Earnings Call Transcript - TIMB Q3 2025

Operator, Operator

Good morning, ladies and gentlemen, and welcome to TIM S.A. 2025 Third Quarter Results Video Conference Call. We would like to inform you that this event is being recorded. There will be a replay for this call on the company's website.

Vicente Ferreira, Investor Relations Officer

Hello, everyone, and welcome to our earnings conference for the third quarter of 2025. I'm Vicente Ferreira, Investor Relations Officer of TIM Brasil. This video highlights our recent financial and operational performance as well as the initiatives that support our strategic plan. Following the highlights, we will have a live Q&A with our CEO, Alberto Griselli; and CFO, Andrea Viegas. Please note that management may make forward-looking statements, and this presentation may contain them. Refer to the disclaimer on the screen on our Investor Relations website. Now let's review our results.

Alberto Griselli, CEO

Hello, everyone. I'm Alberto Griselli, CEO of TIM Brasil. Today, we'll explore how our commitment to innovation, customer experience, and operational excellence is driving sustainable growth and value creation. Let's dive into the highlights and key achievements that are shaping our journey this year. We've achieved a 5.2% year-over-year increase in service revenues for the first 9 months of 2025, a sustainable growth pace that combined with our robust cash conversion machine is fueling solid value creation. We keep evolving our B2B to expand new revenue streams. The TIM Smart Mining solution is gaining traction with a new partnership with Vale, the mining company. Additionally, EBITDA rose 6.7% year-over-year with a 50.3% margin and net income up 42.2% year-over-year. Our disciplined approach to CapEx has kept investment efficiency, and operational cash flow reached BRL 4.5 billion. Notably, we announced BRL 1.8 billion in interest on capital and repurchased BRL 369 million in shares, reinforcing our commitment to shareholder remuneration. Once more, we stood out in ESG practices. TIM reached the top 10 of the FTSE Russell Diversity and Inclusion Index, being the only Brazilian company and the only telco to appear on the list. Our net service revenues continue to grow at a solid pace, driven by the mobile segment. Postpaid expansion remains a key contributor, supporting overall growth. The more-for-more strategy is helping ARPU evolution and mobile service revenues increased 5.6% annually over 9 months and 5.2% in the third quarter. This quarter, we added 415,000 postpaid lines, with prepaid to postpaid migrations up by double digits. Postpaid monthly churn remains low at 0.8%, reflecting efficient customer base management. Our more-for-more approach optimizes the cost benefit equation by balancing offer attractiveness and revenue growth. Exclusive Black Friday offers, including iPhone 16E and PlayStation 5, are enhancing our value proposition, and we expect them to help maintain a solid trend in postpaid. In prepaid, we are seeing the first signs of stabilization, supported by targeted offers and improved customer experience. TIM ULTRAFIBRA is also showing operational improvements, with broadband ARPU at BRL 94 in the third quarter. Stable ARPU and the client base resuming growth at 3.7% year-over-year, marking 8 consecutive months of positive net adds should reduce the negative dilution for broadband to our numbers. TIM is reinforcing its leadership in network with 5G now available in 1,000 cities across Brazil. We have the broadest 4G and 5G coverage in the country. Sao Paulo's network modernization case is setting the base for next-generation connectivity. The project reached its completion with 100% of sites upgraded this November. We are now leaders in download speed in all rankings that measure throughput. We expanded our leadership in consistent quality indicator, leaving the second player even further down the scale. Additionally, we are seeing the first signs of operational improvement with churn linked to network reasons reducing by one quarter. All in all, our modernization efforts are successfully supporting customer base management and delivering superior network quality. Completing our 3Bs approach, let's talk about service. Providing excellent service is at the heart of our strategy. The revamped MyTIM app is transforming the customer experience and selling journey. With over 17.7 million unique users and 33% penetration, the app is driving digital engagement and e-commerce growth. We are the first telco to integrate with Apple Pay and Google Pay, enabling secure direct recharges for prepaid customers, simplifying the journey and encouraging recurring transactions. Digital service Net Promoter Score for postpaid and prepaid are on the rise, signaling that we are on the right path to elevating the experience with our service. Our more than 60 million customers are TIM's most valuable asset. With this in mind, we are always trying to improve our relationship with clients and better monetize this asset. TIM Mais is our enhanced loyalty program, offering more benefits, experiences, and convenience. Since its launch at the beginning of the year, we have seen over 2 million monthly active users enjoy the program's benefits. We have distributed 120,000 movie tickets and 20,000 Uber rides gift cards. The program NPS is over 80 points and reflects strong customer satisfaction. In parallel, we are accelerating base monetization with mobile ads. We reached over 1,000 campaigns and 270 advertisers by September. Through the combination of our own inventory with Google and Meta, we are boosting digital engagement and expanding revenue streams beyond connectivity. Mobile ads revenues closed the quarter growing in double digits versus last year. B2B is a key aspect of our strategic plan and another way to diversify our revenue base. Since we have little legacy, the evolution of connectivity through coverage as a service is the main driver for expanding our presence. B2B IT solutions now cover with 4G and NB-IoT, 23.5 million hectares and over 7,600 kilometers of highways, and we have sold almost 400,000 smart lighting spots, generating BRL 435 million in contracted revenues since the first quarter of '24. The mining vertical is gaining traction, and now we have another anchor customer. Vale is joining our portfolio of clients and will be able to enjoy the benefits of the TIM Smart Mining solution. We offer 5G, 4G, IoT, and artificial intelligence solutions to create a safer, more efficient, and more sustainable environment for our customers. With that, I'll hand it over to Andrea Viegas, our CFO, who will walk you through the financials.

