Light S.A. (LIGT3) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Light's Second Quarter 2026 Earnings Call. Today's event will be conducted in Portuguese and simultaneously interpreted into English. [Operator Instructions] Please note that this event is being recorded, and the audio will be available on the Investor Relations website as will the materials used in this presentation, which are already available for download there. [Operator Instructions]. Before we continue, I would like to emphasize that any statements made during this presentation regarding the company's business outlooks, projections and operational and financial targets are simply the beliefs and assumptions of the company's management as well as information currently available to them. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. These statements refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operational factors may affect the company's future results and may lead to results that differ materially from those expressed in these forward-looking statements. With these legal disclaimers out of the way, we will begin our presentation with Mr. Alexandre Nogueira, CEO, who will offer opening remarks; followed by Mr. Leonardo Gadelha, CFO and DRI, who will discuss the company's results. I now turn the floor over to Mr. Alexandre. Mr. Alexandre, you may proceed.

Good morning, everyone, and welcome to Light's earnings call. The second quarter of 2026 marks another definitive milestone in Light's recent history. As part of the final stages of the company's judicial reorganization plan in addition to the concession renewal that took place in May, we initiated Light's private capital increase in June, which totaled the maximum projected amount of BRL 1.5 billion, demonstrating once again the broad support of the company's shareholders for the path we are forging. This amount has already been fully deposited into the company's cash reserves. Of the total, BRL 1.24 billion was received during the quarter with the remainder received in July. Following the capital increase, the company also approved in July the mandatory debt conversion, which will conclude its operational process in the coming days. With the completion of all stages of the restructuring plan, we filed a motion to close the judicial reorganization, ushering in a new cycle of stability and growth for Light. A less leveraged balance sheet is fundamental for Light to carry out its investment plan for the coming years in a balanced and sustainable manner. But that alone is not enough. We will continue to pursue the path of transformation and discipline that we have been building over the past 3 years. We continue to work with a strong emphasis on dialogue, transparency and seeking recognition of the specific characteristics of our concession area. On the regulatory front, we believe that the methodologies for the X-factor for which a public consultation is already underway will be finalized this year as will the methodology for risk areas. In the second quarter, Light reported a consolidated adjusted EBITDA of BRL 566 million, up 82.3% year-over-year. CapEx reached BRL 446 million, a 7.1% increase driven by the expansion of projects aimed at improving quality and modernizing the grid in line with the multiyear investment plan. Field operational indicators showed consistent improvement with an average response time of 526 minutes over the past 12 months, a decrease of 38.6% and outages lasting more than 24 hours, accounting for 3.7% compared to 6.8% in the same quarter of 2025. This was a consistent and robust operational improvement presented in the last 12 months. Light ended the quarter with a leverage ratio of 2.85x, still partially impacted by the effects of the capital increase, which was completed in July. 2026 is proving to be a landmark year for Light with the renewal of the distribution concession, a capital increase, a request to exit judicial reorganization and improvements in quality indicators. We are on track, and we're working to get there. I will now turn the floor over to Leo, who will detail our results for the second quarter of 2026. At the end of his presentation, I will be available along with him for the question-and-answer session.

Thank you, Alexandre. Good morning, everyone, and thank you for joining us. I'll begin my analysis with Slide 4, which summarizes the key message for this quarter. As Alexandre pointed out, the second quarter of 2026 marks the start of a new 30-year cycle for the distribution concession as well as the completion of the capital increase phases and the request to close the judicial reorganization proceedings. These are 3 developments that elevate the company to a new level. Light is entering a new phase with repositioned operations and significant room to advance in its value agenda. Looking at the numbers, the adjusted consolidated EBITDA totaled BRL 566 million for the quarter, up 82.3% year-over-year. with the distributors' contribution driving the performance. Consolidated investments totaled BRL 446 million in the quarter, a 7.1% increase compared to the previous year, in line with the investment plan for the new concession cycle with a focus on high-quality projects and grid modernization. The net debt-to-EBITDA ratio as calculated for covenant purposes stood at 2.85x at the end of June compared to 3.66x in March, reflecting the partial effect of the capital increase, which was completed in July. During the period, total energy distributed amounted to 6.2-terawatt hours, relatively flat year-over-year with residential growing by 4% and ensuring market stability. When it comes to field indicators, the average emergency response time set a new record in the historical series, falling to 526 minutes over the past 12 months, a 38.6% year-over-year reduction. The 12-month cumulative adjusted collection rate reached 68.6%, up 0.8 percentage points, driven by positive performance in the retail segment. I'll conclude this slide by highlighting 3 key events for the company. First, the renewal of the concession