Light S.A. ($LIGT3)

Good morning, and welcome to the First Quarter of 2026 Earnings Call for Light. Today's event will be held in Portuguese with simultaneous translation into English. If you would like to change the language you're listening to, you can click on the Interpretation button at the bottom of your screen. We'd like to inform you that this event is being recorded. The recording will be available in the Investor Relations website along with the materials that will be used in this presentation. [Operator Instructions] Before proceeding, I would like to reinforce that any statements made during the company's presentation about its business perspectives, projections and operational and financial goals are the directors' beliefs and assumptions. This is all based on the information that is currently available to the company. Remarks about the future are not a guarantee of performance. They involve risks, uncertainties and assumptions. They refer to future events, which, therefore, depend on circumstances that may or may not occur. Investors should understand that the general economic conditions, industry conditions and other operational factors may affect the company's future results and lead to results that differ materially from those expressed in these forward-looking statements. With that, we will begin the presentation with Mr. Alexandre Nogueira, CEO, who will make the company's opening remarks. And then we will hear from Mr. Leonardo Gadelha, CFO and Investor Relations Director, who will talk about the company's results. Over to Mr. Alexandre. Go ahead, sir.

Good morning, everyone, and welcome to Light's earnings call. The first quarter of 2026 will go down in the company's history. The Ministry of Mines and Energy has authorized the renewal of our distribution concession for another 30 years. This renewal is more than just a regulatory act. It's a recognition that the fundamentals have been restored and that there is legitimacy to operate the energy distribution service in the 31 municipalities of our concession. This renewal brings to an end a cycle of uncertainty. We entered a judicial reorganization in 2023, exactly 3 years ago. And we knew that the path back would involve reorganizing our financial liabilities, rebuilding and improving the operational standards of our service and regaining the trust of our stakeholders. Each of these fronts has been and continues to be addressed with great discipline and resilience. The new contract introduces a more demanding regulatory framework with stricter targets for efficiency and quality, but it also establishes for the first time, a requirement for differentiated treatment of high-risk areas regarding non-technical losses, delinquencies, quality and rates. This is an essential element for structurally addressing the challenges in our concession area. We remain steadfast in our preparations and technical discussions for the process that will define the regulatory framework for the next cycle. With this renewal, Light will invest approximately BRL 10 billion over the next 5 years in the 31 municipalities within its concession area. This amount is more than double what has been invested in recent years and will benefit over 12 million people in our concession area. The investment plan reaffirms our commitment to modernizing the power grid and continuously improving service quality for the people of Rio de Janeiro and the state of Rio de Janeiro. This plan will only be possible by taking into account all the pillars of the restructuring we mentioned earlier, a rebalanced concession contract, recognizing the specific characteristics of the risk areas, reduced and extended debt resulting from negotiations with creditors as well as robust improvements in operational indicators and constant enhancement of service deliveries to our consumers. Cash flow focused management, operational restructuring and the pursuit of a contract that adheres to key conditions in the concession area has been and will remain vital to meeting this challenge. Following the concession renewal, as already anticipated by the market, the company's Board of Directors approved yesterday a private capital increase of up to BRL 1.5 billion in accordance with the terms and conditions set forth under the Judicial Reorganization Plan, which we will discuss in more detail during this conference call. Early in the second quarter, we also received some great news. I'd like to take this earnings call as an opportunity to welcome and announce the arrival of Leonardo Gadelha as CFO of Light. He's a highly experienced and well-regarded executive in the market with a solid record of results in the electricity sector. He joined the company in April to help us with various value creation initiatives, including a capital increase, new funding to address future investments, cost efficiency and capital allocation as well as other development and growth initiatives that this new phase will require of us. I will now turn the floor over to Leo, who will detail the company's results for the first quarter of 2026. At the end of his presentation, I'll be available along with him for the Q&A session. Leo, over to you.