Andrea Viegas, CFO

Hello, everyone. I'm Andrea Viegas, CFO of TIM. This quarter, we delivered another chapter of consistent and disciplined execution. We've stayed focused on what matters most: sustainable growth, productivity gains, and creating value for our shareholders. Our efficiency program remains one of the bases of our strategy. Thanks to efforts across all areas, we kept cost growth at just 1.8%, well below inflation. This discipline translated into a 7.2% increase in EBITDA, with margin reaching 51.7%. EBITDA after lease also advanced 8.3% year-over-year with robust margin expansion, a direct result of our industrial cost optimization strategy, which we've been executing across three fronts: our make model, contract renegotiations, and network sharing agreements. Also, CADE approved the expansion of our own sharing agreement with Vivo 2 weeks ago. These initiatives are helping us to keep lease costs stable and margins expanding even in a challenging environment. Our net income rose by a solid double digit in the quarter, reaching BRL 1.2 billion and bringing the year-to-date figure to almost BRL 3 billion. This performance enabled us to distribute BRL 1.8 billion in interest on capital and repurchased BRL 369 million in shares, reaffirming our commitment to create value for our shareholders. Building on this momentum, our operational cash flow measured as EBITDA after lease minus CapEx reached BRL 1.7 billion in the quarter, up 8.1% year-over-year, supported by a resilient financial structure. In 9 months, this metric is up by double digits, reaching BRL 4.5 billion. With a strong balance sheet, we are well positioned to sustain growth and deliver long-term value. Now back to Alberto.

Alberto Griselli, CEO

Thank you, Andrea. As we close, I want to reinforce that TIM Brasil is on track to achieve its 2025 goals and set the stage for 2026 of continuous evolution. We are delivering on our full year guidance across service revenue, EBITDA, CapEx, and shareholder remuneration. With results on the right track, we are confident we can finish the year successfully and continue delivering value through the following drivers: one, our mobile postpaid and B2B segments to keep performing strongly; two, prepaid and broadband to continue recovering; three, efficiency keeping costs and leases under control; and lastly, the buyback program is accelerating, and we are maintaining strong momentum in shareholder returns. Thank you for your attention. Now let's move to the live Q&A session.

Operator, Operator

Our first question comes from Bernardo Guttmann from XP.