through 2056. Second, the completion of the BRL 1.5 billion capital increase at the top of the plan and the mandatory debt-to-equity swap in July. And third, the filing of the petition to terminate the judicial reorganization process. Moving on to Slide 5. Let's look at the market dynamics for the distribution company. Energy distributed in the second quarter totaled 6,160 gigawatt-hours, a 0.6% increase year-over-year, equivalent to 37-gigawatt hours more than the second quarter of 2025. This was driven primarily by temperature patterns. April and May saw warmer temperatures compared to last year with the average temperature in April rising from 24.8 to 25.8 degrees Celsius, driving an increase in energy distributed to the 2 segments that are most relevant to the company. The residential segment grew by 4% with an additional 77-gigawatt hours and the commercial segment increased by 2.1%, totaling 38 -- gigawatt hours. In contrast, June moved in the opposite direction being the second coldest month of June in the last 12 years. In the industrial sector, the trend was downward in line with the level of activity among our high-voltage consumers as well as due to gains in energy efficiency, especially in the steelworks sector. During the quarter, the Industrial segment recorded 101-gigawatt hours fewer, a 7.6% decline. In any case, the impact on revenue is limited as the contracted demand from these customers remains unchanged. The other segments contributed an additional 24-gigawatt hours, a 2.2% increase. What I want to highlight is the market's stability. Even with the decline in industrial, the performance of the segments that carry the most weight for the company sustained the overall market, which closed the quarter at 0.6% growth. Slide 6 shows the quality indicators. DEC and FEC finished within regulatory limits for an additional quarter, even during a period marked by adverse weather events and isolated incidents at the high-voltage assets. The DEC stood at 6.75 hours, slightly below our limit and FEC at 3.57x with a 20% margin relative to the regulatory benchmark of 4.46x. In response to the adverse events of the quarter, the company has been refining its action plan for severe weather events to enhance its foresight and impact of preventive measures. Regarding field indicators, a new record in the historical series was set for the average emergency response time, 556 minutes over the last 12 months, a 36% year-over-year decrease and 63% decrease compared to 2022. Outages lasting more than 24 hours fell to 3.7% compared to 6.8% in the second quarter of 2025, down 6.1 percentage points year-to-date and 14.4 percentage points compared to 2022. Excluding areas with severe operational restrictions, the indicator reached 1.8%, a new low for the series, positioning Light among the best-performing distributors in the sector in the regions under its full management. Moving now to Slide 7. Let's talk about losses. Starting this quarter, we're now reporting all loss indicators based on the metered market view in line with the methodology currently used at ANEEL following public Consultation 06. This aligns our reporting more closely with regulatory parameters and the comparative basis remain available on the Investor Relations website. So on this new basis, total losses over the last 12 months declined 1.5% year-over-year to 11.5 terawatt-hours, maintaining the stability observed in other periods, excluding the atypical first quarter of 2026. Here, I'd like to highlight a point because the total loss to line load ratio rose from 30.1% to 30.7% over the same period. This is not due to increased losses, but rather due to the 3.6% decline in line load over the past 12 months, which reduces the denominator in this indicator. In the breakdown of nontechnical losses, areas with severe constraints accounted for 85% of the quarter. So from 84% last quarter to 85% this quarter, this demonstrates that losses took place, especially in areas with severe operational constraints. During the quarter, the company has been increasing the effectiveness of its plan and investments to combat losses as shown on the next slide. Continuing with Slide 8, we see the distributors' investments totaling BRL 428 million in the quarter, up 7.4% in the yearly comparison or [indiscernible] higher than the second quarter of 2025. Of this total amount, BRL 66 million was funded with special bonds, contributing to the renewal of the company's assets without impacting cash outflow. Looking at the investment breakdown, the expansion category grew 12.8% to BRL 117 million, driven by projects to reinforce and expand the capacity of substations and high-voltage lines. The line item for the loss plan and other expenses totaled BRL 81 million, a 22% -- excuse me, 22.5% increase directed primarily towards the replacement of obsolete meters, approximately 36,000 meters, more than double the number in the second quarter of 2025. Nononelectric assets totaled BRL 105 million, driven by the company's ongoing efforts to retrofit and renovate systems. Maintenance expenses totaled BRL 126 million, down 6% from the second quarter of 2025. We remain committed to executing the investment plan with a focus on the renewal, modernization and digitization of the grid. Moving on to Slide 9. We see the distribution company's results. Adjusted EBITDA reached BRL 461 million in the quarter or BRL 258 million higher than the second quarter of 2025, more than double. Three factors can explain this performance. The first and most significant is the BRL 304 million increase in the adjusted gross margin, representing a 46.2% growth. Adjusted net revenues rose 12.3%, reflecting the effect of the 2026 annual rate adjustments, which took place in March on Portion B as well as the increased mix, particularly in the residential and commercial segments and a higher volume and also the variation in the balance of unbilled revenues between quarters, while energy purchases remained in line, rising by just 1.6%. The second factor is cost discipline. PMSO fell 