Oi S.A. (OIBR4) Earnings Call Transcript & Summary

My name is Marcelo Milliet. I'm the CEO of Oi. And again, I have Rodrigo Aguiar, our CFO, and some members of our Executive Board with us as well as our Investor Relations team. I'm going to be using this first chapter of the presentation to recap some important steps the company took in 2024 and also to clarify what the new Oi is going to be like in the future. In the second chapter, we'll go through the fourth quarter's figures, and then we'll open up to your questions. I'll show you the slides as we go through the presentation. Now this is going to be Slide #4. We'll look at how the reorganization plan has been performing or performed in 2024. The new Oi has made progress in the central pillars that are absolutely pivotal for the company to be sustainable financially in the long term. After intense and lengthy negotiations, the approval of the new plan for the court-supervised organization allowed the company to restructure its financial debt, reducing the net debt and also with a strong reduction of the credits with the take-or-pay suppliers. That was also possible in spite of the new financing plan. It's also a very important pillar in the plan and allowed the company to have enough liquidity to go through the cash consumption period that was still impacted by the legacy operation. In the fourth quarter 2024, we concluded the capital increase where the credit supporters of the company and the court-supervised organization plan capitalized part of their credits, becoming holders of just under 80% of the company's stockholders' share. We elected a new Board of Directors, thus implementing the new governance provided in the reorganization plan. In the regulatory pillar, we have made progress as well. We signed an authorization term that allowed for the migration from the concession regime into the authorization regime. With this migration, we accelerate the capture of efficiencies in the services of the legacy infrastructure with a number of subjects associated with landline telephone. We made progress in the asset sales pillar as well. We conclude the processes of the UPI ClientCo, real estate and properties and towers and the UPI TV. The UPI ClientCo specifically was sold to V.tal in an operation that was BRL 5.7 billion without a cash component but with the credits pertaining to the contract of the FTTA and debentures of the 10th, or rather, 13th issuing, in addition to the delivery of new shares of V.tal to the company. After the completion of this transaction, Oi now holds 27.5% stake in the subsidiary. Moving on to Slide 5. Here we have the main components of the services that remain with new Oi. They continue to make progress, focusing on the company becoming an increasingly lean and efficient company. Each one of these components has different profiles and unique value generation capabilities. The first component is Oi Solutions, a digital solutions orchestrator, integrating telecom and ICT services for the corporate client market, B2B. The second component groups together Oi's wholly-owned subsidiaries, Serede, Tahto, and Oi Services. The first operate in field services, the second in call center operations, and the third was recently created as part of the sale of the UPI ClientCo to provide BPO services to both ClientCo and the company in HR, finance, information systems and technology, operations and logistics. These subsidiaries have great potential for growth and value generation. Oi also holds a significant take, or rather, stake in Brazil's largest neutral fiber company, V.tal, which represents a great value for the company in the future as V.tal consolidates itself as the operator of the largest pure fiber infrastructure in the country. Finally, the third component is the legacy services. In that subject, the approval of the authorization term, making it possible for the migration of the concession to the authorization regime will allow the resolution of the legacy and various issues associated with the concession of the landline telephones and reversible assets, reducing regulatory costs. In addition, the company is seeking to compensate for the economic financial imbalance and the unsustainability of the concession through an arbitration process that is still ongoing. Slide 6. We have a little more detail on the Oi Solutions business. That is the main service component of new Oi and the main focus for revenue growth. It is a core business for Oi, and it has been delivering significant results through its conversion into an ICT player, leveraging its existing customer base, which already covers more than 80% of the largest companies in Brazil and its portfolio. By combining connectivity services with information technology offers, Oi