Desktop S.A. ($DESK3)

Good morning, ladies and gentlemen, and welcome to Desktop's Earnings Conference Call for the results for the fourth quarter and full year of 2025. This call is being recorded and will later be accessible in the company's RI website. [Operator Instructions]. I would just want to reinforce that all the prospective statements take into account the beliefs and assumptions from Desktop's and the current information available to the company. These statements can be connected to risks and uncertainties because they are connected to future events and depend on circumstances that may or may not occur. Investors, analysts and journalists must take into account that events connected to the macroeconomic scenario, the industry and other factors might lead the results to be materially different from those stated here today. In our call today, we have Mr. Denio Alves Lindo, CEO from Desktop; Mr. Bruno Leao, CFO; and Mr. André Falcão, CRO from the company. And now I'll hand the floor to Mr. Denio, who will start the presentation. Mr. Denio, the floor is yours.

Good morning, and welcome to Desktop's earnings conference call for the fourth quarter and full year of 2025. Today, I am once again pleased to be joined by our Chief Financial Officer, Head of M&A and Head of Investor Relations, Bruno Leao; and our Chief Revenue Officer, André Falcão. I will begin my presentation by highlighting key results for the quarter and the year, covering both operational and financial indicators and then Bruno and André will provide a more detailed overview of the numbers and the factors that influenced our performance. In line with what we had planned since the beginning of 2025, our focus over the past few years has been on cash generation and operational efficiency. This past quarter was no exception. And our figures confirm that we have been able to achieve our goals. In fact, the company's cash flow growth was the main highlight of 2025 as a whole. A direct reflection of the continuous gains in operational efficiency and greater discipline in capital allocation location implemented throughout the year, including a more conservative approach to onboarding new customers. We remain committed to delivering the best connectivity experience and to consolidating the company as one of the leading fiber optic platforms in Brazil. In addition to the ongoing evolution in broadband, we also delivered a series of new products for B2C customers, both for existing and new customers. And we also began to scale the B2B growth path, where we see an excellent marginal ROIC for Desktop. I am convinced that our solid financial results demonstrate that we are on the right path. In the fourth quarter of 2025, net revenue reached BRL 316 million, an 8% increase when compared to the fourth quarter of 2024. For the full year 2025, net revenue totaled BRL 1.219 billion, also representing an 8% increase compared to the previous year. Improvement in profitability was even more significant the company delivered BRL 182 million in adjusted EBITDA for the quarter, a 21% increase year-over-year with a margin of 58%, the highest level since 2020. Year-to-date, the adjusted EBITDA reached BRL 654 million, a 13% increase with a margin of 54%, a result that reflects the company's ongoing focus on operational efficiency and cost management discipline. Adjusted net income totaled BRL 42 million for the quarter and BRL 154 million year-to-date. This result was primarily impacted by the still high level of financial expenses and by the increase in depreciation and amortization expenses resulting from the investment cycle carried out in recent years. As mentioned earlier, one of the key highlights of 2025 was the improvement in cash flow. In the fourth quarter, adjusted operational -- operating cash flow minus CapEx reached BRL 99 million, a figure that is 25x higher than that of the same period of the previous year. Cash generation totaled BRL 210 million for the full year of 2025, a 140% increase compared to 2024. The positive cash generation result best reflects the company's shift to a new level. And this will continue to be our main objective in coming quarters. We ended 2025 with 4,844,000 homes served, 1,208,000 active connections and 9,000 organic net additions for the quarter. Overall, the 2025 results demonstrate the maturity of our operational and commercial platform, which now allow us to strategically determine our growth pace while maintaining profitability and return on invested capital. I will now turn the floor to our Director of Revenue André Falcão. Thank you.

Thanks Denio, and good morning, everyone. We continue to have a well-established geographic presence in the state of Sao Paulo with 58,000 kilometers of network, 4.8 million households served and a presence in 200 cities. We ended the quarter with 1,208,000 households connected, a 1% increase from the previous year first quarter and a 7% increase year-over-year, reflecting the consistent expansion of our customer base throughout the year. In terms of net additions, we recorded 9,000 organic additions in the fourth quarter. It's important to note that the slowdown in growth observed during the quarter was a strategic decision by the company and not a reflection of competitive market dynamic. Desktop currently has a mature and resilient commercial platform with the capacity for planned acceleration in line with the defined strategy. We have chosen at this time to slow the pace of new activations, prioritizing customers with a better profile and commercial channels with a higher quality and lower acquisition costs. This initiative leads to increased cash generation since a significant portion of the capital allocation in our business model is dedicated precisely to onboarding new customers. And by strategically adjusting the pace of sales, we have been able to better balance growth, profitability and cash generation while maintaining a strong return on invested capital. This approach has also helped improve the quality of our customer base, which is already reflected in healthier delinquency rates over the past few months, in addition to enhancing acquisition efficiencies. As a result of this strategy, we have seen continued growth in digital sales. Digital channels accounted for 63% of total sales, an increase of 7 percentage points compared to the fourth quarter of 2024. In addition to the growth in our customer base, we continue to make steady progress in other revenue-generating avenues, including monetizing our customer base with new products and services, convergence with mobile service sales via MVNOs to both new customers and existing ones acceleration of our growth, reduction in the use of promotional offers and a shift in the sales mixed toward mid- and high-end plans. Taken together, these initiatives have contributed to growth of our average transaction value, and we have a positive outlook in this area for coming quarters. Overall, our operational metrics reflect the maturity of our business and the company's ability to grow sustainably, balancing customer base expansion with operational efficiency and cash generation. I will now turn the floor to Bruno Leao, who will provide a detailed overview on the company's financial results.

