Earnings Call Transcript - TIMB Q4 2025

Operator, Operator

Good morning, ladies and gentlemen, and welcome to TIM S.A. 2025 Fourth 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. I'm Vicente Ferreira, Investor Relations Officer of TIM Brazil. Welcome to our earnings conference for the fourth quarter of 2025. Today, joining me to discuss the highlights of our results, I have the CEO, Alberto Griselli, and the CFO, Andrea Viegas. As usual, we close our call with a live Q&A session. So let's get started. Alberto, great to have you here. What can you tell us about the main highlights of the 2025 results?

Alberto Griselli, CEO

Thank you, Vicente. Hello, everybody. It's a pleasure to share results that represent more than another solid quarter. They depict a consistent execution of our strategy and full delivery of our promises confirming the track record of TIM Brazil in meeting its target. From a financial standpoint, service revenue grew above inflation with a year-on-year expansion of 5.2%. EBITDA margin expansion reached 51% as EBITDA increased 7.5%. CapEx was essentially flat versus 2024. Operating cash flow grew at double digit, closing the year expanding at 16%. And with the dividend anticipation, we closed the shareholder remuneration at BRL 4 billion in cash, plus BRL 750 million in share buyback. In all, guidance was delivered with a combination of strong cash generation and disciplined capital allocation.

Vicente Ferreira, Investor Relations Officer

Really impressive financial performance, Alberto. But beyond the numbers, what can you tell us in terms of operational results and other achievements that the company made during 2025?

Alberto Griselli, CEO

Sure, Vicente. You're right. We had many deliveries that go beyond financials. In 2025, we continued to reinforce our strategic position. TIM remains the leader in 5G in Brazil with coverage of more than 1,000 cities, 52% more cities than our second player. We were once again the most awarded operator in Opensignal's latest report, winning key categories such as consistent quality and reliability. In B2B, we surpassed BRL 1 billion in total contracted value across all verticals and for the third consecutive year, TIM was featured on the CDP A list, confirming our leadership in climate and ESG practices. On top of that, we continue to capture productivity gains, applying digitalization, artificial intelligence, and strict discipline in capital allocation.

Vicente Ferreira, Investor Relations Officer

Great list of achievements. But Alberto, what can you tell us in terms of the contribution of each area of the company and the support that those different areas were able to deliver for our results as a whole?

Alberto Griselli, CEO

Okay, Vicente. When we look inside the business line, 2025 tells a coherent story. In mobile, we strengthened the pillars that have been driving our performance in recent years. Net service revenues grew at a solid pace, supported mainly by mobile services, which increased 5.4% in the year. Postpaid was again the central engine. Postpaid revenues grew 9.5% in the fourth quarter, and our base expanded by 8.4% with another year of positive net additions. ARPU in postpaid, excluding machine-to-machine, reached almost BRL 55, growing 3.1% year-on-year, which reflects our ability to combine volume and value, strengthening value capture across our customers, migrating them to higher value offers while keeping churn under control. At the same time, the prepaid segment began to show more encouraging signs. The revenue decline has accelerated for the third consecutive quarter, indicating that our actions to stabilize this space through more targeted offers, better segmentation, and improved customer experience are starting to gain traction. The combination of robust postpaid expansion and a more stable dynamic in prepaid supports a healthier, more balanced growth profile of our mobile business. None of these achievements would have been possible without the strength of our network. Throughout 2025, we further consolidated what has become a structural advantage for TIM, our leadership in coverage and technical quality. We maintain the broadest 4G and 5G footprint in Brazil and delivered tangible benefits for our customers. TIM's excellence was recognized in the latest Opensignal report, where we took home 6 national awards demonstrating that our investments are not just expanding coverage, but actively enhancing customer experience. One of the year's more significant milestones was the completion of our network modernization project in Sao Paulo, which has transformed experiences in the country's largest market by modernizing every site in the state; we expanded 5G and 4G coverage, increased capacity, and improved overall quality performance. We are now extending this modernization to other cities with a plan that includes around 6,500 sites to be swapped in major capitals until 2027, establishing new standards in the quality and experience for our customers across Brazil. In fixed services, 2025 was a turning point for our broadband operations team, Ultrafibra. After a period of adjustment and portfolio optimization, broadband revenues returned to growth in the fourth quarter, supported by an improvement in net additions and nearly complete migration from FTTC to fiber. By the end of the year, we reached 850,000 customers and FTTH ARPU of roughly BRL 95. TIM Ultrafibra revenues grew 6.2% year-on-year in the fourth quarter. This shows that our strategy of focusing on quality, rationality, and operating efficiency is working, and we are building a more sustainable broadband business for the future. Another significant milestone in 2025 is our progress in B2B. Our solutions have achieved meaningful impact across key industries. In Agribusiness, TIM coverage surpassed 26 million hectares, enabling precision agriculture, automation, and greater productivity across vast rural areas. In logistics, we expanded to more than 10,000 kilometers of highways connecting major corridors and enabling monitoring, safety, and operational intelligence. In Utilities, we sold nearly 470,000 smart lighting points, helping cities modernize infrastructure at scale with efficiency and control. And in mining, our advanced connectivity spanning 4G, 5G, and IoT supports safer and more automated operations. These verticals combined allow us to surpass our important milestone of BRL 1 billion in total contracted revenues since the beginning of this journey, confirming B2B as a structural growth engine for TIM, not a future possibility. It is already real, scaled, and part of our core. Vicente, in sum, we saw relevant contributions and strong support from every single line at TIM Brazil.

