Infrastrutture Wireless Italiane S.p.A. (INW) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the INWIT Third Quarter 2026 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Luigi Minerva, Strategy, M&A and Investor Relations Director of INWIT. Please go ahead, sir.

Good morning, everyone, and thank you for joining us today. Here with me, I have Diego Galli, INWIT's General Manager; and Emilia Trudu, CFO. Before we begin, please allow me to draw your attention to the safe harbor statement on Page 2 of the presentation. Following a presentation of the Q3 2026 results, we will open the floor for Q&A. Over to you, Diego.

Thank you, Luigi, and good morning, everyone. Q3 2026 results are in line with our full year 2026 guidance, which reflects the current market context. The telco sector in Italy continues to go through a challenging phase, with low returns and minimum investments. Such market conditions are reflected in our midterm baseline outlook. But the market cannot be stuck forever, 5G network densification is needed even more so in the context of the ongoing frequency renewal process. We continue to believe that our anchors' MSA early termination notices are instrumental and fall outside the legal framework of the MSAs and that both MSAs are valid until 2038. INWIT runs very efficiently the best quality and largely unique network. There are no rational alternatives to INWIT network from a strategic, operational and financial perspective. INWIT remains committed to invest while collaborating with customers to identify shared value for value solution on a fair and rational basis. Moving to Q3 results. New sites and new PoPs reflect the current market context. We continue to make progress on real estate transactions. As we anticipated, revenues on a reported basis are declining year-on-year by around 1%. Revenues are negatively impacted by the absence of uncommitted revenues linked to discretionary projects from anchors as well as from owners. If we were to remove such discretionary project-based revenues from the Q3 2025 numbers, Q3 2026 revenues would show normalized annual growth of around 3%. EBITDA after leases margins are at around 72%, confirming the efficiency of our business model. Our leverage ratio improved from 5.7x in Q2 to 5.5x, the midpoint of our guided 5 to 6x leverage corridor. At current share price, INWIT offers a dividend yield of 7.5%. I hand it over to Emilia now for a review of KPIs and financials.

Thank you, Diego, and good morning, everyone. Operational KPIs in the quarter reflect the current challenging market context. The deployment of 50 new towers in this quarter keeps us on track to reach our target of around 200 new towers in 2026. 310 new PoPs were added in the quarter, and we continue to aim for more than 1,500 new PoPs in 2026, targeting a year-over-year continuous growth in tenancy ratio. IoT PoPs are in relative terms increasing and come with incremental lower-than-average ARPU. We delivered 290 real estate transactions in Q3, slightly below down compared to previous quarters, reflecting our continued disciplined approach. Year-to-date, we have built 70 new dedicated DAS. We are increasing tenancies on existing locations, while growth in new locations is limited given the low level of uncommitted activity by MNOs. The normalized 2025 total revenue base takes into account the lack of project-based noncommitted revenue components, which we have developed over time with operators capturing their discretionary spending. Such discretionary budgets have been put on hold at this stage given the current context of subdued operator investments and stagnant commercial relationships. Adjusting for this one-off step-downs, we delivered approximately 3% normalized revenues growth in Q3 2026, driven by the following components: inflation linked based on a 2025 average index of 1.4%, anchor commitment, new towers, new PoPs and DAS deployment in line with MSA commitments steady growth across other MNOs and IoT and Smart Infra growth, particularly in indoor DAS across premium locations and projects in the smart City Vertical. Normalized growth is structural, and we expect the business to go back to growth in 2027, in line with the midterm baseline outlook. Moving on to our financial highlights for the quarter. Q3 revenues reached EUR 268.6 million, up 0.6% quarter-on-quarter and down 0.9% year-on-year, representing around 3% normalized revenue growth year-on-year as we just discussed. Key revenue components included tower anchor revenues up 2.8%, supported by inflation and MSA commitment. Conversely, OLOs and Smart Infra revenues were down as a result of the lack of project-based revenues such as work and studies, installation, upgrades and DAS, more than offsetting the underlying growing number of PoPs and DAS location covered. On profitability, EBITDA was up 0.5% quarter-on-quarter and down 2% year-on-year to EUR 241.9 million with an EBITDA margin of over 90%. EBITDA after leases came at around EUR 192.3 billion, up 0.7% quarter-on-quarter, down 2.8% year-on-year with a 71.6% margin, reflecting the structural operational efficiency of our business model, which allows us to support substantial investment with long-term returns. And as a reminder, we closed 2025 with a return on capital employed of 8.4%. Year-to-date, recurring free cash flow reached EUR 486 million, but stable year-on-year, with 67% cash conversion. This was driven by structurally low recurring CapEx, efficient tax, thanks to the goodwill tax team, positive net working capital and financial charges profile that reflects phasing of interest payments. Looking at the recurring free cash flow components in Q4, we expect it to be in line with the full year recurring free cash flow guidance range. We expect the usual seasonality with cash tax payment, financial charges reflecting the coupon payment schedule, and we also expect a net working capital reversal in Q4. Below the recurring free cash flow line, growth CapEx was just above EUR 40 million in Q3 and EUR 200 million year-to-date. Full year total CapEx are expected to be in line with our previous indication of EUR 270 million. Free cash flow to equity year-to-date is about EUR 287 million. Moving to our financial structure. Leverage ratio declined to 5.5x, the midpoint of our guided leverage range of 5x to 6x. We have an efficient debt profile, 80% fixed, 20% floating. We have a current average cost of debt of approximately 3% and average bond maturity above 4 years. The first relevant maturity is the EUR 750 million bond due in 2028. Both Standard & Poor's and Fitch have reaffirmed their credit ratings. We are investment grade with Fitch with credit watch negative and BB+ with Standard & Poor's with stable outlook. I now hand it back to Diego for the guidance and the closing section.