Soluções has shown a transformation in its revenue mix driven by strong sales of ICT solutions together with long-term agreements and lower CapEx. Connectivity, combined with comprehensive solutions in the Oi Soluções portfolio brings a substantial impact on the customers' value chain, taking advantage of its major market differentials. Combining the experience of those who already dominate the telecom and the IT markets in partnership with strategic partners focusing on customer service and proximity and offering customized solutions, becoming the basis for the sustaining -- for sustaining the growth of the segment. Let's now look at the fourth quarter highlights. In the fourth quarter of this year, revenue performance was once again impacted by the accelerated dynamics of reduction in legacy services. In addition to a more selective approach in the bidding processes for new contracts with the companies and government at Oi Solutions with the aim of improving business profitability, new Oi reported a revenue of BRL 625 million, down 33% year-on-year, mainly due to the impact on the reduction of noncore revenue. Oi Solutions revenue totaled BRL 409 million, amounting to 65% of our total revenue. Oi Solutions maintains a commercial strategy of prioritizing margins and focusing on segments with higher value added. As a result, approximately 34% of its revenues already come from information technology services, which are more important to customers and have a high growth potential. The UPI sales ClientCo and the UPI Pay TV, with that, the company began to record the results of these businesses as discontinued operations or held for sale. Revenue from the discontinued operation totaled BRL 1.3 billion with the fiber business accounting for BRL 1.1 billion of this total amount. In order to at least partially offset the impact of the legacy, the company is continuing to seek operating efficiency and capital allocation. The implementation of new initiatives in this regard resulted in a 38% reduction in operating expense and investments this quarter. The reduction in capital allocation stresses a more selective stance geared towards maximizing profitability, optimizing the resources used in operations. Now let's move on to Slide 9, where we can see the evolution and details of our revenue. Consolidated net revenue fell by 17.4% year-on-year. Now on the right-hand side of the slide, you can see the evolution of our revenue, showing the services that will remain in the new Oi after the conclusion of the sales of the fiber and TV businesses. Once again, this result was impacted by the dynamic of the noncore services, which now account for only 35% of new Oi's total revenue. Oi Solutions revenues, which already account for 65% of the total revenue fell by 24.3% year-on-year. As I said earlier, this result reflects the continued reduction in demand for legacy services in addition to the more selective sales strategy, focusing on profitability and higher quality in the new sales, aiming at healthier margins for the company. Now let's take a look at Slide 10. And here, I highlight the performance of Oi Solutions, which has been showing growth in higher value-added services despite the impact of lower demand for legacy services and a more selective sales approach. Contributing to the year-on-year reduction in Oi Solutions revenues are the telecom revenues, which include more commoditized connectivity services as well as other revenues, which concentrate copper-based services. On the right-hand side of the slide, you can see some of the information and communication technologies verticals, or ICT, which are our main growth drivers. Cloud-based services revenue posted a solid year-on-year increase of 11%, while the unified and collaborative communications revenues grew by 20%. The ICT revenues accounted for roughly 34% of Oi Solutions' total revenue in 4Q '24. Oi Solutions begins 2025 by strengthening its presence in the cloud computing segment. In the last months of 2024, the company won bids and signed contracts that should have a positive impact on the company's results from 2Q '25 onwards. Now let's move on to Slide 11. And here, I would like to highlight that in 4Q '24, efficiency-centered initiatives generated considerable year-on-year savings with reductions in virtually all manageable cost lines. Routine operating expenses came to BRL 2 billion, a 16% reduction year-on-year. Excluding rental and insurance costs, which reflect the dynamic of the fiber operating model, routine costs and expenses showed an annual reduction of 37.7%. On the right-hand side of the slide, you can see that this reduction was supported by specific actions that the company adopted on 3 main fronts. In sales, we decided to adopt a strategy