Oi S.A. (OIBRQ) Q2 FY2025 Earnings Call Transcript & Summary

[Audio Gap] [Operator Instructions]. I'd like to turn the conference over to Mr. Rodrigo Aguiar, our CFO. You may begin sir.

Good morning, everyone, and welcome to our meeting to discuss the company's results for the second quarter 2025. Joining me in this presentation are members of the company's Executive Board as well as our Investor Relations team. In the first part of the presentation, we will address some of the points related to the recent proposed amendment to the company's core supervised reorganization plan as well as other measures necessary for the plan to be carried out. Then, we will move on to the slides detailing Oi's performance in the quarter. We'd like to remind you that after the presentation, should there be any questions or comments, you may send them or e-mail to our Investor Relations team at [email protected]. Slide 4, please. On Slide 4, we would like to highlight the rationale as well as some of the key measures included in our proposed amendment to the reorganization plan. This initiative is aimed at generating short-term liquidity for the company with the goal of strengthening its long-term sustainability and value creation. This initiative aims to preserve cash by extending maturities and renegotiating terms with the main creditors, focusing exclusively on obligations that would otherwise result in immediate cash outflows. The reason for the amendment is directly related to the nonfulfillment of key assumptions set forth in the plan that was approved in April 2024 that widened the funding gap already anticipated in the financial projections at the time. This is a strategy that intends to provide the company with time and financial flexibility to make headway on 2 priority fronts of the reorganization plan. The sale of the V.tal, UPI as other assets as well as the pursuit of breakeven point remaining operations with a focus on Oi Soluções and Oi services supported by commissioning our legacy. The both actions include negotiations with specific creditors, such as Class 1 creditors, Pana vendors and take-or-pay contracts. Under new payment terms that could generate a cash reinforcement of BRL 2.6 billion. The proposal also includes the participation of priority creditors who may be paid with the proceeds from real estate sales. In addition, the plan seeks to provide greater flexibility in the allocation of funds from these real estate sales. The use of alternatives for payments. Finally, we propose that the use of appeal buys be an additional source to settle obligations with Class 1 creditors. The amendment seeks practical solutions to mitigate short-term pressure on the company's cash position. balancing the need for liquidity with the preservation of value for stakeholders. This set of actions reinforces our commitment to the responsible execution of the plan. And Oi's financial sustainability, preparing the company for a use cycle of value creation. Slide 5. We flesh out some of the terms of the proposed amendment to the reorganization plan. focusing on the restructuring of payments to labor creditors and vendors as well as the inclusion of adhering priority creditor figure. Our Class 1 creditors, 2 payment options are being proposed for the aggregate limit of BRL 30 million. Option 1 provides for the full settlement of claims of up to BRL 9,000 within 180 days from court ratification. Option 2 offers a single payment within up to 3 years for claims of up to 150 minimum wages with the possibility of using appeal deposits as a collateral. Amounts exceeding this limit will follow the terms of the general modality of Class 3. As for Pana vendors and take-or-pay with or without collateral, payments will be made through 2038 using the proceeds from real estate sales. And finally, the adhering priority creditors may voluntarily include their claims to be settled under the terms of the amendment with participation in the distribution of net proceeds from real estate sales. Slide 6, retaining a larger share of the net proceeds from real estate sales within the company, will be an important liquidity lever. The new proposed distribution aims to retain up to BRL 600 million in net proceeds from real estate sales fully allocated to investments in Ois operations, supporting its digital transformation. This compares with the current BRL 190 million, namely 100% of net proceeds up to BRL 200 million and 30% of net proceeds between BRL 100 million and BRL 400 million. Above this limit, the next BRL 1 billion must be allocated to the payment of vendor partners, take-or-pay with or without collateral included in the amendment on a pro rata basis. And above BRL 1.6 billion, the proceeds from real estate sales shall be distributed as originally set forth in the plan. Additionally, Oi will seek to raise funds through appeal bonds to be used for payments to labor creditors and for the company's working capital in a 50-50 split. These measures are essential to reinforce the sustainability of the reorganization while ensuring liquidity, maintaining operations and advancing the growth strategy of the remaining businesses. From this point forward, we will move on to the section covering the quarterly results. Slide 8. The second quarter of 2025 marks a symbolic moment. It is the first full quarter and the new operating