Earnings Call Transcript - VIV Q3 2024

Operator, 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. 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. We would like to inform that all attendees will only be listening to the conference during the presentation, and then we will start the question-and-answer 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, IR Director

Good morning, everyone, and welcome to Vivo's third quarter 2024 earnings call. I 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 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, CEO

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 customers 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 costs, 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 continues 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 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 propositions 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 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 the 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 level at BRL30.3. Moving on to 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 the third quarter of 2023, 5G access in Vivo has more than doubled, reaching 13.8 million and already representing 70% of our mobile access. This important expansion has been made by the acceleration of our coverage as our 5G network is already available in 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 for 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 the third quarter of '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 provides us a product with 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, 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 from Vivo, meaning that we have significant space to grow and capture our captive addressable market. We are always looking to expand our presence. In this sense, during this quarter, I would like to highlight results related to our agribusiness vertical, Vivo Agro. We had a 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 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, CFO

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 solutions and a greater customer base, while cost of goods sold decreased as a result of fewer 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 revenue and expense lines as during the last year third quarter, we had a positive one-time effect. 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 on 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 and 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 show Vivo's unique ability to enhance shareholder value through operational excellence.

Operator, Operator

Our first question comes from Carlos Sequeira with BTG. You can open your microphone.

Carlos Sequeira, Analyst

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 prices 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 about 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, CEO

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. 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 aligned with the operator that is providing the network. I understand that the offer can be competitive, but we need to understand it in more detail. It's a prepaid offer with 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. 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 a difference in pricing. But again, hybrid has a 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 services 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 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. 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 lending more than BRL 800 million with a credit scoring that I think is unique because we understand this market very well.

David Melcon, CFO

Thank you, Carlos, for the question. So looking at 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. 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 at the cash flow, when we look at 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. Therefore, we cannot analyze any specific quarter figures to project to the future trends. So if we add up looking at 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 proves and confirms what I have just said, that there is huge volatility over the quarter. Now it's also important to mention that operating cash flow after leases is very strong. In the first nine months of the year, even considering those payments, we are growing 14.9% year-over-year. Although we are accelerating 5G coverage, there are initiatives in place to reduce the cost related to tower leases that could benefit future trends.

Carlos Sequeira, Analyst

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

Christian Gebara, CEO

Thank you, Carlos.

Operator, Operator

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

Lucca Brendim, Analyst

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, CEO

Lucca, I think you answered the question. It is sustainable, no, because we've been improving the same numbers over the last quarter. I don't know how many quarters we need to prove that it is sustainable growth. The growth comes from our strategy in all segments. We've been able to migrate from prepaid to hybrid. That's part of the strategy. And we've also been able to migrate from hybrid to pure postpaid. When we are in pure postpaid or even hybrid, we've also been upselling, like giving more data or more services to customers. I think our strategy of combining new services or digital services to the offering of a telco plan that's based on data is being extremely successful. I'm not giving you 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 described 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. We gave this is not the mobile or fixed ARPU, it's a combined ARPU that also includes value-added services of BRL61.5. That's our strategy to be able to not only attract more customers, our net adds are 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.

Lucca Brendim, Analyst

Very clear. Thank you.

Christian Gebara, CEO

Thank you, Lucca.

Operator, Operator

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

Marcelo Santos, Analyst

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 the 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, CEO

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 the nine months of 2023, combined revenues and CapEx, our ratio was 17.3%, and the same period now in 2024, our ratio is 1 percentage point lower, 16.3%. This is a combination of optimizing CapEx deployment, but also more importantly, our ability to grow in revenues. 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 do not use CapEx.

David Melcon, CFO

Marcelo, thank you for the question. So a couple of comments. First of all, we prefer to look at the margins at the operating cash flow level because there are particularly the new businesses. As Christian already commented, they will bring revenues without CapEx, but they will bring a higher OpEx. Overall, if we look at the OpEx structure, we have the first block that has to do with cost of goods sold that will continue to be growing as we will accelerate all those new businesses. Regarding the cost of operations, there are still many pools we can look for. Digitalization, simplification, this is something that we believe has opportunities that the unitary cost to serve the customers and to digitalize back offices and channels should bring reductions.

Marcelo Santos, Analyst

Okay. Thank you very much for both answers.

Christian Gebara, CEO

Thank you, Marcelo.

Operator, Operator

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

Bernardo Guttmann, Analyst

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, CEO

So, Bernardo, on the migration, as you all know, we got the first approval of the negotiation committee that was comprised of Vivo, ANATEL, TCU, and the Ministry of Communications. We came to this mutual understanding regarding the proposed terms and conditions, and then we had to go through the approval of TCU. We have already a proposal that's being analyzed by the Minister who had initially 30 days to prepare his report; he requested an extra 30 days. We expect the AGU to come with the opinion and presented to the minister in the next days. If everything goes according to the right schedule, we may expect that to be voted by the Board of TCU by mid to late November. We are clarifying where we are right now. We are in the 30 extra days requested by the minister to report his analysis and go for approval in the Board. We don't discuss the benefits for the company now. 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 regarding fiber, I don't know of a specific concern. We are very confident about our strategy. We've been growing the footprint, as I stated before, we reached 28.3 million homes passed. 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 reaching new cities and new areas, we may be more aggressive in the entry point, but we keep growing ARPU when we compare to one year ago, 1.2%. 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, with net additions, we have a very solid number, 192,000 in the quarter. Going forward, we continue to grow the 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 than double this number that is convergent but is not in Vivo Total. We have two movements: first, 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 standalone fiber. Apart from that, I don't have a specific concern about the market. The market is still there, a lot of players. Consolidation will happen; we don't know when 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, Analyst

Very clear, Christian. Thank you very much.