focused on higher quality and preserving profitability, rationalizing selling expenses through policy changes and also channel restructuring, promoting greater efficiency in customer acquisition and intensifying the use of digital media. This strategy generated reductions in expenses with billing, sales, customer relations, advertising, and also an improvement in delinquency levels. On the legacy front, we were able to capture efficiencies through new management initiatives while, at the same time, respecting the limits set by regulatory requirements in force at that time. This resulted in a 30% year-on-year reduction in network maintenance expenses. We continue to make intense efforts to renegotiate content acquisition contracts with a special focus on those related to legacy technologies. These initiatives have already generated annual reductions of 25% to 30% in this expense line over all quarters of 2024. We're also committed to achieving a leaner, simpler and more agile organizational structure, which is in line with the ongoing transformations. We posted an annual reduction of roughly 14% in the total number of employees. Personnel costs increased by 9.7% year-on-year due to the one-off effect caused by the contract terminations of employees who migrated to ClientCo. Excluding this effect, this item would have decreased by 6.3% year-on-year. Finally, we continue to implement strict cost control, focusing on eliminating noncore expenses that led to significant reductions as we can see in the G&A line. Now on Slide 12, we can see more details about the routine EBITDA and CapEx. Routine EBITDA continued to be negatively impacted by the losses from the legacy services, as I mentioned earlier, but there was an improvement quarter-on-quarter. Looking forward, we can see significant opportunities for improving profitability through additional cost reduction initiatives, especially in relation to legacy services and especially after the migration to the authorization model at the end of November, in addition to resizing the operation after the sale of Oi Fiber with the consequent reduction in associated costs. Now on the right-hand side of the slide, we can see that the fourth quarter CapEx came to BRL 108 million, a 41.8% year-on-year reduction and accounting for just under 6% of our revenue. This reduction was driven by the gradual implementation of efficiency initiatives and optimization of investment allocation aligned with a more selective stance and focusing on maximizing profitability. Now let's take a look at Slide 13. Here, we can see the cash balance of BRL 1.8 billion at the end of the period, a 35% increase in the quarter. The cash is made up by 3 elements: the first is freely available to the company; the second is for the purpose of fulfilling specific contractual obligations; and the third element is to be released upon the fulfillment of certain conditions precedent. The operational cash burn was more than offset by the net redemption of a deposit in court as part of the agreement to reduce the debt with Anatel. Also, in noncore operations, the company continues to work on funding alternatives that can offset the cash burn in the quarter such as the advance of credit rights, such as the surpluses from Sistel's PBS-A plan. The positive result in working capital came basically from expenses that were recovered during the quarter, partially offset by payments to Class 1 creditors as provided for in the approved reorganization plan. Payments of interest-bearing liabilities were reduced by 78% year-on-year due to the application of the new take-or-pay conditions that we negotiated under the reorganization plan with satellite suppliers. Now finally on Slide 14, we can see that the progress made by the company in 2024 was not insignificant. We made substantial progress on critical fronts in the operation and the execution of the court-supervised reorganization plan, achieving great results towards Oi's operational and financial sustainability. Looking forward, new challenges will, for sure, come but we will take action to minimize the impact of the legacy business on our cash flow after the migration to authorization. We'll focus on the recovery of B2B revenues and profitability, the acceleration in sales of real estate assets and optimization actions and search for additional liquidity for the company such as the recovery of credit rights. As we have always emphasized to all of our stakeholders, this entire transformation process has been conducted with transparency and is part of our commitment to building an operationally viable company focused on operating in digital services and technology solutions for the Brazilian corporate market. Thank you very much. Now we're ready to take your questions.