Thank you, Alexandre. Good morning, everyone. I'm kicking off my first earnings presentation as Light's CFO. And I'm very happy and grateful for the opportunity to contribute to the company. Excuse me, I had an issue with my microphone, but I'll start over to make sure that everyone can hear me well. So thank you, Alexandre, once again. Good morning, everyone. Welcome, and I'm going to kick off my first earnings presentation as the company's CFO, noting that I'm very grateful and happy for the opportunity to contribute to the company in this new cycle with the recently signed concession renewal and with a capitalization process ahead. I'll begin our analysis with Slide 4, which covers the highlights of the quarter. The first one is the renewal of the distribution concession for an additional 30 years signed last week. As Alexandre pointed out, this is a milestone that begins a new cycle for the company and enables the set of capitalization measures for the company outlined in the judicial reorganization plan. We will discuss them in more details at the end of the presentation. Moving on to the consolidated results. EBITDA for the quarter was BRL 423 million, a 27% year-over-year decline. This figure reflects the strong performance of the generation and commercialization business, which grew 45%, offset by a challenging quarter in distribution, which declined 47%, mainly due to the compression of the gross margin, and I will discuss both of these movements throughout my presentation. Consolidated net income was BRL 2.8 billion for the quarter, driven by the onetime recognition of tax credits from prior periods. This was made possible by the concession renewal. Although this is a noncash effect, it has an economic effect. We'll be able to use these tax credits for the next few years, and this will have a cash impact for the next years as well. Our adjusted net income, excluding this effect and mark-to-market adjustments would have been a loss of BRL 80 million. In operations, we set a new record for our average emergency response time with a 37.5% reduction, compared to the first quarter of 2025. Quality indicators, DEC and FEC remain within regulatory limits, confirming operational resilience even in a quarter marked by weather-related challenges. Regarding contingencies, we continued on a path of improvement, maintaining the lowest backlog of cases and volume of new cases in 9 years for our first quarter. Investments totaled BRL 349 million in the quarter, an 18% increase year-over-year, in line with the new concession cycle with a focus on grid maintenance and expansion. On the next slide, we show the market dynamics of the Distribution Company. The energy market totaled 6,750 gigawatts hour in the quarter, a 5.3% year-over-year decline. This is explained mainly by the milder temperatures during the period with an average drop of 1.5 degrees compared to the first quarter of 2025. You can see this on the right-hand side. February 2026 was the rainiest month of February in Rio in nearly 30 years. And it had a high comparative base as February 2025 recorded Light's highest consumption since 2022. Additionally, the industrial segment remained under pressure due to the slowdown in the steel industry within our concession area. On Slide 6, we see quality indicators, starting with DEC and FEC. They ended the quarter within regulatory limits even with the highest volume of emergency service calls. since 2022. Despite this higher volume, the average emergency response time reached a new all-time low, 538 minutes over the past 12 months, a 62% reduction, compared to 2022 and 37.5% versus Q1 '25. Incidents lasting over 24 hours dropped to 3.9%, a reduction of more than 14 percentage points since 2022 and 6 percentage points compared to the same period last year. These figures confirm the structural productivity gains achieved by field teams since 2022. Moving on to Slide 7. Here, we talk about loss combat. Specifically about nontechnical losses, over the last 12 months, it fell 7.1% year-over-year, resuming their downward trend after the onetime effect mentioned in Q4 2025, driven by temperature-related pressure at the end of December. The nontechnical losses indicator relative to the line load returned to the Q3 '25 level of 22.9%. We continue to make process in our strategy to combat losses. We made 42,000 meter replacements in the quarter at an increase of 25.5% in inspections and 38.9% in normalization. Continuing with Slide 8. Here, we show the Distribution Company's investments. We invested BRL 341 million in the quarter, an 18.4% increase. The maintenance segment grew by 10.4%, focusing on corrective underground works and low-voltage networks. The expansion segment grew by 20.5%, reflecting projects with regulated deadlines and new connections and the loss plan received BRL 64 million, a 25.5% increase this quarter. As we have already communicated, the investment plan for the next 5 years will involve a CapEx of BRL 10 billion, double the level of recent years. This reflects the scale of our commitment to the renewal, modernization and digitization of the network. Continuing with Slide 9. This covers the Distribution Company's results. Adjusted EBITDA was BRL 247 million for the quarter, a 47% year-over-year decline, driven mainly by 3 factors. The first and main one was the compression of the gross margin with an impact of BRL 134 million or a 14.5% decline. This effect stems from the combination of the smaller energy market, I mentioned on Slide 5, with a higher average energy purchase price to cover the amount of unrecognized nontechnical losses in the tariff. The second is PMSO, which had an impact of BRL 92 million. Here, we have to give you context. The company has to achieve its recurring cost structure level by the end of 2025. On a sequential basis, it's already showing a slowdown. We expect for these lines to stabilize in the next quarters. The increase in the company's own headcount, which helps explain this trend is concentrated in the field team, which accounts for 74% of the total, in line with the new investment cycle. And finally, PECLD remained stable at BRL 145 million and contingencies continued on an improving trajectory, declining 4% to BRL 65 million, reinforcing the milestones achieved in 2025. Continuing with Slide 10. Here, we see results for generation and sales. Adjusted EBITDA for these operations combined was BRL 164 million for the quarter, a 45.3% increase year-over-year. This was driven by higher sales volumes and margin captures in a more volatile environment. The volume traded was 1,000 megawatts on average with an increase of 40%. Adjusted gross margins grew 42%, reflecting the attractive margins we have in an environment where PLD was 94% higher than last year. So PLD this quarter got in the way of our results in the Distribution Company, but for generation and trading, it gave a positive contribution. On Slide 11, we discuss our capital structure. We ended the quarter with a net debt of BRL 8.4 billion, above the BRL 7.9 billion in the fourth quarter. And this reflects our CapEx pace for the period and the typical cash seasonality for the first quarter. On the left, we see the principal repayment schedule for the nonconvertible debt. We ended the quarter with BRL 1.4 billion in cash and a repayment schedule that was well distributed over the coming years, aligned with the post-concession renewal cash generation trajectory. You can see that it's mainly concentrated in 2028. And after the cash flows from the new terms of the concession agreement, particularly regarding nontechnical losses and defaults in areas with severe operational constraints. At this time, we are preparing for the 2027 periodic tariff review, a process that will define the regulatory framework for the next cycle. As for our debt composition, considering the pro forma effect of the capital increase and the debt conversion, we can see that 56% of our debt is linked to the IPCA at a very competitive cost, IPCA plus 4.2%. 23% is bound to the CDI also at a competitive cost and 20% to the dollar, at a competitive price of USD plus 3.5%. The last slide discusses a very relevant topic for us that we announced yesterday. We did this along with our -- with posting our results. As I mentioned before, we renewed the concession contract, and this unlocked the company's capitalization measure. So with that, we have advanced with the capital increase and also with the debt conversion as provided for in the judicial reorganization plan. To the left, we see the terms of the transaction. This is a private capital increase with preemptive rights guaranteed to current shareholders in the amount of up to BRL 1.5 billion with a minimum of BRL 1 billion. The issue price was set at BRL 6.29 per share. Subscribers exercising their preemptive rights will receive 2 bonus shares for each share subscribed with an exercise price of BRL 0.01 per bonus share, totaling 3 shares at the end of the process. So you will receive 2 bonuses at a price of BRL 0.01 when you purchase at the BRL 6.29 price. The table to the right shows the projected time line. The concession was renewed last week. The capital increase was approved yesterday on May 14. So the window for holding the preemptive rights will be May 19. The trading and exercise period will run from May 20 to June 18, followed by the oversubscription round and the approval of the capital increase at the Board. Within 90 days of the offer, we expect to complete the remaining stages, which include converting the debt. At the end of this process, the pro forma consolidated net debt could reach approximately BRL 5.2 billion, a significant reduction in the company's leverage, which creates room for the execution of the new investment cycle. With that, I conclude my presentation and turn the floor over to the moderator so we can begin the Q&A session. Please go ahead, moderator.