Thank you, Emilia. We reiterate our 2026 targets and medium-term baseline outlook, reflecting the current market environment. Even in the unrealistic scenario in which the market remains stuck over the medium term, we would still be able to have a decent organic growth at around 3% for revenue and 4% for EBITDAaL, an attractive stable dividend and a solid balance sheet. The baseline outlook does not include the following potential upsides: normalization of industry dynamics, densification for both outdoor and indoor, opportunities to expand across digital infrastructure. At the same time, the baseline outlook does not include the downside risks of MSA's actual termination as we don't believe this is a likely or realistic outcome. Moving on to the MSA and the relationship with our anchors. First, an update on the legal process, which in itself remains long and complex. The judges reviewing the injunctions have concluded that the case lacks the required level of urgency. The next legal step is the ordinary trial initiated by Fastweb in March, where the focus will be purely on the merit of the case, in particularly on the events that led to a change of control of INWIT. Change of control did happen in August 2022 when the shareholder agreement between Telecom Italia and Vodafone Group was terminated. At the time, INWIT properly triggered the change of control clause with a contractual extension by 16 years to 2038. Fastweb instrumentally states that the change of control happened in 2020 when the INWIT stake was transferred between fully owned Vodafone entities. However, in 2020, there was only an internal reorganization within the Vodafone Group without any impact on INWIT's joint control. This has been also confirmed by recent statements from the Italian Financial Market Regulator, CONSOB and Vodafone Group. Any different interpretation would have triggered mandatory tender offer in 2020, which clearly didn't happen. The MSA termination case is under the attention of the relevant authorities, including the financial market regulators and the competition authority. In particular, the Italian financial market regulator with regards to the assessment of transparency and completeness of information provided by Fastweb and TIM in relation to the MSA termination and the competition authority with regards to the tower joint venture as a potential agreement with anticompetitive effects extended to the tower market. Finally, about the lawyers' assisted negotiation with TIM, it has been a useful process even if did not lead to an agreement as we stand. On this matter, also on the back of our engagement, the sector regulator, AGCOM has initiated a conciliation process to facilitate the parties to voluntarily reach an agreement. From an industrial standpoint, the MSA dispute creates a backlog, putting the industry fundamental at risk. This slide is a summary of how the different layers overlap. I will make 3 observations. According to the MSA, the site's repatriation should be completed in its entirety no less than 3 years after the termination date. This is also required so that INWIT can assess the best industrial and commercial opportunities available on the market for its network as a matter of priority. At present, for instance, in case of Fastweb, there is no contractual arrangement in place that ensures Fastweb the access to INWIT network after March 2031. This timing is not consistent with any foreseeable scenario of migration and buildup of a new network, which may last from 12 years in the optimistic case to 30 years in our realistic view. 2029 frequency renewal process. AGCOM proposal for frequency renewal in exchange for investments, leading to material network improvement with tight quality of service milestone. This is not compatible with the termination of INWIT contract as level of service could not be even maintained while repatriating the best network. Duplication will last decades, will delay densification and cost billions. Lastly, faster ordinary trial will last several years, overlapping with the repatriation plan, adding additional uncertainty on the development of any plan alternative to INWIT's network. The ongoing spectrum renewal process can unlock a new cycle of investments. We support AGCOM proposal to link the spectrum renewal to the current holders with the future CapEx commitments to support network quality improvement and the country digitalization. Factoring in AGCOM new proposed quality of service KPIs and milestones, we estimate that the Italian market may need more than 15,000 new sites by 2035. In the current industry structure where there is a separation between TowerCos and service companies, we believe that MNOs should undeniably prove guaranteed access to the passive tower infrastructure for the full length of the license. Furthermore, the spectrum renewal framework should discourage duplication of infrastructure and support stability and predictability to the benefit of the entire industry. Our network of about 26,000 sites is our key strategic asset, is the result of 40 years of work from TIM, Vodafone, and INWIT, where we could take the benefits of first-mover advantage to build top quality sites in the best available location. Our network is the result of the consolidation of multiple networks, best quality location connected with fiber, close to 20% of land owned, optimized lease cost, best tenancy ratio. About 75% of the network is made of unique locations that will be hard to replicate. INWIT is a strategic infrastructure critical to national security and economy. And as standard in the industry, our network is available to our anchor tenants on all or nothing basis. The telco industry in Italy continues to go through a challenging moment. The MSAs are structured in a way that creates value for both INWIT and its anchor, thanks to the consolidation of the infrastructure and the unlocking of sharing synergies to the benefits of all parties. Neutral players such as INWIT can help, leveraging on sharing economics to deliver investments in digitalization in the most efficient way. And we overlay our network with strong industrial capabilities with a proven record to build and deliver new sites at scale and experienced real estate team to optimize lease cost, project management and engineering capabilities for complex network rollout. Our pure infrastructure business model allows access to long-term capital with the benefit of an efficient cost of capital. These are the foundations that allow us to be the best partner for MNOs and for their investments in network densification, and we continue to be open to constructive conversation with our clients. From our perspective, it's key to respect the integrity of the MSA as a long-term contract, and we are open to optimize further the terms within the current perimeter in conjunction with new investment commitments, aiming to a win-win outcome in terms of positive net present value for all parties. Concluding, Q3 results are consistent with our 2026 guidance. We reiterate both 2026 and midterm guidance. There is no rational case for duplicating INWIT superior infrastructure, which represent the best-in-class market assets. To address Italy's critical need for network densification and enhanced resilience, INWIT stands out as the best option. And we remain committed to ongoing investments and open to collaborate with anchors on fair value-driven solution for all parties. With this, we thank you for your attention, and we open to Q&A.