Thank you, Falcão, and good morning, everyone. On the next slide, we will give you more details on our financial results. On Slide 7, we see the quarterly and annual evolution of our main results, net revenue, adjusted EBITDA and adjusted net income. Starting with net revenue. We ended the fourth quarter with BRL 316 million, an 8% increase compared to the fourth quarter of 2024. For the full year 2025, net revenue reached BRL 1.29 billion, also went up 8% year-over-year, reflecting consistent commercial execution throughout the year. Regarding our adjusted EBITDA, we reported BRL 182 million for the quarter, a 21% increase compared to the fourth quarter of 2024. The main highlight is in the performance for the year. In 2025 adjusted EBITDA totaled BRL 654 million, a 13% increase compared to 2024, with a margin of 54%, a 3 percentage point gain in margin, reflecting the continuation of operational efficiency initiatives and greater discipline in cost and expense management. With regards to adjusted net income, we reported BRL 42 million for the quarter and BRL 154 million year-to-date. The decrease compared to 2024 is primarily connected to the still high interest rate environment and higher depreciation and amortization resulting from the investment cycle carried out in recent years. On Slide 8, we highlight our key achievements for 2025, a significant improvement in cash generation. Adjusted EBITDA, which excludes financial results, and CapEx suppliers reached BRL 181 million in the fourth quarter, an 11% increase from the previous quarter and 29% higher than the previous year. For the full year 2025, our adjusted FCO reached BRL 680 million, a 21% increase compared to 2024, reflecting the company's improved structure and cash conversion. Turning to adjusted CapEx. We recorded BRL 82 million in the fourth quarter, equivalent to 26% of net revenue, continuing the trend toward greater discipline in capital allocation. For the year, adjusted CapEx totaled BRL 408 million, a 4% decrease compared to 2024, demonstrating greater efficiency in investment management and an increased reuse of equipment. As a result, as shown in the chart on the right, which depicts FCO plus adjusted CapEx, we recorded BRL 99 million in cash generation in the fourth quarter, 25x higher than the same period in the previous year. 2025 year-to-date cash flow generation reached BRL 210 million, a 140% increase compared to 2024. On Slide 9, we see the company's consolidated cash for 2025. Based on adjusted EBITDA of BRL 654 million, we recorded a 95% conversion rate into operation -- operating cash flow which reflects the company's strong ability to convert operating results into cash generation. In the CapEx section, we actually recorded BRL 457 million in investment over the course of the year. Most of this amount relates to customers' installations, which remains the company's primary driver of investment and are directly linked to revenue generation. We also made smaller scale investments in our network facilities and IT, ensuring end-to-end quality and operational capacity. In the M&A segment, we recorded BRL 110 million related to installments payments for acquisitions made in prior periods. In the financing segment, we saw a positive impact of BRL 46 million reflecting primarily transactions related to the company's liability management. As a result, we ended the period with BRL 480 million in cash, reinforcing Desktop's liquidity position and financial. In closing, in Slide 10, we see the company's capital structure. Desktop's net debt ended the fourth quarter at BRL 1.511 billion at the end of the fourth quarter. In terms of leverage, we ended the period with a net debt to annualized pro forma EBITDA ratio of 2.07x, representing a decrease compared to previous quarters. Regarding the composition of the debt, 78% is computed to financial debt, 18% to M&A obligations, with a profile that's predominantly concentrated in long-term instruments. In the amortization schedule, we maintain a balanced maturity profile with the highest concentration between 2031 and 2032, which provides predictability and certain long-term financing planning. Finally, it's worth highlighting the set of liability management initiatives carried out throughout 2025. During the year, we raised BRL 1.238 billion in funding and made BRL 975 million in debt prepayments, including the repurchase of the fifth and sixth debenture issues. These transactions allow to extend the debt profile, reducing the average cost and optimizing the company's capital structure, reinforcing our financial discipline and long-term sustainability of the capital structure. With that, I conclude my presentation and refer -- return the floor to Denio.

Before we end, I would like to reinforce our gratitude to all our employees, customers, partners and shareholders for their trust and for their contribution to the company's success. We remain steadfast in our mission to provide the best connectivity experience and to build a company that's increasingly efficient, profitable and prepared to seize the growth opportunities ahead of us. Thank you very much. We will now move to the question-and-answer session.