Bernardo Guttmann, Analyst

Congrats on the solid results again. My question is about mobile service revenues. We saw a slight deceleration this quarter. How much of that comes from competition versus the natural normalization of growth after the strong cycle we had over the last years? And if I may, I have a second one. There has been a lot of market talk around potential moves and M&As in the fiber space. How do you see this environment? Could this wave of consolidation change your strategy or timing around your fiber business?

Alberto Griselli, CEO

Bernardo, thank you for the question. So let's start with the first one. When you look at the mobile service revenues, I think that we anticipated in the previous quarter this sort of dynamics, and it's pretty consistent with what you see in other years as well. We had a curve whereby we are at higher growth at the beginning of the year when we do our price adjustment, and then it tends to decelerate going forward. In this quarter, looking at the revenue dynamics on our side, we have a pretty favorable outcome in terms of maintaining our postpaid engine growth double digit, whereby reducing the deceleration of prepaid. This is a trend that we are going to expect in the coming quarters, where we are likely to balance a bit the growth with postpaid maintaining the growth momentum and prepaid, we are working to decelerate less year-over-year. So I would say that it's less dependent on the competitive dynamics that remain rational and more related to our own strategy and seasonal patterns. This is for the revenues, okay? And when we look at the M&A, we always say that the Brazilian market, being hyper fragmented, is a market that is not attractive at this point in time because of the pressure that we have on ARPU and churn. Therefore, we are looking to optimize our capital allocation in terms of how we allocate capital to broadband. We have our specific strategy that is dependent on our situation whereby broadband for us is a limited revenue line. The market has expected this for many years. Given the number of players, it is a process that will take some time. We have our own strategy, organic and inorganic towards this space, and it is unchanged versus what we discussed in the previous calls. What has changed is the results that we are having on broadband because as you see now, we have a much better operating momentum in terms of net additions. ARPU is still under pressure, and we posted still a negative revenue growth this quarter on broadband. However, the fact that we are in positive territory for net additions for 8 months now indicates that we are likely to see improvements on the top line as we move forward.

Bernardo Guttmann, Analyst

Yes, it's very clear, Alberto.

Operator, Operator

Our next question comes from Marcelo Santos from JPMorgan.

Marcelo Santos, Analyst

The first is, if you could just paint a bit what's the competitive environment on mobile? And the second, do you see room to increase pure postpaid prices maybe this year or maybe the next?

Alberto Griselli, CEO

Okay. Yes, Marcelo. When you look at the competitive environment, I would say that the competitive environment on mobile remains positive in our view. Of course, there are promotions here and there. But overall, I think that the price adjustment this year went through quite nicely. We are coding in our systems as we speak, the price adjustment that we're planning to execute for next year's back book prices. The market dynamics remain favorable. Of course, you have smaller players that are a bit more aggressive. But all in all, they are not disrupting the national market dynamics regarding pricing. As for pure postpaid, I think we have an opportunity to adjust it. Now we are on a promotional campaign because we just launched the Black Friday promotions. From now to the end of the year, it's unlikely that we are considering an adjustment, but it's something that we are certainly assessing for the beginning of next year.

Operator, Operator

Our next question comes from Leonardo Olmos from UBS.

Leonardo Olmos, Analyst

Can you give us more color on the lease efficiency plan, especially in terms of timing of the expected impacts coming from the partnership with IHS and rent sharing agreement and leasing contract renegotiations?

Andrea Viegas, CFO

Leonardo, related to our lease efficiency, as we mentioned, we are in continual discussions with all the partners that we have. Specifically about the agreement we made with IHS, we wanted the operation to make sites. We made this agreement with someone who has the capability and expertise to construct sites for us. This kind of site is for some specific customers like agribusiness or mining. We will fund financially, and they will build these sites for us. Our expectation for the leases is to have the lease costs growing relative to inflation, although we have an increase in the number of sites for our expanding coverage of 5G. Our goal is to increase just the inflation index this year. I don't know if I answered your question.

Leonardo Olmos, Analyst

Yes, yes, you mentioned the agreement with IHS and the overall goal. I was just wondering if you could talk a little about the RAN sharing and perhaps the renegotiations.