[Operator Instructions] The first question is from Andrew Lee, Goldman Sachs.

I wanted to ask some questions around the contract disputes and just recognizing that the situation certainly isn't lacking in complexity. So I'm just going to have a go at some big picture questions. First one, just we've now got AGCM, AGCOM, CONSOB, 3 senior authorities all getting involved in those contract disputes. So the big picture question is, how likely in your view of these efforts to accelerate a resolution of the disputes? And do you see the net influence of their involvement as positive for you? Second question, which of the 3 efforts amongst the AGCM, AGCOM and CONSOB is the most important, do you think in potentially driving a resolution? And then thirdly, AGCOM acting as an arbitrator or facilitator of a meeting between you and TIM, I think that can come as early as the 26th of November, maybe wrong on the date there. But just wondered if you've all agreed to attend the meeting on that day yet and when we'd find out if you do?

Thank you, Andrew. Yes, I think that the perspective is that INWIT is critical and strategic infrastructure, the MSA dispute actually goes beyond, let me say, a simple commercial discussion goes beyond because as we said, we think that the industry is in a deadlock. And this is actually putting at risk the current framework as well as the needed development and densification investments. The authorities within their remit are involved. I think that's the reason why because we are talking about, again, a critical infrastructure with relevance on different perspectives. We think that the involvement is positive for the industry and for INWIT. And we are positive about the AGCOM involvement, the sector regulatory involvement, that's an additional avenue which can be pursued and explore to help the parties reach an agreement on the conciliatory basis. The first meeting is called by the end of November. We don't expect this to be a quick and fast process, but there could be some steps. And by the end of November, we will be able also to understand better if and how the customer will join this conciliation process.

The next question is from Ondrej Cabejsek, UBS.

I had also 2 questions on the MSA, please. So one is effectively, you're saying -- or you're highlighting the fact that the transition period or the -- what do you call it, the repatriation plan is supposed to last at least 3 years as per the MSA, which I guess is the wording would be protective or give more protection to the tenants. At the same time, you mentioned on the call that basically there is no guarantee in the case of this MSA becoming void of tenancies on your towers beyond 2031. So on this issue, can you just provide a bit more clarity? How practically speaking, does this work? In terms of by when does the anchor actually have to vacate all of the sites under the kind of All or Nothing clause because there seems to be a bit of contradiction in some of this wording. That's question number one, please. And question number two, again, I guess, referring to the fact that you highlight the All or Nothing clause. Your customers seem to think that they will have a bit of an easier time taking sites in steps gradually away from you. Should there be a situation of basically no active or actively -- no active MSA and basically kind of a free market arrangement, if you will, year-by-year or however that would be structured. And in this case, the All or Nothing doesn't necessarily apply with immediate effect, but then at the same time, the pricing mechanisms no longer apply either. So I guess the question would be, how easy is it for you given the nonreplicability that you highlight on something like 75% of your footprint to basically make up for the potentially disappearing sites over the medium to longer term by simply raising prices on what you say is effectively monopolistic infrastructure?