[Operator Instructions] First question will be asked by Mr. Luis Campos. He asks, in the new contract, there's a highlight on Light's challenge with risk areas. What benefits does that generate in comparison to the previous contract?

Good morning Luis. The new contract after 3 years of negotiation has a specific treatment for -- that is very expensive for Light's concession area, which are the risk areas and also an annual recognition of the investments made. So this obviously is still being discussed with the regulatory agencies, but the new contract states that these areas are very expensive for Light's concession. I would highlight this versus the previous contract because we are now treating risk areas differently, and we understand that the yearly investment is different.

[Operator Instructions] The next question will be asked by -- was asked by Mr. [ Ricardo Picciano ]. He's asking who will be the anchor shareholders who will invest BRL 1.5 billion.

Ricardo, thank you for your question. So about the capital increase, what we can tell you right now, and we're starting this process. What we can say is that we're very confident that this capital increase will be successful without naming shareholders. The indications that we've been getting from the preferential shareholders and also other shareholders in our base that have come to us give us a lot of confidence. And they seem committed to the capital increase. So as we stated, this capital increase needs to amount to at least BRL 1 billion, but the company will make all the efforts it can to reach BRL 1.5 billion. And we're confident that we will be successful in this increase. So we're starting this process now and the period begins in May, and we'll have 30 days. At the end of that time, we'll have an understanding of how much volume that was and then open up for the remaining subscriptions. So we're very confident about this capital increase. Thank you.

[Operator Instructions] The next question was asked by Ms. Victor Rosa. She says, after the recently approved offer, does Light plan to releverage itself to meet the BRL 10 billion plan in investments. Does the new contract provide for economic incentives in this direction?

Victor, thank you for that question. About the CapEx plan for the next years, yes, our strategy is to go to the credit market, releverage the company. And this, in our perspective, will happen as we continue with this plan. We had a significant milestone, which was signing the new agreement last week. We're now beginning the capital increase. And after that, we will conclude the judicial reorganization plan. This should happen until the second half of the year. And as it happens, the company will be derisked. And of course, it could not access the credit market for some time. We're now regaining access. And with every step we take, we will be able to regain access to the credit market. And this will help us with our CapEx. Without a doubt, this new contract will allow for that. And we're going to have a significant milestone, which will be the tariff review in March next year. And we believe that this is the next -- the last step to confirm the company's turnaround. And then we will begin our new cycle. I hope that answers your question. Thank you.

[Operator Instructions] This concludes the company's question-and-answer session. And this concludes the company's conference call. The company would like to thank you for participating and underscore that the Investor Relations team is always available. Thank you, and have a good day.