natural replacement, one technology over the other. So again, the CapEx guidance is the one that I stated before is over revenue, and we are in a very, very strong positive trend.

Daniel, I don’t know if I answer your question. I don’t know if — yes, I think people are still connected but anyway, let’s move.

Operator: Okay. Our next question comes from Gustavo Farias with UBS. You can open your microphone.

Gustavo Farias: Hi, everyone. Thanks for taking my questions. Also two on my end. The first one is regarding B2B. We’ve been seeing B2B growing a lot and specifically cloud acquisition of IPNET. My question here is, what is the size of the ambition in B2B? And if you could comment on how you look at margins and how margins tend to be here, particularly in cloud, any comment would be welcomed. The second question is regarding — we noticed the help in margins coming from handset and electronics COGS basically from what we saw a better mix in electronics. Would that be structural, tends to look like this going forward? That’s my second question. Thank you guys, and congratulations on the results.

Christian Gebara: Gustavo, thank you for your question and your comments. Again, just to state, you mentioned IPNET. That is a company that we bought last quarter, that is a very important Google Cloud integrator just to confirm that the numbers of their revenue is not the third quarter results that we just presented, okay? Because the closing was recently. So as you stated, here, we have different type of services. We have cloud, we have cybersecurity, we have IoT, big data, messaging, IT equipment, sales and leases and the margins are different. So when you have a cloud, maybe when you distribute a cloud from one of the big players, our margin is low. But when you also have managed services over the cloud integration, your margin is very high.

So there is a combination here. And when we see a lot of messaging or even big data or IoT solutions, the margin are also very high. So it depends on the service, the margins may vary of course, everything that includes also consulting on managing services that we have the ability to do. And that’s why we are buying companies we bought Vita IT that is — it was a great Cisco integrator. And now we bought IPNET that is a Google Cloud integrator because we’re also buying the skills that these people have and a lot of people with certified capability to implement these solutions in our customer base. Here, we have to leverage there we have 1.6 million, 1.7 million customers in B2B ranging from a small company to the largest companies of the country and the ability to be closer to this customer with 5,000 sales reps that can understand the technological needs of these customers and can offer the best solution.

Also, the positive thing here is only 15% of our customer base in B2B have acquired the digital services or B2B digital service from Vivo. So we do see great opportunity to sell even more, especially if you go to the mid to the top, to the bottom, sorry, of the pyramid of our customer base. Digital B2B is growing in the last 12 months, 17%. It represents a lot of our total revenue already, more than 30% and is also leveraged the B2B traditional telco business because once you have the complete offering, of course, we are able to capture even more of the B2B data and telco solution. So again, all of them are growing and we are very positive that it’s going to be contributed not only to keep customers more loyal but to drive our revenues up. And I think I answered or not.

Gustavo Farias: Thanks, Christian.

Christian Gebara: I will give David the second one.

David Melcon: So, Gustavo, thank for the question. So the evolution of cost of goods sold is mainly impacted by two factors. One is the reduction of subsidies. And the second one is the higher relevance of electronics, consumer electronics that we have in our P&L. So if we looked at the presentation on the consumer electronics in the last 12 months, we sold BRL388 million and growing 37% year-over-year. Those electronics, they have a higher margin than the handsets. So if everything continues as we have today. So in terms of lowering subsidies and acceleration of consumer electronics, we foresee that we can also maintain the margin trend that you mentioned.

Christian Gebara: So consumer electronics, what he means is that everything that’s not smartphones. Being able to sell a lot of these devices. We even have our own brand for accessories or essentials from smartphones that is doing pretty well and the margins are much higher as David just stated.

David Melcon: And obviously, Gustavo, there could be some seasonality. It doesn’t mean that we are going to see exactly the same trends every quarter. But in the — thinking in the immediate term, this would be our ambition.

Gustavo Farias: Thank you guys.

Christian Gebara: Thank you, Gustavo.

Operator: Next question from Gabriel Gusan with Citi. You can open your microphone.

Christian Gebara: I don’t know, I’m not getting the question from Gabriel.

Operator: Yes, I believe he’s having some trouble. We are going to move on to the next question from Vitor Tomita with Goldman Sachs.

