Hello, everyone and welcome to TSA’s Earnings Conference for the Second Quarter of 2024. Thank you for joining us. I am Vincent Ferreira, Head of Investor Relations. Today, we will share our highlights on video and then begin our live Q&A session with our CEO, Alberto Griselli; and our CFO, Andrea Viegas. Before we discuss our results, I remind you that management may make forward-looking statements and this presentation may contain them. Please refer to the disclaimer on the screen, which will also be available in our earnings materials and in our Investor Relations website. With that, we move to our results.

Hello to everyone. I am Alberto Griselli, CEO of TIM Brazil, talking from our headquarters in Rio de Janeiro. I'm pleased to share the highlights of our solid second quarter 2024 results. Despite some macro challenges, we are taking advantage of favorable market dynamics to further develop our 3Bs approach and deliver robust results across the board. In the second quarter, we maintained the pace of growing our service revenue high single digit year-over-year. Our EBITDA grew above our revenues, sustaining margin expansion despite a tougher comparative basis. Our proxy for operating free cash flow reached a record high for the second quarter, growing approximately more than 20% year-over-year. These solid financial results are accompanied by improvements in our services, innovation in our offerings, and consistent infrastructure development. Our results are mainly driven by mobile services with revenues growing by 7.3% compared to the second quarter of 2023. Consequently, ARPU expanded by 6.8% through more-for-more initiatives and migration strategy. Our customer base profile continues to improve with postpaid net additions accelerating to solid levels. In the second quarter of 2024, we added 458,000 clients. We combine initiatives to reduce churn and expand migration from prepaid to postpaid to support this performance. Behind these numbers is a sharp execution of our 3B strategy. Building the best offer in the market requires an innovative mindset, bringing novelties valued by the customers at the right price. In the coming weeks, we will showcase our new postpaid portfolio with the best control plans in the market. The best network combines excellent coverage with the best availability and quality. As you know, TIM ranks number 1 in those metrics in 5G and overall. Building this while reducing CapEx pressure requires an innovative and efficient approach. An example is the new 4G and 5G integrated antenna we developed with one of our vendors, which increases capacity and coverage at reasonable prices. To deliver the best service, we are changing our portfolio of offers and improving how we serve our clients more effectively. We are increasing first-call resolution rates and facilitating digital interactions. Therefore, call center NPS is improving, and we continue to outperform the sector in resolution rankings. Moving to the other areas of our operation, our fixed broadband unit is performing well despite fierce competition. The focus remains to grow profitability, so we kept revenue expansions at high single digits while our FTTH base increased double digits. Our TIM IoT solution continues to evolve fast, winning new connectivity contracts while developing end-to-end solutions. In the last 12 months, we added close to BRL280 million in contracted revenues, growing in the three verticals we selected. Before Andrea joins us for this update, I'd like to remark on how effectively our 360-degree approach to productivity and efficiency is helping the team reduce cash cost pressures while improving customer satisfaction with technology and discipline. We have done a great job with digitalization in past years. However, there is room for additional improvement. Two examples, Pix is the new frontier for repayments, and my team app will contribute more to our digital interaction after its new version is released. In terms of our infrastructure, the network sharing with Vivo was resumed. We should accelerate more, but we are back working on the 2G shutdown and the single grid. On another front, we recently closed new agreements with vendors for our access network. We are bringing new 5G technology at an effective cost to improve the quality for our customers. Our AI initiatives are moving from pilot to full rollout. Two of the 10 use cases mapped to be tested in 2024 have completed their testing period, and we are rolling them out until the end of this year. During the test, the team AIX customer care copilot showed a decrease in average service time and increased satisfaction. For network predictive maintenance, the test showed that our system could predict failures and we were able to resolve them. Our hypothesis that generative AI could benefit the team by reducing costs and increasing the customer experience is holding so far. We will keep you updated on this topic in the coming months. Now I will pass over to Andrea to talk more about our financial highlights.