Thank you. [Operator Instructions] Our first question comes from Mr. Luis Chagas from XP.

I have 2 questions. on my side. First, about profitability. In this quarter, you demonstrated a powerful growth of EBITDA. And I want to understand some details about profitability. Do you see this 25% level of EBITDA margin close to 54% as a recurrent margin level? And perhaps you could give us some color on the main initiatives in your efficiency agenda for 2026? And given that, how can we think about margins in 2026? Do you see any room to keep growing margins throughout the year? So that would be my first question, a longer one, about margins and profitability for 2026. And my second question is about cash generation, which is somehow connected to the first one. You demonstrated a powerful cash generation in the period. And I would like to understand your view on cash generation or the conversion of EBITDA into cash in 2026. And if you could give us some details on the initiatives for that. And in the opening of the call, you mentioned customer activation and the contribution that they make in cash generation. So with that in mind, how can we think about CapEx for 2026, considering the new level of activation in the last quarter?

Thank you for your question. This is Bruno speaking. In the last quarters, we had informed our focus in actions to improve efficiency and cash generation. We always analyze that for some actions, we will feel this effect immediately. But for most of the actions, they will take some time until they mature and generate more impact. We're talking about midyear until the end of the year 2025. To give you more detail on the work that we have conducted in terms of receivables and revenue. We start to see more results from new products such as streams and B2B, which have contribute for the improvement in the third and fourth quarters. We still have several opportunities on these 2 avenues and with MVNO. We also have a positive result reducing churn, which led to a positive impact on CapEx and B2C revenue. From the cost and expenses perspective, we keep with good results on contract renegotiations, especially coming from changes in processes and systems. With the conclusion the sales force rollout, which unlocked several operational efficiency gains. It's important to highlight -- when it comes to costs and expenses, the significant reductions in our commercial and marketing structures, considering the more conservative approach to new customers. Consolidated, we reduced more than 400 headcounts in the fourth quarter of 2025. When it comes to investments, when it comes to our network CapEx, we will not promote any expansion. The focus continues to be to enter existing opportunities. The customer CapEx was benefited for the lower level of new customers, lower churn and a higher degree of equipment reuse. In summary, we are capturing several structural gains related to profitability and cash conversion that will be -- remain the focus for the next quarters.

[Operator Instructions]. Our next question comes from Lucca Brendim from Bank of America.

I have 2. First, if you could give us a quick follow-up. You've mentioned that in terms of margin, you believe that there is a structural component, and we're going to keep at this level. But when we think of CapEx, we have seen a drop. So for 2026 and onwards, can we expect levels that are similar that will keep on dropping? Or perhaps we should expect a full level this year? How can we think about CapEx from now on? And perhaps the second question, if you could give us more color on the impact from the tax reform in Brazil, if you expect to see an increase or a decrease in tax rates for the coming years?

Thank you for your questions, Lucca. When it comes to CapEx, all the initiatives we have been conducting are structural. And we still can expect some positive impact in 2026, reducing CapEx to revenue ratio especially starting in the second half of 2026. Regarding the tax reform, we don't expect any type of negative impact.

[Operator Instructions]. Our next question is a written question by Mr. [ Eduardo Vasconcellos ] from [indiscernible]. Despite a more selective profile in customer acquisition, does Desktop plan to go to the market to acquire providers? How is your inorganic growth strategy?

Thank you for your question, Eduardo. Considering the more challenging macroeconomic scenario, we are not prioritizing inorganic growth at the moment. Our focus continues to be on cash generation.

[Operator Instructions]. Our next question comes from Mr. [indiscernible], an investor. He said, good morning, where the Claro negotiations ended?

Good morning, Mr. [indiscernible]. As mentioned in previous occasions, we are always open to assess opportunities that could turn out to be positive both for the company and its shareholders. When it comes to Claro more specifically, we still don't have any concrete movements to report. If anything new happens, you will all be informed through appropriate news channels.

[Operator Instructions]. The Q&A session is now over. And now we hand the floor to the company's CEO, Mr. Denio Alves Lindo for his final remarks.

I would like to conclude by highlighting that we keep on growing in a sustainable, controlled and more efficient fashion. In a scenario with high interest rates, we understand that the best strategy for the company and its shareholders is to reinforce cash generation strategies. This is what we have delivered, and this will remain our focus in the near future. We are occupying our network, adding more products to our customer base, opening more B2B fronts and escalating our mobile pathway. In summary, we are increasing our revenues and at the same time, we are decreasing our CapEx. We continue to bet on technology evolution with the automation of processes a more efficient use of AI tools and a constant focus on customer experience. I continue to believe on a promising future for our company, and I count on all of you customers, employees and shareholders so we can keep on this journey together. Thank you again, and all the best.

Desktop's earnings call is now closed. Thank you for joining us, and have a great day.