Equatorial S.A. ($EQTL3)

Good afternoon, everyone, and welcome to Grupo Equatorial's conference call to discuss the results for the first quarter 2026. Joining us today are the company's CEO, Mr. Augusto Miranda; Vice President, Leonardo Lucas; Director of Regulation, Mr. Cristiano Logrado; Director of Financial Strategy and IR, Ms. Tatiana Vasques; and Mr. Liu Aquino, President of Echoenergia, who will be available at the end of the call to answer any questions. Please note that the simultaneous interpretation feature is available on the platform. [Operator Instructions] This conference is being recorded and will be available on the company's Investor Relations website, ri.equatorialenergia.com, along with the presentation shown here. [Operator Instructions] Before we proceed, please bear in mind that forward-looking statements are based on the beliefs and assumptions of Grupo Equatorial's management and on information currently available to the company. These statements may involve risks and uncertainties as they relate to future events and depend on circumstances that may or may not occur. Investors, analysts and journalists should consider that events related to the macroeconomic environment, the industry and other factors may cause actual results to differ materially from those expressed in the forward-looking statements. We will now begin the presentation, giving the floor to Mr. Augusto Miranda. You may proceed, Mr. Miranda.

Good afternoon to all of you. Thank you for your attendance in our earnings call. Before we begin to speak about this quarter, the figures presented and the comparisons with the year 2025 do not include the transaction sector because they refer to discontinued operations. Beginning in 2026, we show the expenses related to the removal or withdrawal of assets. In this quarter, we reached BRL 2.9 billion in adjusted EBITDA, an increase of 11.3% versus first quarter '25. This refers increases in the distribution center and the equity funds from SABESP. We continue to move forward with investments reaching BRL 2.6 billion in the quarter, 12.2% higher than in the first quarter '25, with projects focused on distribution where we work better with tariffs. We had an early buyback of Class A and B preferred stock from Banco Itaú amounting to BRL 607 million. We only have Class C stock available. Now the redemption conditions were renegotiated to allow for the buyback of 100%. Now we ended the period with BRL 11.6 billion in cash, 2.5x the short-term debt. And this is important liquidity to face the year 2026. Referring to covenants, net debt over EBITDA, there was a reduction to 2.7x in the first quarter '26, reflecting the positive impact of the accounting of the sale of transition assets. Now we will continue with this -- speaking about accumulated EBITDA, the indicator would be 3.0x, representing a reduction when compared to the first quarter of '25. When it comes to quality compensations, we had a reduction of 23.4% because of our focus on continuous improvement of the quality of services. On the operational part, we had advances and expressive growth in the Wire B market, 3.8%, thanks to our concessions in Maranhão, Pará, Alagoas and Piauí Additionally, the losses are maintained below regulatory levels in the consolidated version with a difference of 0.9% vis-a-vis the threshold. Regarding the quality indicators, we see advances in DEC and FEC as well. We had DEC in all of the distributors in the group. We also ended the quarter with 5 out of 7 concessions with a reduction in DEC, with a reduction of 6 hours, 5 hours and in Alagoas, a 4-hour reduction. This performance shows the commitment of Equatorial with quality efficiency and a consistent enhancement of the service sustained with discipline. I would like to inform you that we have renegotiated the goals going to '58, reinforcing the confidence of the regulator that we're setting forth our best efforts to continue working with the concession. We'll now speak about the process for the renewal of concessions. After 5 years of work, along with the Ministry of Energy, we were able to work with our first distribution concessions, extending the term of concession of Pará until 2058 and Maranhão until 2060. This is not only the renewal of contracts, but also shows a discipline and consistent enhancement and a new cycle in innovation and commitment with the quality of service. reinforcing our role in sustainable development in the regions where we work. Another good news is that we have BRL 911 million of liabilities dating back to 2022, which we have resolved by joining the Acordo Gaúcho with a 75% discount on interest and penalties, equivalent to BRL 357 million, also payable through court ordered receivables. I will now give the floor to Leonardo, who will speak about a consolidated financial performance.