Hello, everyone. I'm Andrea Viegas, CFO of TIM. As Alberto mentioned, we delivered robust results across the board. The top line grew 7.5% year-on-year this quarter, with positive contributions from all revenue lines. Our EBITDA showed solid performance despite a tougher comparative basis. It grew by more than 8%, with the margin reaching an all-time high of 50% for a second quarter. Considering the lease's effects, EBITDA after lease grew by almost 14%. This performance continues to benefit from the decommissioning project, which has reduced recurring lease payments by BRL56 million versus the second quarter of 2023. The EBITDA after lease margin grew notably by more than 2 percentage points year-over-year. In this quarter, our net income grew by more than 20% year-over-year, benefiting from the overall operational performance and positive effects at the G&A line. In addition, we recorded a substantial increase in operational cash flow of almost 24%, with the margin expanding to 24.4%. As we explained last quarter, the seasonal negative impacts on working capital and CapEx are reverting. CapEx will close the year inside our guidance bands, with no material impact from FX and working capital should be positive in the second half. I am pleased with the figures we are delivering, which makes me confident that we will achieve our guidance by the end of the year, even with a more challenging comparative base in the second half. Now back to Alberto.

We just closed better than expected first half. Financial and operational performance are responding well to our initiatives. In the second half, we expect healthy competition to be maintained, so we will focus on evolving our portfolio and looking more carefully into our prepaid dynamics as the macro environment may be a concern for low-income clients. Our digitalization program will continue to run both in the more traditional way and through AI projects. We expect more pilots to move from the testing environment to full implementation. In B2B, we expect the coming months to be exciting with more solutions being added to our portfolio. We are optimistic about the future and look forward to the opportunities that lie ahead. We are on a long journey to become Brazil's most preferred mobile operator, and our commitment to this goal remains unwavering. This delivery can only be achieved through hard work, creativity, and discipline, and we are confident in our ability to succeed. Now let's move to the live Q&A session.

We will now begin the Q&A session for investors and analysts. You can also submit written questions using the Q&A button. Our first question comes from Bernardo Guzman with XP. You may unmute your microphone.

Hi. Good morning, everyone. Thanks for taking my question. Actually, I have two on my side. The first question is relating to margin. You have consistently achieved this expansion. On the revenue side, it's evident that the more-for-more strategy is proving effective, but on the cost side, I would like to understand the main factors that are contributing to this expansion, the key initiatives that can drive this growth moving forward and my second question is related to competition in the mobile segment. It would be great to hear views on possible competition coming from a new player, Nubank as an MVNO. Historically, this market never took off in Brazil, but now there's a new player with great execution capacity. What has changed in this market from a commercial point of view? Thank you.

Hi, Bernardo. So I will start with the second one, and then we will pass it to Andrea for the margin one. So on the first one, I would say, Bernardo, that the competitive environment so far remains pretty rational in terms of what is happening in both postpaid and prepaid. So the more-for-more approach and the shift from volume to value is actually happening. Everybody is competing more on quality of services and innovation rather than straight price or price per giga. When it comes to the possible new entrants, we need to see what kind of strategies they'll deploy. So far, MVNO has been operating as niche segments, competing on a different value proposition and again not competing on prices. So, so far the MVNO has not been a disruptor in terms of pricing as they have been focusing their strategy on specific segments and so they didn't change the competitive dynamic materially. So on this front, I would say that for the specific case that you mentioned, we need to wait to see what their commercial approach would be. So far, everything is fairly constant and focused on the more-for-more approach, competition on quality of services, meaning new offerings. We are launching some new ones in the coming months, natural services and the likes, and less on price.

Hi, Bernardo. Related to the margin, we actually have a very good percentage this quarter. In the region and also in the region after lease, we will continue to focus on our productivity to increase our digitalization, but we were happy to remember that we also have to invest in some OpEx also for generating more revenue. So we always have room to improve, but in our guidance, we show that we will increase margin this year related to the previous years, but we also have to invest. So, we have good margin results, and we will continue this path.