Christian Gebara, CEO

Thank you, Bernardo.

Operator, Operator

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

Daniel Federle, Analyst

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. My question is more which areas could require additional or more CapEx in the upcoming years to offset the reductions in those 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 potential cash disbursements in the future? Thank you.

Christian Gebara, CEO

Daniel, thanks for the question. Our guidance for the next three years, '24, '25, '26 is 100% or more of net income. That's what I can state right now. We just announced another BRL2 billion capital reduction that I believe is great news, if it's approved. Up until next year, July, we'll be able to pay it. It's good news. Apart from that, I cannot share what our ambitions are as a business. Now strategically, we may have other options to use the free cash flow difference, and I cannot share. 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 there. We may have more fiber to deploy. Our alternative is organic growth, the usage of neutral fiber network, and eventually M&A. CapEx to connect customers is four times higher than deploying 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 are still talking around BRL800. The penetration level that we have today is not what we aim to have because we are deploying new areas. We will grow the penetration over the BRL29 million that we may have by the end of the year and also in the new areas that we may deploy in the future. In 5G, we have 57% of the population covered. We need to have more. We're going to go there while we see the penetration of the 5G devices going up. The good thing about the 5G deployment is where I'm putting 5G; we can reduce significantly CapEx on 4G, there is a natural replacement, one technology over the other. So again, the CapEx guidance is the one that I provided before, which is over revenue, and we are in a very, very strong positive trend. Daniel, I don't know if I answered your question.

Operator, Operator

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

Gustavo Farias, Analyst

Hi, everyone. Thank you for taking my questions. I have two. The first one is about B2B. We've seen significant growth in B2B, particularly with the cloud acquisition of IPNET. What is the scope of your ambitions in B2B? Additionally, could you share your thoughts on margins, especially in the cloud sector? Any insights would be appreciated. My second question relates to the improvement in margins we observed coming from handset and electronics costs, which seem to result from a better mix in electronics. Will this be a structural trend moving forward? Thank you, and congratulations on the results.

Christian Gebara, CEO

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 from their revenue is not the third-quarter results that we just presented because the closing was recent. As you stated, here, we have different types of services. We have cloud, we have cybersecurity, IoT, big data, messaging, IT equipment sales, and leases, and the margins are different. When you have a cloud, maybe when you distribute a cloud from one of the big players, our margin is lower. But when you also have managed services over the cloud integration, your margin is very high. There is a combination here. When we see a lot of messaging or even big data or IoT solutions, the margins 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. That's why we are buying companies; we bought Vita IT that was a great Cisco integrator. 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. We have 1.6 million, 1.7 million customers in B2B ranging from a small company to the largest companies in 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. The positive thing is only 15% of our customer base in B2B have acquired the digital services or B2B digital services from Vivo. We do see great opportunity to sell even more, especially if you go to the mid to the bottom of our customer base.

David Melcon, CFO

So, Gustavo, thank for the question. 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. 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, 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, CEO

So consumer electronics, what he means is that everything that's not smartphones. We have been 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, CFO

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 immediate term, this would be our ambition.

Gustavo Farias, Analyst

Thank you guys.

Christian Gebara, CEO

Thank you, Gustavo.

Operator, Operator

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

Christian Gebara, CEO

I don’t know, I'm not getting the question from Gabriel.

Operator, 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. You can open your microphone.

Vitor Tomita, Analyst

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 the 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 been 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, CEO

Thank you for your question. It's because what's remaining is a small piece of the legacy. As you can see now for the quarter presented, it's a little bit over BRL1 billion over the BRL14 billion that represents as of total revenue. I think here there is voice, B2B voice, that companies may keep voice as a service. What we see is a very, very limited amount of revenues coming from legacy. What is here maybe will be in a less volatile way. Nothing specifically about that. Here, what we have is legacy and our goal going forward is to replace as much as we can by new technologies, so nothing positive to state. Regarding prepaid, we are very rational in our strategy on prepaid. Our offering is the BRL17. We've been able to drive customers to monthly offers. Our ability to upsell to customers that are recurrently topping up with us has been successful. We've also been able to consume from the top-up. We have, again, a vast portfolio of value-added services that may interest this customer segment. Again, as our ability, and I think the strategy that Vivo has is very powerful. It's not only topping up but also being able to migrate customers not only to hybrid but to monthly tariffs. We are also able to sell value-added services that accelerate consumption and contribute positively to our revenue in the prepaid.

Vitor Tomita, Analyst

Perfect. Thank you.

Operator, 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, Analyst

Thank you for taking my question. I wanted to understand your perspective for 2025 regarding mobile growth, which we see accelerating to double digits. Can you share your thoughts on the sustainability of growth above inflation for that year? Also, what insights do you have regarding both mobile and fixed that give you confidence in this outlook?

Christian Gebara, CEO

Hi, Gabriel, I don't know if that's your statement. I know about the budget; we have an ambition to grow above inflation. Here, what we are seeing is not only mobile or fixed but our ability to sell more to customers. This means mobile, 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. Part of it is our ability to sell more to the same customer. We continue doing that. We continue to segment our customer base in the right way to have the right offering to the right customers. We're very confident in our ability to continue to grow and drive revenues. We are not giving guidance again, but we have the 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, one after the other.

Gabriel Vaz de Lima, Analyst

Thank you.

Operator, 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, CEO

So thank you, everyone, for being with us in our third quarter call. As you can all see the very, very consistent and solid numbers in all dimensions. The growth is clear 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, leveraging all the assets such as the brand, the channel, and our ability to give a better and superior customer experience. If you have any other questions regarding anything related to the third quarter, our whole team is here at your disposal. Thank you again, and hope to see you soon in our next call.

Operator, Operator

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