Vicente Ferreira, Investor Relations Officer

Thank you, Alberto. We'll come back to you for your final remarks later on. Now our CFO, Andrea, will walk us through the details of our financial performance. Andrea, thank you for joining us.

Andrea Palma Marques, CFO

Thank you, Vicente. Hello, everyone. We closed the year with another strong set of financial results reflecting the disciplined execution of our strategy in 2025. This quarter reinforced a story that has been present all year long: cost optimization, expanding profitability, and a clear focus on sustainable value creation. Over the last 12 months, our efficiency program has continued to reshape our cost structure. Operating costs again grew well below inflation, with OpEx rising just 1.8% year-on-year in 2025. This reflects the structural initiatives underway across the company, showing that this approach is not a temporary effort but a core part of how we operate. This strong execution contributes to another year of high-level improvement in productivity with EBITDA increasing by 7.5%, and our margin achieving 51%, marking an important milestone. We also advanced lease-related efficiency initiatives that contributed to a strong result in 2025. EBITDA after lease grew 8.3% year-on-year, supported by continued optimization of our industrial cost structure and margin sustainability. This operation year-on-year. In total, we delivered what we committed: BRL 4 billion in dividends and buybacks reaching 139% payout ratio. This demonstrated not only our strong financial performance but also delivered another quarter of double-digit expansion in operating cash flow, which grew 15.7% year-on-year in 2025, lifting the margin to 22.7%. Throughout the entire year, we maintained a solid cash conversion, supported by margin expansion and well-managed CapEx. Finally, our balance sheet remains a source of stability and resilience. Our leverage remains highly comfortable, giving us the flexibility to continue investing with discipline while sustaining attractive shareholder returns. These results give us confidence as we enter 2026. We feel well-positioned to continue creating value for all stakeholders. Back to you, Alberto.

Alberto Griselli, CEO

Thank you, Andrea. So as we step back and look at 2025, the conclusion is clear. It was a year of execution, consistency, and evolution. We delivered exactly what we promised and built the foundation for advancing our strategy in 2026. Our direction is that we will drive value creation through mobile, B2B, and broadband, supported by three key enablers that run across the entire company: artificial intelligence, efficiency, and ESG. In mobile, our focus remains on strengthening profitability through a customer-first approach, continuously improving experience and reinforcing the values of our offerings. In B2B, we are ready to capture a new wave of opportunities with a wider and more scalable portfolio that integrates connectivity, infrastructure, and digital services. The acquisition of V8 was an important step to enhance our capabilities. And in broadband, we entered 2026 with a more efficient operation, a more reliable service, and a portfolio aligned with sustainable expansion. Supporting all this, artificial intelligence becomes a transformational layer in our operating model, helping us automate, simplify, and accelerate decisions across every area. Our efficiency agenda remains a hallmark of execution, ensuring discipline in capital allocation and allowing us to explore new growth avenues while protecting margins. ESG continues to be a structural component of who we are, shaping our culture and guiding long-term value creation. Confirming this long-term deal in 2025, after many years, we finally reached an important milestone for our shareholders and the financial community. Our return on capital is higher than the consensus cost of capital. Now let's move to the live Q&A session, Vicente.

Vicente Ferreira, Investor Relations Officer

Thank you, Alberto. See you a bit, guys.

Operator, Operator

Before proceeding to the Q&A session, I will pass the floor to Alberto Griselli. Please, Mr. Alberto, the floor is yours.