3.1% year-over-year, confirming the stabilization of the cost structure that we signaled to the market at the end of 2025. The third factor is the continued improvement in contingencies, which fell 26.8% to BRL 61 million, driven by lower expenses related to cases in the special civil court and recurring civil lawsuits due to the ongoing reduction in new cases filed supported by operational efficiency initiatives. Conversely, PECLD totaled BRL 108 million compared to an atypically low base in the second quarter of 2025, which had benefited from onetime negotiations with government clients and the corresponding reversals of provisions at the time. During the quarter, PECLD represented 2.3% of billed supply revenue and grid usage revenue with the collection rate remaining at a high level, as I showed in the highlights. So the PECLD this quarter is at the expected level, considering the 2025 base, which had been affected by these provision reversals. Continuing with Slide 10, we see the results for generation and wholesale. Combined adjusted EBITDA was BRL 143 million for the quarter, a 10.3% increase year-over-year, driven by higher sales volumes at Lightcom, which grew 28% year-over-year and by the expansion of the incentive-based portfolio within the sales mix. During the quarter, the incentivized energy portfolio reached an average of 181 megawatts, a 72.5% increase and now accounts for 17.6% of the sales mix, compared to 13.3% in the second quarter. This quarter saw more favorable hydrological conditions with GSF above 2025 levels and an average PLD 5% lower compared to the previous year. Moving on to Slide 11, our capital structure. The key event of this quarter was the full repayment of Light Energia's notes in June, supported by the generator's cash position in line with the strategy communicated in previous quarters. As a result, we eliminated the generating company's foreign exchange exposure and consolidated short-term gross debt fell by more than 58% with 63% of the adjusted gross debt classified as long term. On the left, we see that total net debt ended the quarter at BRL 7.3 billion compared to BRL 8.4 billion in March with the cash position rising from BRL 1.4 billion to BRL 1.9 billion over the same period. Please note the section highlighted in orange, excluding convertible debt, which is now taking place or took place in July, it would have been BRL 5.6 billion. The ratio calculated for covenants was 2.85x compared to 3.69x in the first quarter of 2026, though this still does not fully capture the effects of the capitalization and debt conversion, which was completed in July. So this number would be 2.07 for the covenant. In the table on the right, we see the amortization schedule, which remains well distributed. The first major maturity is in 2028, BRL 1.3 billion, of which BRL 1 billion is attributed to Light SESA and BRL 218 million to Light Energia. From 2026 to '32, the profile remains between BRL 1.1 billion and BRL 1.2 billion per year, very stable with a significant decline starting in 2033 when it drops to BRL 276 million per year. This is aligned with the cash flow profile of the new concession cycle. In the index composition, 63% of the restructured debt is linked to the IPCA index with an average cost of IPCA plus 4.23 per year. 22% of which is linked to the U.S. dollar and 14% to the CDI. This is consistent with our business model in which revenues are primarily adjusted for inflation with IPCA. I'll conclude this slide by noting that the company continues to evaluate liability management opportunities, including for dollar-denominated debt currency hedging with a focus on cost maturity and cash flow predictability in the new concession cycle. Especially as we increase our area, we'll be able to capture these effects from the liability management and so on. Finally, on Slide 12, we will discuss further events regarding the company's capital increase and RJ's exit. On July 15, the Board of Directors approved a BRL 1.5 billion capital increase at the upper limit of the approved range through the issuance of 238 million new shares at the price of BRL 6.29. Of the total funds raised, BRL 1.35 billion was already deposited into the distributors' cash account in July. After that, we approved the first exercise period for the subscription warrants. And by the end of July, the conversion of all convertible debentures, the warrants linked to them and the underwriting warrants for the issuance of ADRs, BRL 1.7 billion in debt to be converted into equity, resulting in 523 million new shares. As shown in the chart on the right, we started with 373 million shares and reached BRL 1,611 million. Starting next week, with the conversion or the exchange of the units for the new ADRs. And this takes into account the second exercise window of the shareholders' additional benefit warrants scheduled for August 20. The new shares issued in this process are subject for -- to a lockup period of up to 30 months as provided for the judicial reorganization plan with gradual and automatic release of 5 semiannual windows. On the same date, upon court approval of the capital increase, the company filed a motion to terminate the judicial reorganization. I want to highlight what this means. It is not a one-off 1-day event. It's a result of a long and disciplined collective effort by creditors who trusted the plan, by shareholders who injected new capital and above all, by the teams that kept operations running, serving more than 11 million people while the company restructured itself. Now that the plan's main obligations have been fulfilled, we await the conclusion of the legal proceedings and the court's decision on the termination, which will mark the closing of an important chapter. With that, I conclude my presentation and turn the floor over to the moderator so we can begin the Q&A. Go ahead.

[Operator Instructions] The first question was asked by Mr. Daniel from Safra. What are your expectations on the regulatory calendar for the ASRO discussion, database losses methodologies for the second half of the year?