Andrea Viegas, CFO

Yes. You talked about RAN sharing. RAN sharing has enabled us to move forward. We made some adjustments to our previous arrangements with Vivo. We will maintain our plan to implement RAN shares, particularly for 3G and 4G. We are actively engaging in discussions and renegotiations with our tower company partners to ensure that we do not reduce the lease but only allow it to increase in line with inflation. We have another agreement in place, but at this time, we cannot disclose the details. However, once we finalize our new agreements, we will share that information with you.

Operator, Operator

Our next question comes from Vitor Tomita from Goldman Sachs.

Vitor Tomita, Analyst

Two main questions from my side. One is a quick follow-up on the fiber business. Just if you have an update on the organic side on what has been supporting those improving net additions, if it's the same initiatives that you had in place before, such as focusing more on higher-end customers, higher value customers, or if there is anything new that's interesting on the strategy there? The other question is a bit of a follow-up on what people are asking about the competitive environment. Very specifically, there has been some noise in markets in October due to new banks and new MVNOs increasing commercial outreach in some areas and promotions to some extent. Was that noticeable at all from the standpoint of our commercial teams or is it just noise?

Alberto Griselli, CEO

Sorry, Vitor, I had my mic switched off. Going to the fiber business. What happened in the fiber business were primarily a number of things related to the quality of the acquisitions and the management of the customer life cycle. For the quality of the acquisitions, we optimized our credit scoring of the customer base, local targeting, and the commercial channel footprint. Over time, we changed the mix of our acquisition and targeted high-value segments within the footprint. Regarding churn management, we have improved upon this too. Better quality at the beginning means we lose fewer customers due to bad debt and delinquency rates. Meanwhile, we are enhancing the overall quality of service. These are the two main areas that have led to net growth. As for the competitive environment, you're right that over the last quarter since the launch, there have been initiatives increasing progressively the offers to their customers. They started a third time where they're increasing allowances. To some extent, they reduced prices on specific offers. Regarding our ability to respond, we can manage our gigabyte per revenue because we own the network. We're deploying 5G and have spare capacity. So far, the market has not required us to respond, but we continue to monitor progress regarding potentially losing customers.

Operator, Operator

Our next question comes from Maria Clara Infantozzi from Itaú BBA.

Maria Clara Infantozzi, Analyst

I would like to ask, please, how do you see the growth opportunities coming from B2B and IoT? You have been vocal about the monetization coming from the market. So just wanted to ask you about how you see the size of the opportunity, your long-term goals, and how you see the evolution of revenues in the short term?

Alberto Griselli, CEO

I'm not sure that, Maria, I understood correctly your question. I will try to rephrase it. Basically, if I understood correctly, is how we are maintaining the growth in the B2B and IoT segment? What is the question?

Maria Clara Infantozzi, Analyst

Yes. Actually, I asked you to please explore more how you see the long-term growth coming from B2B as you have been vocal about monetization opportunities, and if you could please comment on how short-term and long-term goals are perceived by you, and where the opportunities exist.

Alberto Griselli, CEO

Okay. So, just to clarify, are we talking about B2B or in general? It's about B2B and IoT, got it. Our history in B2B is limited compared to other market players, so we do not have an established background. Consequently, we've created a strategy tailored to our strengths. We've identified promising sectors in Brazil, including agribusiness, infrastructure, utilities, and mining, which align well with our technological expertise. We initiated this organically and have made progress in these four sectors through a model we refer to as coverage as a service. This is contributing to growth in these areas. In the medium term, we plan to broaden our range of solutions to encompass security, cloud, and possibly additional sectors. For instance, we are exploring opportunities in manufacturing. We are targeting both organic growth and potential ICT acquisitions to enhance our services and client relationships. This strategy has been active for several years, and we are close to reaching BRL 1 billion in contracted revenues. We are acknowledged as a prominent partner in the sectors we serve, and our goals are to strengthen our position and expand our services and client relationships. Therefore, looking ahead to the medium term, our approach will combine both organic and inorganic growth.