Yes. Thanks, Ondrej. Let me try. First of all, clearly, let me reiterate that we do believe that the contracts are valid until 2038 as we properly followed the triggering and trigger the change of control clause in 2022. That's for us clearly a foundation. However, if we talk about Fastweb they send us a termination. So they do believe something different. And I'm playing out scenarios following the termination we did receive, whereby the contract expires according to them by 2028. If the contract expires after 2028, there is no other contract. So actually, they don't have access and legal right to get access to our network. Then of course, being infrastructure, there is a transition period. Transition period is defined as at least 3 years, which also considering other standard or other contracts in the market is quite long. Our point is that we need to get visibility as soon as possible because we need in our interest and to protect the interest of the landlord, which has received termination of the contract to be in the condition to decide what to do with our assets. We received the termination. The tenant has signed a termination. We did receive it. We need to protect the interest of the company and to assess what are the opportunities in the market and to assess the best industrial and commercial opportunities available in the market. And therefore, it's important that the repatriation plan is completed within 3 years. And even more important than that is that by March '27, we got full visibility on which sites, which towers are left when within the 3 years because we have the right to market our assets at the best terms and the best condition and to choose considering that the tenant has sent the termination. Let me make an example. Sorry, if I keep on elaborating on this. Let's take the 650 towers we have in Rome. They have a market price. They are very valuable after March 2028, we need to assess how and when and what price to market those towers to any potential customer. That's the picture we are trying to explain that. Again, we do believe the MSA last until 2038. If the other party believes that last until 2028, they need to get ready and to give us that the flexibility and the right to market the towers. So then on the All or Nothing, the All or Nothing is a foundation of the MSA contract in our case as well as in the industry standard, and it's relevant as a pillar of the contract. Sorry for the long answer, but I hope it did help.

And if you may please answer also the kind of pricing question because as you said, if there is no contract beyond 2028 or in that scenario, surely, there is no contract also on pricing. And again, given that you have very unique locations, you would be able to some degree to start raising prices to compensate for some tower losses, do you think?

Yes. I mean that's -- again, I think it's what already said. It's -- there is a vacuum there. Clearly, I mean, there is already a template which can be easily used, which is simply extending the MSA and considering the MSA valid until 2038. That's a template, which is ready to be used immediately. Otherwise, we will have all the flexibility to market our assets as we do consider proper to maximize the value of the company.

The next question is from Roshan Ranjit, Deutsche Bank.

I've got 2 as well, please. Thanks for the detail on the time frames and the moving parts. Can I check what intervention can AGCOM take? Can they enforce a decision which yourself and TIM have to accept? I guess at the back of their minds, they have the framework for the spectrum renewal, which needs to be formed, I guess, by the end of this year. So how would it work? Are they just sitting in the room and listening to what you guys have to say? Or can they dictate what you have to agree to? And secondly, can I ask on the market growth opportunity. You have raised the market growth potential, 15,000 new towers. I think before it was between 7 and 12, perhaps a few more years added. But is that driven by densification or more coverage? What is the driver of that increase?

Thank you, Roshan. On the first question, yes, the AGCOM may conduct supervisory reviews within -- about the industry. And within these reviews may ask information to the operators and in case of controversy can facilitate the conciliation between parties. So it's conciliation process, not imposed. On the densification, yes, previously, in our estimate, we did foresee the need for the industry by 2030 of a range between 7,000 to 12,000 new towers and that's basically densification for capacity in urban areas for coverage in suburban and also for transport corridors. And now honestly, looking at the consultation document issued by the authority, we think that looking at the KPIs and the quality of service improvement and standards and KPIs, our estimate is about the need of additional 15,000 towers by 2035. I think that the key message is that the country in Italy, there has been underinvestment for a while now due to the low returns on the investments, which the industry has suffered, and there is a catch-up to be done. And again, we think that the approach coming from the frequency renewal makes sense because it's supporting the opening of a new cycle of investments for the benefit of the industry and the digitalization of the country. And to catch up then it's needed to densify the network to complement the existing grid with additional power and point of presence.

That's very helpful. So just to check, the 15,000 or greater than 15,000 new towers, you think that reconciles with the kind of milestone coverage obligations that the regulators put out for the frequency renewal. Is that the right way to think about it?

That's the logic, yes.

The next question is from Abhilash Mohapatra of BNP Paribas.

I just wanted to come back to the migration plan comments, please. Just to maybe ask it slightly differently. As you said in the MSA specifies that there is at least 3 years migration period. Is there any specific guidance on what is the upper limit for the migration period in the MSA? And if not, on what basis or effectively what is your thinking that sort of drives you to say that the 12-year transition period that Swisscom have pointed to is not realistic?