And if I can add something, if you look at the categories of things that we're doing, we have this whole front of digitalization that we mentioned in the presentation before, a few examples that are proceeding quite nicely. We have clearly the revenue dynamics that favors also the margins when it comes to the more-for-more strategy. So it's accretive for margin expansion and I would say that we are starting a few remote fine-tuning of the make versus buy approach that we are thinking to deploy in the coming quarters that should be assertive in terms of increased efficiency and increased quality of the services that we relate to that specific activity.

Very clear. Thank you, Alberto and Andrea.

Next question from Marcelo Santos with J.P. Morgan. You can open your microphone.

Hi, good morning to all. Thanks for taking my questions. I also have two. The first, I wanted to question you a bit about the guidance, especially the service revenue growth guidance. So for the second quarter in a row, you are coming above the guidance above the high end of the guidance. Is there room to increase that guidance? I mean or is there some expectation that the second half is going to be particularly weak? I mean, could you please just comment on your yearly guidance in face of the results that you have achieved so far? That's the first question. The second question is the lease line and the tower renegotiation. Where are we on that process? What's the outlook for the line of lease payments? Thank you very much.

Okay. Marcelo, I will take the first one, and then we'll pass to Andrea for the second one. When it comes to the second half, I wouldn't say weak guidance. So the, I would say the following, weak guidance and you're right, we've been performing above the bracket in the first quarter and second quarter. Now what we are foreseeing for the following quarters is something that has already happened in the previous year. So a sort of slowdown in the pace of revenue growth, and there are a number of reasons that we need to be considering. First of all, we got a less favorable comp versus last year, so we had quite a strong second semester last year. The second one is the fact that, when you look at the price up of postpaid, this year was less intense compared to last year and so you tend to see the results in the second quarter and going forward. So if you look at our postpaid revenue growth on a historical trend, you generally see a strong Q2 and then the effect of the price up tends to stabilize in the following quarters, so the revenues are slowing down a bit and we expect the same effect this year. We need to see at the prepaid, so you see that on prepaid we had slightly negative revenue growth in this quarter also because we are migrating prepaid to control plans. This is going to happen in the next quarters and so we are fine-tuning our value proposition and go-to-market approach, and we need to see how this will play out in the following quarters. Last but not least, we have the Ultra, TIM Ultra. So the broadband that we imagine is going to stay fairly stable. So all in all, what we are likely to see in the second semester is a slowdown of the revenue growth, and this will put ourselves in the position to achieve fully our guidance, which is the bracket from 5% to 7%.

Hi, Marcela. Related to the leases, this quarter, we have still the impact of decommission, but as we mentioned before, we ended the major part of the physical decommission. So we still have some positive impact in the decommission sites, but we also have the inflation. We have a lot of contracts that have inflation adjustments in this quarter. So we have the lease at the same level as the first quarter, but from now on, the trend is to increase a little bit. We still have some renegotiations with the towers company that are continuous with us, and related to the panels, we will also have some panels in the second quarter because we still have around 200 sites where we are in the final discharge of the contract. So the trend is to increase a little bit in the lease in the second half of the year.

Thank you very much.

Our next question comes from Vitor Tomita with Goldman Sachs. You can open your microphone.

Hello. Good morning, all, and thanks for taking my questions. We have two questions from our side. The first one is, since you cited some AI initiatives on the cost side and some other sides, do you believe those could be major enough to support some upsides to long-term EBITDA guidance assumptions depending on how they play out? And our second question would be, you mentioned just now also a change in make versus buy approach. Could you give some more color on that? Thank you very much.