Thank you, Augusto, and good afternoon to all of you. I'm going to speak very quickly about our economic and financial performance for the group through a consolidated and adjusted vision. Our consolidated gross margin grew 13%, given thrust by the performance of the distribution sector, mainly a market advance and an improvement in the Wire B tariff. The EBITDA had a growth of 11.3%, reflecting not only the evolution of distributors, but also the contribution of the Sanitation segment with a highlight for the SABESP equity income. Net income remained aligned considering the transmission gains in the first quarter of '25 that are now classified as discontinued operations. As mentioned by Augusto, we continue with the leverage rate at a comfortable level. Net debt EBITDA stood at 2.7x with the recognition of capital gains after the conclusion of the transmission asset sale. In this quarter, we continue working strongly in the capital market, focusing on an improvement of our debt profile through an increase of the medium term and the spreads of debt based on CDI. At present, they're at CDI plus 51% (sic) [ 1.15% ]. We remind you that up to the moment, we have already raised BRL 4.9 billion, BRL 3.2 billion up to March and BRL 1.7 billion in April, maintaining an average cost of debt below the accumulated CDI in the last 12 months. Because of a more volatile political scenario, we decided to anticipate our fundraising, preserving our financial capacity and capturing more competitive conditions. Finally, we highlight the investments carried out in the quarter. They add up to BRL 2.6 billion, a growth of 12.2% vis-a-vis the same quarter the previous year. We're speaking about Pará, Amapá and Piauí, that were coming very close to their tariff revision processes. Additionally, we also had growth in our line of special obligations because of the higher investments in the program. Now let us now move on to Slide #7, where we show you an overview of our operational and commercial performance of our distributors. Besides, of course, the financial highlights for the quarter. To the left, we present to you very briefly the consolidated performance of our energy distributing companies with a growth of 4.2% in gross injected energy and 3.8% in the Wire B market. Even with a scenario based on the market, the company maintained a trajectory for a reduction of 0.2% for losses vis-a-vis the previous quarter. This quarter, we also had 97.2% for PDA and 1.64% PDA aligned with last year despite that scenario of reduction of losses and a growth of the market, considerable growth. Regarding the quality indicators, we began the year with 4 of the 7 distributors on the regulatory limit. Now Rio Grande do Sul had a regulatory DEC. We made advances in the negotiation for 2026, reducing the percentage of 71% to 52%. Additionally, Goiás is important for the DEC indicator. In fact, all of the distributors are at the regulatory limits. And a reflection of this operational evolution and the enhancement in the quality of service, we had a reduction of 23.4% in the level of compensations in the comparison between quarters. To the right of the slide, we have a growth of gross margin of 13.5% for the quarter, mainly reflecting a higher Wire B tariff for the whole market. The PMSO adjusted for the consumer, for the distributors in the last 12 months had a growth of 4.5% vis-a-vis the first quarter '25. In an adjusted vision for compensations, the growth was of only 1.4% below the inflation of the period, reflecting the strides in operational quality and a reduction in number of compensations related to the quality. It represented a reduction of BRL 110 million in the last 12 months, 28% reduction for the year. The growth of adjusted EBITDA was 13.7%, influenced mainly by an increase in gross margin. Now the cost of removal is being considered in both quarters in this presentation. We will now move on to Slide #9 to look at the other segments of the group. The Sanitation segment shows results -- showing an increase in the average tariff of BRL 3.5 to BRL 5.05. We have an EBITDA of BRL 6 million, an increase of 62.5% vis-a-vis the first quarter '25. And we make slides in the -- strides in the coverage of water vis-a-vis the previous sector. In the Renewable sector, we had an increase of BRL 147.4 million, 7.3% lower for the period, mainly reflecting the effects of impairment and lower generation. We also bring you a vision of impairment based on energy and lack of availability and the financial impact since 2023. Law 15,269 refers to containment, reliability and external unavailability, and we're positively contributing to resolve these issues. I would now like to give the floor to the operator so that we can go on to the question-and-answer session.

[Operator Instructions] Our first question comes from Ricardo Nascimento from Safra.

In truth, I have 2 questions. I would like to know a bit more about provisions. We saw an increase this quarter, and if this is a onetime effect? If there's a recurring effect here? But which is the level that we should expect this year, considering a challenging macro scenario? My second question is about losses. You have had an improvement quarter-on-quarter. Which are the activities that you carried out in concessions to reduce the indicator? And if you could explain how this was done by each concession.

Ricardo, thank you for the question. When it comes to provisions, yes, we indeed had an increase, and this reflects the movements of provisions with a highlight for Goiás that had a higher impairment because of the Wire B. Now this is because of a balance of the processes that were accounted for at the end of last year. Regarding losses, if you take a look, we have been improving constantly quarter-on-quarter. In all of the companies and in all of the concessions, we have carried out activities, and we have replicated the good experiences we have collected in the history of Equatorial, and we have a reduction in all of the companies. Now it means a great deal of commitment using the management model of Equatorial, working shoulder on shoulder with the team. This is what has offered good results, and we're simply enhancing these results.

The next question comes from Lucas Guimarães from Itaú BBA.

Congratulations for your results. I have 2 questions. First, the Acordo Gaúcho, the conditions, can they be extended to the remaining balance of your liabilities? We saw a very robust balance, not only in your cash position, but with a good focus on leverage. If you do not acquire any asset in the near future, if you continue being well leveraged, which would be the ideal capital structure and which would be your movements? Would you increase the leverage above the minimum you announced in the fourth quarter? Or do you prefer to maintain a more robust cash position?

Well, thank you, Lucas. About leverage, we do like to take a look, and adjusted by the capital gain effect, we would be at 3.1x, which is an interesting position. We have a forecast going forward of a tariff review and expansion of this EBITDA going forward. In fact, through time, we will become ever more comfortable as we move on. This is an interesting position in this environment of very high interest rates and volatility. Now when it comes to the Acordo Gaúcho, this is a program of the government of State of Rio Grande do Sul. It began in April. We joined this movement, a very interesting movement. Of course, if there is continuity in April or if this continues for the long term with a similar program, we are interested in moving ahead with this program that truly is very interesting, and it has a natural gain in the form that it was conceived. Now if a similar situation continues, yes, we will move on with it as we took advantage of the opportunity that we had, and this represents 2/3 of all of our movements in this program launched by the state government. And we hope there will be a similar program in the long term.

[Operator Instructions] The question-and-answer session ends here. We would like to return the floor to the company's CEO for the closing remarks.

Well, to close, I would like to reinforce our commitment, taken among the investors, sustained by a consistent delivery of results in the different segments, that we act in and with a very disciplined financial management. Once again, our IR team is at the full disposal of all investors to offer you support. Thank you so much for attending our conference call, and have a very good afternoon.

The conference ends here. We would like to thank all of you for your attendance. Have a good afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]