[Operator Instructions] Guido Rosas will ask the first question.

I actually asked a set of questions in writing, but my first question is the following. Can we measure what the saving is going to be with the sales of Oi Fiber, with the landline telephones and with the Oi TV? What would the estimates be? When do we expect, and this is my second question, to have a ruling from the arbitration? And if the company can give some details on the property sales and also if you can share information on that front and what the plan is. Just a second, please. I asked the questions using the platform so I send them in writing too.

About the discontinued operations, Fiber and TV, there is a specific note, Note 28 in the P&L that can answer your questions. The arbitration is a process that we don't know exactly when it's going to end. We can't know that. We would hope that this year, before this year is out at least for a first initial decision, but the final decision may take years. So the term or the deadline is rather indefinite.

If I may ask one more question. How about copper? Has everything been sold to V.tal or what is the plan regarding the remaining copper? And is there any chance that the company might publish any guidance in the coming months or for the coming months at least? I'm not sure if Marcelo heard my questions.

I did hear them, yes. We have committed to selling all of the underground copper to V.tal. This is still ongoing. The underground copper still being extracted is a difficult process. And the air copper, that will continue with Oi. And as it is extracted, it will be negotiated as scrap in the national and international markets.

How about the guidance?

About the copper, still about the value, I'd just like to clarify that I used to be the CEO of Paranapanema before I joined Oi, and it's a company that works with copper. And the London Market Exchange will set the price of copper and this is a value that fluctuates. So I have the cost of extractions and we need to deduct that from the potential revenue.

Carlos Eduardo Gabriel will ask the next question.

Carlos asked 3 questions in writing. The first question is the arbitration decision, a partial, at least, decision. When is it expected by? And what is it that Oi needs to do to leave the court-supervised reorganization plan? The next question has to do with the copper that is still to be sold. How much copper there is left? And the third question is tributary credits that are to be sold and what price they would have?

As for the court-supervised reorganization, even though the law sets a period, what normally happens is after a number of steps have been taken, only then can the company leave the court-supervised reorganization. I also spoke about copper already, and so it's a variable amount depending on the London Market Exchange. In the last 12 months, they have varied from $8,000 to $12,000 per tonne. So this is a market that is impacted by international market, including China. So it's very difficult to say exactly what that asset would be worth at this point. And I'd like to remind you that the extraction cost is high. Much of what is left in copper is still to be extracted still from more remote regions, and that increases the cost of the extraction. So we have already extracted what is more -- in closer region. And the revenue arising from the copper sale as scrap is impacted by the maintenance cost of posts and also the extraction costs. So these are part of the obligations we need to comply with that were part of the reorganization plan already.

Next question, Nuno Fonseca. He sent this question in writing so we're going to read it. I am a creditor type option 1 and I have been a shareholder since 2014. First and foremost, I'd like to congratulate you on the new management board, and I'd like to wish Mr. Marcelo really a whole lot of success in taking the helm of Oi. As for the sales of ClientCo, can we expect a positive routine EBITDA in the second quarter 2025? As for the reorganization plan, could Oi have an additional credit of up to BRL 1.5 billion? And what is the expectation regarding that matter? The reorganization plan sets forth that in up to 12 months after the approval, there should be the property sales. What is the status of the property sales and the revenue? The financial debt is clear, but it would be also important to understand what the status is and what the debt -- the creditor's debt, ToP, without collateral for 2024 and '25 reinstated option 1 would be, what is the current situation for that and for the suppliers? How much has been amortized already with the property transfer?

ClientCo had a negative EBITDA that can be seen in the P&L. And when ClientCo left our operations, we can't just assume that it's going to become positive in the second quarter, also due to the operations focusing on the legacy. But as we are a publicly traded company, we can't yet say or publish any forward-looking statements around this matter. Around the additional BRL 1.5 billion credit, even though that's in the reorganization plan, it's not that easy to make it happen as most of the company's guarantees or collaterals have already been taken up by other debts, by other credits. We will present the balance of the property sales at the right moment in the reorganization plan so that every stakeholder can be privy to the information at the same time. And we have companies such as Deloitte monitoring the progress, auditing them to make sure that the sales are carried out transparently and as they should. As for the nonfinancial debt, well, this information is available in the P&L.

We have one last question from Maiquel Mafra. In percentage terms, how much do you believe that Oi will get from the disposal of the real estate assets?

Well, this is a very difficult question. And it is so difficult because the properties that are up for sale are very different in terms of location, in terms of the state they are in. So I really can't say. I don't even have a ballpark number to give you. We have rural assets. We have small properties. We have properties located in safety risk zones. We have larger properties as well. So although it is a high number of properties, I don't think I can give you a ballpark number, considering the group of assets that are still up for sale.

Thank you very much. This concludes the Q&A session. I'd like to turn it over now to Mr. Marcelo Milliet, the CEO of the company, for his closing remarks.

Well, thank you very much for your time for attending our earnings call. And of course, we are at your disposal. In case you need more information, please make sure to access our Investor Relations website. In case you need more information and in case you have questions, you can access www.oi.com.br/ri and also through our e-mail, feel free to contact us with further questions. It will be a pleasure to address all of your questions. Thank you very much. Have a good day.

This concludes Oi's 4Q '24 Earnings Call. For more information, please access the company's Investor Relations website at www.oi.com.br/ri. Thank you very much. Have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]