Okay. So, let me take the first one, and then we'll interact with Andre on the second one. So when it comes to the artificial intelligence, we are following a quite pragmatic approach. So we are deploying it. We are measuring the results. If the results are there, we are going to scale this up in the coming years. We organized ourselves since 2023 with an organizational structure that is quite transversal between the company that selects the case studies and the one with the most potential economic potential, and the one that is closer to our strategy. This process led us to select something like 100 use cases where artificial intelligence can be applied. Now, of these 100 potential use cases, we went down to a number which is around 10. These are the most promising in terms of alignment with the strategic fit and potential benefits, and there are two clusters of these use cases that we are actually in the phase of implementing. One is related to customer care, and the other one is related to network maintenance. Why these two? Because these are in line with our strategic objectives, which are to increase the quality of services that we provide to our customers and at the same time, increase productivity. So where do we stand now with these use cases? We are rolling them out. As a matter of fact, we are rolling out the artificial intelligence use case to all our internal service attendants for the call center. We are moving from piloting to rollout, and we are doing this this month and the same thing with predictive maintenance of the network. So we already got three main vendors and with one of these vendors, we are already engaged in rolling out predictive maintenance based on artificial intelligence for field services. This means that starting from now, we will be in a position to see the impact of those use cases on a large scale, and we will be able to see if our initial hypothesis of increase in productivity and quality of services holds true. If this is the case, if this is proved in this rollout, then we are talking about a double-digit reduction in terms of costs to perform these activities and at the same time, a potential benefit in increased NPS or network availability for the network side. So we are planning this also. We need to see if it works, and we are in the process of proving this in two specific larger use cases for call centers and network maintenance. In the meantime, we are also scaling up the others that we selected, but the two main ones are these two that I've been mentioning. Don't know if it's clear for you, Vitor. If yes, we move to Andrea for the second question.

Very clear.

Related to the make or buy, we are always looking for another way to increase our productivity. So we are always conducting studies about make versus buy. For example, now we are studying part of the maintenance of our network, the operation of the network. Maybe we can have a BPO in this area. We are studying another administrative area that maybe we can also outsource with better productivity. So this is the kind of make or buy that we are studying now.

Very clear. Very pragmatic as well. Thank you.

Next question from Gustavo Farias with UBS. You can open your microphone.

Hi, everyone. Thank you for taking my questions. I have two as well. The first one is regarding the prepaid operation. If you could put more color on what you guys expect on revenues going forward and the second one, regarding the fiber operation. As we have seen, limited growth and other players in the market considering selling their operations, what's your strategy on the fiber operation as a whole? Thank you.

Okay, Gustavo. So let's start with the prepaid. When it comes to prepaid, I think that there are two main dynamics that determine how our revenues are performing and will perform in the future. One is in our hands, which is the prepaid to control migration, and this is something that we are fine-tuning quarter on quarter. We discussed this in the last quarter. As a matter of fact, we are accelerating a bit, keeping control of the overall effect that is positive for the company, which is accretion in revenue growth. So this trend is there and is there to stay, and so this will impact revenues going forward as it is impacting it today. The other element is more related to the elasticity of the demand versus the price adjustments that we've been making in the over the last quarters. So when you look at prepaid, it is a mixture of a number of segments or sub-segments. In this structure, you find people that have limitations on available income and so their ability to commit a specific amount of money to that specific amount. So let's say, lower-income segments, whereby at the same time, you have people who have the availability to recharge and it could be also postpaid customers, but they prefer to be prepaid because they want the flexibility of spending the money as they wish. What we have seen when we applied the adjustment over the last quarters is that the elasticity response is different in different segments and it's sort of obvious. If you are lower income, your response is not that great. If you are higher income, the response is better. So what we are doing is fine-tuning our value proposition and the go-to-market strategy to efficiently address these different sub-segments of prepaid customers. The extent to which we will successfully implement our strategy and the time required for the strategy to pay off will determine, together with the prepaid to control migration, our prepaid performance in the next quarters. When it comes to broadband, you are right. As we've been mentioning, over the last quarters, we have a selective approach in terms of broadband growth and this doesn't change. This means that we consider the market to be extremely competitive and keeping competitive, so we are controlling the pace of growth to ensure profitability. As part of this process, we decided to restructure our sales and commercial machine a bit in order to depend less on what we call push channels that generally tend to have a lower quality of acquisitions. This, of course, requires a resetting of the commercial machine because we close down these channels, and the first effect is that you lose some gross additions, while the churn level tends to stay constant for six months because of what entered in the previous gross campaigns. This is impacting the pace of growth on FTTH, but we are getting to the normalization for the next quarters. Plus, we have expanded the footprint, so we're likely to accelerate a bit versus where we stand today. At the same time, we decided to close the sale of FTTC copper. So we don't sell any more copper, and so we lost the gross additions of this operation while the churn level continues to be there. If you combine these two things, you see a bit of a slowdown. We are working to reverse this trend and return to growth that is not going to be very different from high single-digit growth because this is the space that we consider to be good for this moment of the market. In the meantime, you are right that there are a number of players in the market that are willing to consolidate. We are looking at it to find the right move for us. We are not in a hurry because our exposure to broadband is limited, and so we are waiting for the right conditions and the right player to appear on our radar.