Alberto Griselli, CEO

Introductory note — good morning, everybody. Today, we took an important step in our broadband strategy by acquiring full control of I-Systems. This will allow us to improve the efficiency of our broadband operation to deliver a better end-to-end customer experience and position ourselves for future movements. Now we can actually proceed 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. Actually, I have two questions here. The first one on margins and efficiency. You delivered strong margin expansion this quarter with EBITDA growing much faster than revenues. How much of this efficiency is structural and how much was more temporary or specific to this quarter? And if I may, the second one on I-Systems. With the consolidation of the company, how should we read this strategic move? Does this suggest a stronger long-term commitment to the asset and a lower probability of a potential sale of the fiber business? And looking ahead, what would be the next natural step? Does it make sense to revisit M&A opportunities, maybe looking at regional fiber players? Or is the focus now fully on organic growth?

Alberto Griselli, CEO

Bernardo, let me go with the second one, and then I will pass to Andrea for the margin expansion. So when you look at our broadband operation, I think this quarter has been marked by positive news on the industrial performance because after the fine-tuning, we managed to get to revenue growth. So we are back on track on something that has been underperforming in previous quarters. In the last quarter, we managed to return to a growth pattern and consolidate and optimize our model. At the same time, we need to recognize that the neutral model that we wanted to implement faced a number of challenges. The benefits of scale that were supposed to happen did not happen. So the acquisition of control of I-Systems provides us a number of benefits. The first one is that we get control of the end-to-end operation of our customers, which supports one key indicator: churn management and customer level of service. The second benefit is that we will be able to increase our operational efficiency. This measure is going to be accretive on margin expansion and a bit dilutive on CapEx, but overall, it's going to be neutral on free cash flow generation. The third and most strategic one is that we position ourselves for our next step. The question is, what is our next step? We addressed this in previous calls, where we said that we are looking at a number of different options. The sale of our broadband operation has never been on the table. We just want to clarify this.

Andrea Palma Marques, CFO

Bernardo. Regarding the margin efficiency. This is the consequence of the cost optimization that we have been working on for the past years. This year, we mentioned several times that we have an efficiency program in place, and the result is structural. In this quarter, we have some specific effects. The first one is the visitor interconnection cost for visitors. This affected this quarter. If we look at the first quarter, we had an increase in visitor interconnection costs. In this quarter, we have a decrease. Remembering that the cost of interconnection refers to the full year, so we have this balance between quarters. Another effect in this quarter was the reduction of our taxation on the overtime pay. But again, these two effects impacted this quarter specifically, but the results show the efficiency we have in a structural way.

Operator, Operator

Our next question comes from Gustavo Farias from UBS.

Gustavo Farias, Analyst

First of all, congrats on the results. So my first question regarding margins. We saw a decrease in the network and interconnection expenses, which was really a highlight for us. If you could comment on the main drivers behind that. You mentioned in the release a cost optimization of digital content providers. How should we think about this line going forward? My second question is on mobile competition. We've been seeing some less positive figures on mobile portability in Q4 based on data from the regulator compared to past periods for TIM. How do you see this competition, especially given these mobile portability numbers we've been seeing lately? Do you think this is influenced by any new cell impacts?

Alberto Griselli, CEO

Okay, Gustavo. Let me take again the second question, and then I will pass the word to Andrea for the first one. When it comes to the dynamics of portability, if you look at our report, you see that our churn level is almost stable over the quarters. Therefore, the increase in portability means that the share of portability within our churn is increasing. This depends on a number of factors, one of them being the commercial practices of our competitors. Our churn level is fairly stable during the quarters of last year. Looking at the new cell impact in market dynamics, I would say that from a general perspective, the market is pretty rational and continues to be rational. Our ability to attract customers remains as it was. Unfortunately, Anatel stopped sharing the number of new cell subscribers, so we cannot rely on an independent source to measure the growth of the numbers. What we see is our internal view based on a number of KPIs, and the impact is not material at this stage.

Andrea Palma Marques, CFO

Gustavo. Related to the network and interconnection expenses, we have some items that are increasing and others that are decreasing. The decreasing item is the visitors that I just mentioned. What is increasing, for example, are the content providers that are related to the offers that we launched last year, where we put a stream for our customers. So we have an increase in this item and we also have an increase in the network related to the expansion of 5G.

Operator, Operator

Our next question comes from Marcelo Santos from JPMorgan.

Marcelo Santos, Analyst

I just wanted to zoom in a bit more on the personnel expenses, particularly the taxes on overtime hours. Was there any retroactive recognition of this gain? I want to understand better this understanding; is this something that's going to change going forward? Did the fourth quarter include changes that were retroactive to previous periods? Just to understand the sustainability of these gains over time.