model following recent asset sales. The quarter was marked by significant progress at Oi Soluções, which accounted for 50% of the revenue, especially in shifting the mix towards information and communication technology, ICT. We highlighted the new cloud contracts signed in the quarter, totaling BRL 62.3 million in revenues. We also innovated with the launch of a pioneering digital security product focused on network vulnerability detection, representing another step in consolidating Oi Soluções as a relevant technology player. The subsidiaries, which represented 39% of the quarter's revenue showed consistent growth taking on an important role in the diversification of the company's results. This was the first full quarter operating under the new model following the completion of ClientCo sale. As for the legacy segment, it now accounts for only 11% of the revenue underscoring the progress of the transition to digital solutions. We continue to move forward on 2 key fronts: migrating customers to digital solutions and decommissioning legacy networks. By June, 98% of the customer base of the three-digit service had been migrated. And around 60% of the interconnection stations were operating under the new topology. As a result, accumulated savings from asset shutdowns reached approximately BRL 1.4 billion by June 2025, with the expectation to reach BRL 2.5 billion by year-end. Moving on to Slide 9. This quarter was defined by a continuous focus on core business operations by disciplined efforts to enhance operational efficiency and reduce costs. Nova Oi's consolidated revenue amounted to BRL 684 million, a 17.7% decline year-over-year. This drop, which had been anticipated, stems directly from the completion of the sale of our fiber and TV operations, part of our strategic decision to concentrate resources on core segments. Oi Solutions, our corporate solutions arm sustained a selective commercial strategy, targeting high-value, high-margin contracts such as ICT offerings, cloud, Internet of Things and unified communications. This segment's growing share of total revenues underscores our strategic shift towards technology, reinforcing a gradual consolidation of more modern and market-aligned portfolios. Our subsidiaries delivered substantial year-over-year revenue growth, especially following the closure of the ClientCo sale last quarter. This performance highlights the growing importance these controlled entities and diversifying our revenue base. On the cost front, we remain aggregately focused on financial discipline and cost control. OpEx, excluding rent and insurance, combined with CapEx fell by 54% year-over-year. I'd like to underscore the significant savings we achieved in rent, insurance and also third-party services. Outcomes that reflect the ClientCo divestiture, the decommissioning of legal -- legacy part of infrastructure and the company's strict cost management and strategic prioritization. Even in this challenging environment, our operational and strategic adjustments are yielding results, boosting efficiency, reinforcing core business progress and positioning us structurally for a sustainable new cycle. Advancing to the next slide. Starting this quarter, our net revenue excludes discontinued operations. as the fiber and Pay TV sale closed in February this year. This provides a more accurate reflection in the current scenario of our new structure and strategic focus. This quarter, net consolidated revenue was BRL 684 million with significant greater weigh in from our core operations. Subsidiaries accounted for 39% of revenue, growing roughly 67% year-over-year. Oi Solutions now represents 50% of revenue, making it our primary revenue driver with legacy operations now comprising only 11% of consolidated revenue. Oi Soluções contributed BRL 342 million in revenue, of which 34% came from ICT services underscoring our emphasis on client digital transformation. Given this discontinued part of -- discontinued decline of legacy telecom services and other traditional revenue streams revenues from cloud, unified and collaborative communications and IoT have grown consistently quarter-over-quarter. Reflecting the company's choice to prioritize higher value-added solutions that are more aligned with the needs of our customers. In summary, Q2 reveals a leaner, more focused and better positioned to grow sustainably in a new cycle powered by innovation and efficiency, we are now consolidating our strategy. Turning now to the following slide, this quarter, we captured significant efficiency gains, which were directly reflected in our routine OpEx be driven by the conclusion of asset sales, progress in shutting down legacy operations as well as by the continued resizing and treatment of nonessential expenses. Now in the second quarter of '25, OpEx, excluding rent and insurance was of BRL 570 million. The pronounced year-over-year decline underscoring our restructuring consistency. Such performance was fueled by relevant drops in key expense categories, including third-party services, network maintenance, content acquisition, personnel, and G&A. Commercially, we adopted a more measured rational approach focused on quality and stability. It is important to acknowledge that Oi's transition is both cultural and strategic, we are moving away from a physically asset-heavy legacy model and