Thank you.

Our next question comes from Daniel Federle with Bradesco BBI. You can open your microphone.

Hi, good morning everyone. My first question is more like a follow-up on Marcelo's question. Your three-year guidance also implies deceleration in the upcoming years versus 2024. So my question is why the mobile industry should grow less in 2025 than this year? Which drivers for the deceleration? And the second question related to selling expenses, they are growing in line with revenue and we were not expected to see some like efficiency gains with lower churn, right? Churn is close to all-time lows, selling expenses could be benefitting from that. Thank you very much.

Okay, Daniel, let me take the first one, and then pass to Andrea for the second one. In terms of the first one, I would say that the rationale is sort of pretty simple. When you look at revenue growth and you look at the performance of the sector over the last 10 years, you see that if you take away 2022 and 2023 where the sector grew above inflation because the market rationality and market repair were already in place. In the last previous years, we have been growing below inflation. The thesis of the more-for-more approach is that is the one that we discussed in our Investor Day. So you have a situation where the market is shifting from volume to value, so more importance is placed on the quality of service versus price. This is confirmed by all research that we are running. At the same time, on the demand side, we see that we have on our hands pretty essential services with, let's put it this way, low usage and low prices because of the competitive dynamics of the previous years, and so the opportunity to catch up this gap that has been growing over the last years, and the macroeconomic environment where inflation was, now it's a bit less going down over time, but it's still going down over time. So when you put together what is the ideal growth rate, it's 1.5% to 2% above inflation, and this is basically what we put in our guidance at that time. A stronger growth at the beginning because we have some ground to catch and then growth that slows down to something above inflation and this is, by the way, subject to the fact that a rational environment will keep staying in place for the next years and the ability to have a positive demand elasticity response when implementing the more-for-more strategy and that is basically behind our assumption for the guidance. So 5% to 7% for the bracket for 2024 and 5% to 6% on a longer time horizon as inflation goes down and therefore the inflation plus goes down as well. Was it clear, Daniel?

Very clear, Alberto. Thank you.

Hi, Daniel. In relation to the selling expenses, we are increasing them below revenue because remember last year we had the credit when we incorporated Huawei. Huawei recognized a credit after sales. When we took this value from last year, you see that our increase in selling expenses is below revenue. We have also, for the achievable expenses, the same expenses are increased. It's basically related to the expenses with the revenue where we have a service and also the bad debt follows the same rationale on revenue. So we consider that we have very good results in all expenses and we will continue to grow this one. For example, second quarter, we have more products launching. So, we have increased in this part, but related to the goal already, we have very good ratios in this regard.

That was perfect. Thank you, Andrea. Congratulations.

Our next question comes from an anonymous source. When can we expect a revision of dividend guidance since the company is generating significantly more cash than anticipated?

Well, we have some formal moments in our governance where we update our guidance, and that would be the guidance for next year that are going to be released in February next year. So far, we gave a guidance for three years already that this was a big, put it away, positive novelty and respond to a demand of you guys to have a more long-term view. So we moved to the BRL12 billion overall three years’ guidance for 2024, 2025, and 2026. So the number is in place. It covers already three years. As we said many times, we want to maintain some flexibility on our side for potential inorganic activities and I would say at this point in time it is going to next year when we update the three-year annual industrial plan.

