Equatorial S.A. (EQUEY) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to Grupo Equatorial's Earnings Call for the Second Quarter of 2025. Joining us today are our CEO, Mr. Augusto Miranda; Vice President, Leonardo Lucas; Regulations Director, Mr. Cristiano Logrado; Financial Strategy and IR Director, Ms. Tatiana Vasques; and Mr. Liu Aquino, CEO of Echoenergia. They will be available at the end to take your questions. [Operator Instructions] This call is being recorded and will be available at our IR website, www.ri.equatorialenergia.com.br. The presentation we'll be showing today will also be available there. [Operator Instructions] Before moving on, we'd like to remind everyone that any forward-looking statements made here are based on management's beliefs and assumptions and on information available to the company at this time. Such statements are subject to risks and uncertainties as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should keep in mind the factors related to the macroeconomic environment in the industry and others could cause actual results to differ materially from those indicated in these forward-looking statements. We will now begin the presentation and hand the call over to Mr. Augusto Miranda. Please go ahead, Mr. Miranda.

Good afternoon. Thanks for joining us on our earnings call. We delivered strong operating results in Q2 '25. Looking at our consolidated distribution portfolio, even against a tough comparison basis from last year, we still grew, [ build ] and compensated volumes by 4%. On top of that, we had the best Q2 in our history in generation, driven by the solid performance of our wind assets. Adjusted EBITDA came in at BRL 3.2 billion this quarter, up 32.4% from Q2 '24 and adjusted net income reached BRL 614 million. These results were fueled by margin expansion and distribution and the equity pickup from SABESP, which totaled BRL 312 million. With this performance, our net debt-to-EBITDA ratio improved to 3.1x, down 0.1x from Q1 '25, continuing to deleverage even with the highest investment levels we've had in recent quarters, reflecting the company's EBITDA growth. CapEx totaled BRL 2.7 billion in the quarter, up 32.4% year-over-year, with the bulk going to distribution. We're already seeing returns from these investments in the form of better service quality across our company. This quarter, we brought CEEE-D within regulatory FEC limits. And with that, all of our distribution companies are now in compliance. We also reduced DEC across all distributors compared to Q2 '24. Standout improvements at Equatorial Piauí minus 7.6 hours, Equatorial Goiás -- I'm sorry, minus 5.3 hours and CEEE-D minus 5.2 hours. And finally, CEE -- CEA minus 3.9 versus Q1, four of our sales distribution concessions improved by more than 1 hour. Lastly, the concession renewal processes are moving forward. This quarter, ANEEL approved the renewals of Maranhão and Pará, which are now under review at the MME. And in the case of Maranhão, also under the TCU. We expect to sign the contract amendments between October and November. I'll now hand it over to Leo on Slide 5 to walk you through the group's consolidated financial and operating performance. Over to you, Leo.

Thanks, Augusto. Good afternoon, everyone. I'll give you a quick overview of the group's financial performance on a consolidated and adjusted basis. This quarter, we posted strong growth in both margins and EBITDA. Those margin for the quarter was boosted by the solid performance in distribution with higher volumes, increased [ POB ] tariffs and lower losses. EBITDA also benefited from the equity pickup from SABESP. We delivered these results with strict cost discipline. Adjusted PMSO grew in line with inflation, showcasing one of our core strengths as an efficient operator. On the nonrecurring side, we booked a BRL 444 million gain, mostly from the reversal of contingency recorded the PPA for the Equatorial Goiás acquisition, thanks to case closures and settlements led by our legal team as part of the due diligence process. As a result, adjusted net income for the quarter came in at BRL 614 million, more than double the figure from a year ago. This quarter, we once again reduced net debt to EBITDA to 3.1x, driven by EBITDA growth. Finally, CapEx for the quarter totaled BRL 2.7 billion, with most of it going to distribution. Moving on to Slide 7. Here is an overview of the operational and commercial performance of our distributors, along with key highlights for the quarter. On the left-hand side, you can see strong growth in [ build ] plus compensated distributed generation volumes, even off a high base from recent years. And despite that scenario, we have been able to keep cutting losses while maintaining solid collections and PECLD levels. As Augusto mentioned, all of our distribution companies are now within regulatory FEC limits underscoring our commitment to service quality. We also delivered solid improvements in DEC across all distributors compared to Q2 of last year. Gross margin for the Distribution segment rose 14%, mainly on higher [ POB ] tariffs, increased volumes and lower losses. Adjusted PMSO for the distributors was up 6.1% in the quarter. But on a per customer basis over the last 12 months, the increase was just 0.8%. These factors drove an 18.7% increase in adjusted distribution EBITDA. Excluding distributed generation costs in Q2 '24, growth would have been 20.8%. On to Slide 9. Let's take a look at the group's other businesses. In transmission, regulatory EBITDA was BRL 248 million, down 11.4%, due mainly to the deconsolidation of SPE 7. EBITDA margin in transmission remained strong at 93%. And sanitation, results continue to reflect progress in water metering. EBITDA came to BRL 7.3 million this quarter. CSA's [ IAR ] reached 72.1% in the quarter, 6.1 percentage points above the EBITDA and 13.4 pp higher than last year. In Renewables, EBITDA came in at BRL 177 million, up 35% year-over-year, driven by the start of solar farms and record output from our wind portfolio, which excluding curtailment would have matched P44 levels. I'll now turn the call back to the operator to open the Q&A session.

[Operator Instructions] Ms. Luiza Candiota from Itau BBA asks the first question.

My question is about the thesis of the century. And the [ DI case ] that discuss the return of excluding sales tax from the PIS/COFINS taxes and also the prescription or the deadline for those credits. I believe that they are discussing that today. We would like to hear your take on this matter as to the deadline of the credits and potential gains the company would have if the 10-year thesis or the 5-year thesis were to be approved. What's your take on it?

Luiza, thank you for your question. I think it started out back in Maranhão a long time ago. But we have been closely monitoring it. All we have to do now is to keep on monitoring and sit and wait. I wouldn't like to discuss this issue in further detail at this time.

Daniel Travitzky from Safra asks the next question. Mr. Bruno Amorim from Goldman Sachs is asking the next question.

If possible, could you please elaborate on recent auctions in the water and sewage treatment. The company was not part of it, even in states where you have a strong operation. Do you believe the auctions were not attractive enough because of the model? Or were the premises that were not appropriate? If you could please explain why you are not that active in recent auctions. Is that an indication that the company is more prone or less prone to take part in future auctions? I think it's good to estimate future capital allocation.

Thank you for your question, Bruno. As we have been saying in recent calls, this is a focus for Equatorial. But one of our basic principles is the fact that we have been disciplined in allocation. Despite the model, we may prefer this or that model, especially in sanitation. However, if the asset or the auction provides good returns, there are no problems with that. But we could not understand -- we did not understand that these auctions would provide the returns we were expecting. That's why we chose not to take part.

Maria Carolina Carneiro from Safra asks the next question.