advancing to a technology-oriented enterprise centered on digital, cloud and intelligent connectivity. Oi is consolidating into a leaner, more focused operation with cost structure that is more aligned to our current reality and future challenges. Now on Slide 12, we present the routine EBITDA and CapEx for this quarter, although still negative at BRL 98 million, routine EBITDA shows an improving trend compared to prior quarter. This is a direct outcome of ongoing restructuring. The legacy went down and shift to digital salons with the associated OpEx benefits which we already highlighted. Looking ahead, we anticipate a positive momentum as we complete the migration of our customer base to digital platforms expected by the end of 2025. It is also important to highlight the resizing of the company's CapEx which totaled BRL 41 million in the second quarter of 2025, representing 70% decrease compared to the same period last year. This reduction also reflects the completion of asset sales in the previous quarter. Currently, 100% of CapEx is directed toward ongoing operations with a focus on digitalization, efficiency and higher return services. Around 45% increase in CapEx allocated to continuing operations this quarter shows that even amid restraint, company continues to invest selectively and strategically in assets that alter our new positionings. Now moving on to Slide 13. I would like to address the company's cash flow and net debt. Cash management has been a major challenge during this period of transformation. As I mentioned previously, the failure to materialize key assumptions set forth in the approved plan has increased the funding gap. In this regard, the company has been working to address this gap through the sale of noncore assets as well as negotiations of out of board creditors. These measures together with the initiative to amend the plan aiming to preserve cash, ensuring time and financial breathing room for the company to move forward on front such as the sale of V.tal, UPI and other assets as well as the pursuit of breakeven for the remaining operations, start the quarter with a cash position of around BRL 1.45 billion and ended with BRL 1.16 billion, a result of still negative operation -- operating cash generation. As expected, proceeds from noncore asset sales this quarter were lower than in the previous quarter, totaling BRL 95 million with highlights including PIS/COFINS tax credits related to interest forgiveness, DNIT BTSA and real estate sales. It's worth noting that early in the third quarter, we received an additional BRL 97 million in cash from the assignment of credits tied to the expropriation process of the Afonso Pena property. With respect to the net debt, we observed stability during this quarter, totaling circa BRL 10 billion. On a year-over-year basis, the 51% increase reflects the disimbursement of new financing in August '24 as approved under our organization plan. We are in constant dialogue with creditors and suppliers, seeking solutions to address the funding gap that remains the throughout '25. The company's financial management continues to be conducted with strict rigor and responsibility. Finally, moving on to Slide 14. In 2024, we approved our reorganization plan, achieved an unprecedented regulatory decision such as the signing of the authorization term, resumed arbitration procedures with Anatel advance in the completion of equitization process. Through the conversion of part of the court supervised credits into shares. This was followed by the implementation of a new governance structure, making the beginning of a management team specialized in corporate restructuring. Now despite these important developments, a targeted course correction will be necessary to ensure the company's financial sustainability. That includes reopening negotiations with some of our creditors. We want to pursue a broader restructuring that maximizes value for all creditors and preserves the operational continuity of the group. Including other operating subsidiaries, such as Serede and Tahto. At the same time, we must consolidate the company's activity. In addition to increasing the revenue contribution from subsidiaries, we must maintain a focus on strengthening Oi Soluções business with long-term contracts, low CapEx intensity, capable of delivering predictable cash generation, which already showed positive margins in '25. It is also essential to advance in cost rationalization, adjusting the structure to the company's new size, sites continuing with the asset sales provided or in the plan. With these actions, it is expected that this company becomes increasingly more sustainable in the long term while continuing to fulfill its important social role. Corporations are present in 27 states of Brazil where we are responsible for a significant portion of the country's voice interconnection services, serving a large share of the public sector and major companies. This concludes our earnings presentations for the quarter. Please feel free to send any questions or comments to our Investor Relations team at [email protected]. We'll be happy to answer all your questions. Thank you very much.

The second quarter 2025 earnings call presentation for Oi concludes now. Please check our website. We wish you a very nice day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]