Thank you. Our next question comes from Gustavo Farias with UBS. You can open your microphone.

Hi, everyone. One additional question regarding the bad debt. Do you believe in an increase in bad debt given a higher mix in postpaid going forward? Thank you.

Gustavo, what we are seeing now is that our bad debt, even with our increase in the net adds and increase in revenue, is still under control. We are not seeing any kind of increase in bad debt. Our collection is still the same. Our collection curves for the future are still the same. So we are seeing very good results in this way, even if we increase in our base of particulate base. So far so good.

Okay. Thank you.

Next question from Felipe Cheng with Santander. You can open your microphone.

Hi. Thank you so much for taking my questions. Two on my side. If you could provide a little bit more detail as to what stage we are in the infrastructure sharing agreement with Vivo, right? If this has already been an important driver here for OpEx and CapEx, what to expect in the upcoming years regarding this infrastructure sharing agreement? That would be great and my second question is related to the B2B business, right? The IoT solutions, how this has been evolving, if you could provide also a little bit more detail, if it has been running ahead of expectations or not. So these are my two questions. Thank you very much.

So, Felipe, let me start with the second one and then I will pass Andrea for the first one. On the second one, on the B2B, we are on track according to our plan. So we have quite an ambitious plan by the way, and this is something that is going to, in our view, contribute to revenue growth in the medium term. It is already contributing, but so far it's an absent business. Nonetheless, over the last two years, we basically increased our contracted revenues by 10% in this sector. So we keep closing contracts in the three main verticals where we're operating. That would be agribusiness, logistics, and utilities. So on both these verticals, we are making steady and consistent progress and the pipeline of the contracts that, you know, the cycle to close these contracts is pretty long. It takes from six months to 18 months to close. So the pipeline is strong, and our positioning is also strong. So the answer is we are in line with our plan and we're moving forward, and you will see a number of tailwinds appearing in the next quarters in terms of commercial wins and potentially new verticals that we are going to open. We got the priority to expand our customer base on one side and also to increase our portfolio on the other side, looking for partners to enrich the portfolio and provide additional services for our customers. So we are satisfied with the progress to date and last but not least, we are also looking at non-organic activities, and when we have some news, of course, we will share them with you.

Hi, Felipe. In relation to the infrastructure agreement with Vivo, we are still in this project. We mentioned in our presentation that we have two fronts: one is the single grid and another one is to shut down the 2G network. We are moving forward in this and we are looking for other synergies inside what we have approved with Vivo, but it's a complex project that is not moving as fast as we want, but we are continuously working on this project and we think that, until the end of the year or the first quarter of next year, we will complete this project.

Maybe it's worth remembering that when you look at this, Felipe, the 2G shutdown is mainly about energy saving, but that's the main driver, whereas when you look at the single grid, we share the entire infrastructure and so there is some cost avoidance in terms of energy maintenance and actual costs. It's clearly much more complex to implement. Once we move forward, this could lead to CapEx avoidance if we decide to extend this to 5G at some point in time, but for now, of course, the 2G and the single grid need to work and the process needs to be in place, and this is something that we are proceeding with Vivo at this stage.

And just to remember, this is only for series with less than 30,000 people.

Perfect. Very clear. Thank you so much, and congratulations on the great results.

Ladies and gentlemen, without any more questions, I am returning to Mr. Alberto Griselli for his final remarks. Please, Mr. Alberto, you may proceed.

Thank you everyone for staying with us. We are delivering a very strong first semester for this year. So the first half of the job is done, and now we're fully focused on the second half. I would like to thank the entire team for the hard work that allowed us to deliver another great quarter, and I look forward to meeting you guys on the one-to-one conference call in the coming days and weeks. Thank you everybody.

Thus we conclude the second quarter of 2024 conference call of TIM S.A. For further information and details of the company, please access our website tim.com.br/ir.