Alberto Griselli, CEO

So I'll start, Marcelo with the second one. The ARPU dynamics. I think this is primarily, in our numbers, more our own efforts in terms of ARPU expansion. Throughout 2025, we optimized a number of areas in order to serve better our customers and increase the efficiency of our operations. One of the things we did was evolve our commercial distribution in a way that is now more pull and less push. The result of this approach is beneficial in different ways because at the end of the day, the quality of the customers we are acquiring is better. That said, our pricing strategies hold, especially on the mobile side. The other driver is more related to customer management activities, where we manage our customer base and adjusted offers. This resulted in a positive effect on the ARPU, indicating that our efforts are showing results.

Andrea Palma Marques, CFO

Marcelo, the impact on overtime pay affects both the past and the future. In the fourth quarter, the impact is higher because it concentrates gains from past periods. In the future, we will continue with this impact, but it will be a smaller amount relative to the fourth quarter figures. However, bear in mind that these gains are not that sizable in our overall OpEx.

Operator, Operator

Our next question comes from Rogério Araújo from Bank of America.

Rogério Araújo, Analyst

I have a couple here. First, on tower leases, if you could mention how the negotiations are evolving with lessors? Are you renegotiating terms ahead of maturities or mainly upon renewals? Also, incentives stepped up in the fourth quarter. What has driven that? And how should we think about the incentive trajectory in the upcoming quarters? Lastly, on tower leases, what is our latest view on lease expenses as a percentage of revenue over the next 2 to 3 years? Can ongoing renegotiations offset incremental 5G and tower needs?

Andrea Palma Marques, CFO

Rogério, let's talk first about the tower lease. The tower lease ultimately reflects what we are doing in the past years. We have been working very hard on several efficiency levels in the lease area. This year was a challenge due to impacts of increased towers and inflation. However, we delivered an expansion of margin in EBITDA after lease. So this efficiency continues. We have ongoing agreements with TowerCo, having announced one of them a few weeks ago. We expect the ratio between the lease and revenues to slightly decrease, considering that we are continuously expanding our network related to 5G.

Alberto Griselli, CEO

Andrea, just to add a few points, Rogério. When you look at our lease costs, there are multiple components involved. The majority is clearly network costs, but there are other elements as well. We finalized negotiations with American Tower last year. Looking forward, challenges and objectives for this year include ongoing negotiations that are essential. This initiative is part of our overall strategy, alongside our buy initiatives. Our guidance and what we have shared with the market indicates that despite network deployment pressures and inflation, we plan to manage lease costs to grow at a maximum with inflation and slower than revenues.

Andrea Palma Marques, CFO

Regarding the tax reform, what we can say now is for 2026, there is no impact. For 2027, that is the year we already included in our guidance, it should be neutral on free cash flow.

Rogério Araújo, Analyst

Okay. Can you share any early estimates about the potential impact after the transition period by 2033?

Andrea Palma Marques, CFO

Rogério, we haven't announced our guidance yet, so we can only discuss the years that we've already mentioned, which are from 2025 to 2027.

Operator, Operator

Our next question comes from Daniel Federle from Bradesco BBI.

Daniel Federle, Analyst

Congrats on the strong results. The first one is if you could provide more color on the price increases in the first quarter. Are they front book, back book, and what is the magnitude, if possible? The second question regarding CapEx. CapEx ended up a little bit closer to the top of the range. Is there any update in terms of CapEx demands and pressure from FX?

Alberto Griselli, CEO

Okay, Daniel. Let me address the price increase first and then hand it over to Andrea for the CapEx issue. When you look at the more-for-more strategy, we generally upgrade our back book and front book prices. The back book price adjustments for postpaid are happening as we speak. It is the one I mentioned in the previous answer. The magnitude is fairly similar to last year's adjustments. Of course, it won't affect 100% of our customer base; it happens in phases throughout the year. However, the overall approach in the first quarter is quite similar to the amount we executed last year. We are also in discussions internally regarding front book price adjustment, which we executed around June last year and are planning to follow a similar pattern this year. We are confident that we can implement this for postpaid as well this year. For CapEx, Andrea?

Andrea Palma Marques, CFO

Daniel, we are on track with CapEx and maintaining the guidance we announced. The key point here is that when we see an opportunity to accelerate CapEx, we will take it, especially when we generate efficiency. However, 2025 was exactly what we expected in terms of investments.

Operator, Operator

Since there are no further questions, I will now turn the floor back to Mr. Alberto Griselli for any final remarks. Please, Mr. Alberto, the floor is yours.

Alberto Griselli, CEO

Thank you all for joining today's video call. I would like to extend my gratitude to our entire team for the great results that we achieved together in 2025.

Operator, Operator

This does conclude the fourth quarter of 2025 conference call for TIM S.A. For further information and details of the company, please access our website at tim.com.br/ir. You can disconnect from now on. Thank you once again, and have a wonderful day.