Operator, Operator

Our next question comes from Phani Kanumuri from Santander.

Unknown Analyst, Analyst

I have a couple of questions here. The first one is on your operating cash flow after lease. In the first 9 months, it has a growth rate of 11.8%, but it's trending slightly lower than the 14% to 16% for this year. So what is driving that? The second one is looking at the competitive situation now, how confident are you on your 3-year plan in terms of revenue guidance and results?

Alberto Griselli, CEO

Let me take the first one, and I will pass the second one to Andrea. I will repeat it to be sure that I understood it correctly. The first question is regarding the competitive environment. As I mentioned to Bernardo in the first question, the overall — at least in mobile, the competitive environment remains rational. We're basically in a position to keep growing the top line according to the guidance we shared last year. Of course, as every year, we will be updating it in February next year. When you look at the overall mobile environment, I would say that it hasn't changed from when we shared our guidance in February. Therefore, everything is confirmed. There are nuances where we see postpaid in mobile driving growth and potentially improving situations in the prepaid environment. Regarding the second question about the operating free cash flow dynamics, 11.8% versus our guidance of 14% to 16%, was that the question, Phani?

Unknown Analyst, Analyst

That's the question, Alberto.

Alberto Griselli, CEO

Yes, that's the question. If you look at our dynamics, we are confirming our guidance. We believe that when you look at how revenue growth, EBITDA expansion, EBITDA after lease expansion, and CapEx will combine in the next quarter, this will put our operating free cash flow expansion within the range of our guidance. Since we are at the end of the year, you can easily calculate what this will imply in our numbers, but I'll leave this to you, but we are confirming our guidance for the full year.

Operator, Operator

Next question comes from David Lopes from New Street Research.

David-Mickael Lopes, Analyst

Just a couple of follow-ups. On the price increase you did in Q3, I was wondering if you could give a bit more color like maybe the magnitude and what's the percentage of the base affected? And now that prepaid trends are easing, do you have a possibility to do a price increase next year on prepaid? Or is it still too early? The second question is on B2B. I was wondering if you could give any color on the margins you're getting from B2B? Is it dilutive to your margins or not?

Alberto Griselli, CEO

Okay. David, I got the last two questions. I will address. I lost the first one. So on the second one, this is a prepaid price increase. Just an overall comment. When you look at the more-for-more strategy, this is the way we implement it. Generally, it's a price adjustment that always comes with extra benefits for our customer base. On prepaid, given the construct of the offer, it's trickier to change the price. Today, we're basically marketing BRL 1 per day, so it's deeply linked in the offer structure. I would say that we are exploring ways to monetize our customer base and the prepaid to control migration as a method to monetize our customer base. We'll keep doing that. We are looking at balancing benefits between prepaid and control to ensure the migration makes sense while also increasing prices. Regarding the marginality of B2B, the marginality of B2B is generally below 50% EBITDA margin. But it tends to be accretive to cash flow generation, meaning they are generally dilutive on EBITDA margin but accretive on the bottom line. That addresses your questions?

Operator, Operator

Ladies and gentlemen, without any more questions, I will return the floor back to Mr. Alberto Griselli for his final remarks. Please, Mr. Alberto, you may proceed.

Alberto Griselli, CEO

Thank you all for joining today's video call. We are arriving at the end of the year with strong momentum. We are executing our strategy with discipline and consistency. Despite being just 2 months away from 2026, we still have a lot to accomplish in '25. This year-end will be very exciting, and we expect to deliver on the promises we made to the market. I really want to thank the entire team for their commitment and relentless drive. Thank you. And I look forward to catching up with you guys in the one-to-one session. Lastly, a final message to our sales team. We put together a special Black Friday offer for our customers. Let's go for it.

Operator, Operator

We conclude the third quarter of 2025 conference call of TIM S.A. For further information and details of the company, please access our website, tim.com.br/ir. You can disconnect from now on, and thank you once again.