Vitor Tomita: Hello, good morning all and thanks for taking our questions. Two questions from our side. The first one is on the prepaid segment, we are seeing there some ARPU growth despite continued migration of higher ARPU prepaid customers to postpaid. So could you give us a bit more color on the recharge dynamics and how the prepaid segment has going in general, in your view? And the second question from our side would be on the fixed side, but actually on the legacy fixed revenues, it seems that the pace of decline of those revenues decelerated a bit this quarter, improved a bit. Do you see any specific drivers behind that? Thank you.

Christian Gebara: Thank you for your question. It’s because like what’s remaining its small piece, so of the legacy. As you can see now that for the quarter, presented is a little bit over BRL1 billion over the BRL14 billion that represents as of total revenue. So I think, here, there is voice, B2B voice, that companies may keep voice as a service. So what we see is a very, very limited amount of revenues coming from the legacy. And what is here maybe will be in a more — less actually — less volatile way. Nothing specifically about that. Here, what we have is legacy and our — going forward, we are trying to replace as much as we can by new technologies. So nothing positive to state. But what we have here is that maybe will remain because it’s voice mainly some xDSL and nothing more than that because DTH, as you know, we stopped selling it and with disconnected customers more than 1 year ago.

Regarding prepaid, we are very rational on our strategy on prepaid. So as you know, our offering is the BRL17. We’ve been able also to drive customers to monthly offers. So that’s also, I think, our ability to upsell to customers that are recurrently topping up with us. We’ve also been able to consume from the top-up. So we have, again, a vast portfolio of value-added servers that may interest also this customer segment. And again, as our ability and I think the strategy that Vivo has very powerful. It’s not only topping up, but also being the ability to migrate customers not only to hybrid but to monthly tariffs and also the ability to sell value-added service that accelerate consumption and again, contributes in a positive way to our revenue in the prepaid.

That’s what we believe we should do in prepaid now to give this differentiation and also to the future to be able to migrate them to hybrids. And again, we are — also — sorry, only to highlight, we are not giving a social network for free. We just have WhatsApp. So I think also it’s our ability to drive more consumption because we are not giving it for free.

Vitor Tomita: Perfect. Thank you.

Operator: Next question from Mathieu Robilliard with Barclays. You can open your microphone. Sir, you can open your microphone, Mathieu. He appears to have some trouble. We are going to move on to the next question from Gabriel Vaz de Lima with Morgan Stanley. You can open your microphone.

Gabriel Vaz de Lima: Hey, thanks for taking my question. I just wanted to get your sense in 2025, how you’re seeing — I mean we see mobile accelerating to double digits in growth? So just wanted to understand your ability to grow above inflation, if that is sustainable for 2025? And what do you see in both mobile and fixed to give you confidence in that?

Christian Gebara: Hi, Gabriel, I don’t know that’s your statement — I know about the budget — what we are — we have an ambition to grow above inflation. And here, what we are seeing is not only mobile or fixed, but our ability to sell more to customers. And here is mobile is fixed and also the other new services that I just described, both from B2C, B2B, our focus is increasing lifetime value of being able to prove that it’s already 10% of our revenues coming from new services and churn is clearly going down and part of it is the ability to sell more to the same customer. We continue doing that. We continue to do that. We continue to segment our customer base in the right way to have the right offering to the right customers.

So we are very confident that our ability to continue to grow, to grow revenues. We are not giving guidance again, but we have ability to grow revenues, grow EBITDA and also reduce CapEx over sales, as we stated before in our Vivo Day. That’s what I can share with you right now. We are very optimistic about the future. And as I stated before, we’ve been proving the same theory and the same thesis over the last five, six quarters, so one after the other. So I do believe that it’s time for everyone to be clear that we are in the right direction, and we’re going to continue with this path.

Gabriel Vaz de Lima: Thank you.

Operator: Thank you. The question-and-answer session 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, to be with us in our third quarter call. As you can all see the very, very consistent and solid numbers in all dimensions. And the growth is being cleared in revenues and EBITDA, operating cash flow, free cash flow and also in our net income. We continue to be driven by what I just stated in the last question, to grow above inflation and to be optimizing our CapEx allocation. Considering that, we are the leaders, we are the ones who have the full portfolio of services and we’ll continue with the stretch of maximizing the penetration of services over this large customer base that we have, leverage all the assets that normally state the brand, the channel and our ability to give a better and superior customer experience. So if you have any other questions about anything related to the third quarter, our whole team is here at your disposal. So thank you again. and hope to see you soon in our next call. Thank you.

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