Telefonica Brasil S.A. American Depositary Shares (Each representing One Common Share)

Good morning ladies and gentlemen, welcome to Vivo's third quarter 2024 earnings call. This conference is being recorded and the replay will be available at the company's website at ri.telefonica.com.br. The presentation will also be available for download. This call is also available in Portuguese. To access, you can press the globe icon on the lower right side of your Zoom screen and then choose to enter the Portuguese room. After that, select Mute Original Audio. Para acessar nossa conferência em português, clique no ícone do globo ao lado inferior direito da sua tela zoom e selecione a opção Portuguese Room. Ao acessar a nova sala, certifique-se de mutar o áudio original. We would like to inform that all attendees will only be listening the conference during the presentation, and then we will start the question and answer session when further instructions will be provided. Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company's business prospects, operational and financial projections and goals are the beliefs and assumptions of Vivo's Executive Board and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore depend on circumstances that may or may not occur. Investors should be aware of events related to the macroeconomic scenario, the industry and other factors that could cause results to differ materially from those expressed in the respective forward-looking statements. Present at this conference we have Mr. Cristian Gebara, CEO of the company, Mr. Davi Malcolm, CFO and Investor Relations Officer, and Mr. João Pedro Soares Carneiro, IR Director. Now, I will turn the conference over to Mr. João Pedro Soares Carneiro, Investor Relations Director of Vivo. Mr. Carneiro, you may begin your conference.

Good morning, everyone, and welcome to Vivo's third quarter 2024 earnings call. Ana will walk us through Vivo's performance in connectivity and digital services by business segment, B2C and B2B. as well as present our ESG advances and recognitions. Then our CFO, David Melcon, will give more details on cost and CapEx management, free cash flow generation, followed by an update on shareholder remuneration for 2024. With that, let me turn the call over to Christian.

Thank you, João. Good morning, everyone, and thank you all for joining us today. It is with great pleasure that I present the results for the third quarter of 2024. This period has been marked by a robust performance, with all key lines posting real growth, a trend that's here to stay. Our leadership position in the market remains untouched, reflecting the trust our customers place in our high-quality services and the effectiveness of our commercial strategy. In post-paid, our customer base increased 7.6%, which shows our ability to upsell our mobile products while capturing new customers. In fiber, our homes connected with FTTH grew 12.5% this quarter. Total revenues were up 7.1%, mostly due to the mobile service revenues, which grew 8.8% this quarter. Our robust sales coupled with lean costs resulted in a strong EBITDA, which increased 7.4% year-over-year in the quarter, a growth higher than last quarter's. By maintaining our capex practically flat, we were able to reach R$10 billion in operating cash flow since the beginning of the year with a double-digit growth of 12%, expanding our margin to 24.2% of revenues while accumulating R$7.1 billion in free cash flow in the period. Likewise, our year-to-date net income reached a double-digit expansion of 10.4% year-over-year, a result that will be entirely distributed to our shareholders. On slide 4, we zoom in on our revenue evolution that continues to grow in real terms, backed by the differential provided by a unique brand and diversified portfolio of services and solutions. Mobile service revenues, comprising two-thirds of total revenue in the quarter, kept last quarter's fast-paced growth at 8.8%, as postpaid reached double-digit growth of 10.4%, while prepaid continued to be in the positive territory, even with customers continuously trading up to hybrid. Our fixed services positive performance was once again driven by the expansion in fiber and data, ICT and digital services revenues, as both lines together already represent 73% of this segment's results. B2B digital services, summed with B2C new businesses, already represent 10% of Vivo's total revenues, which shows the importance of different value proposition for both our B2C and B2B customers. This performance is driven by our ability to provide high-quality services and the growing demand for digital transformation. Moving to our mobile operations on slide 5. Our customer base continues to grow at the same time we improve its profile with postpaid access up by 7.6% year-over-year, increasing our exposure to customers that spend more and stay longer with us. We registered almost 1 million hybrid plus per phosphate net ads in the quarter, growing 77% year over year, being the highest organic expansion we ever had in a single quarter, reinforcing our leading position in the segment. Looking at the post-pay churn, we can see that it still remains around 1% mark, boosting the lifetime value this unique customer base will deliver us. The combination of our steady upselling activity and the strength of our totalization strategy led to our highest mobile ARP ever, at 30.3 highs. Moving on to the next slide, we want to give you more color on Vivo's recent developments and superior performance in 5G. We recently received the 5G Global Winner Award presented by OpenSignal being rewarded for having the fastest 5G download speed in the world among all operators located in large landmass countries, thus providing the very best 5G experience to our customers. Since third quarter 2023, 5G access in vivo more than doubled, reaching 13.8 million and already representing 70% of our mobile access, including machine-to-machine and dongles. This important expansion has been enabled by the acceleration of our coverage as our 5G network is already available in almost 400 cities that comprise 57% of Brazil's population. As a result, our market share continues to increase, nearing 40% of all 5G access in the country, reflecting customers' preferences of being connected through Vivo as we empower them through innovation. Now moving to our fiber operation. In September, we reached 28.3 million homes passed with Vibus FTTH, up 12.7% year-over-year, already delivering 98% of our goal of reaching 29 million premises by the end of the year. Along with our accelerated footprint expansion, we have been able to keep our homes connected growing consistently at 12.5%. This quarter, we reached 6.7 million users after adding 192,000 new access during third quarter 24, representing a network penetration of 24% countrywide. In addition to our rapid customer base growth, we maintain our FTTH ARPU at R$90, growing 1.2% year-over-year. Our convergent offer, Vivo Total, maintains its excellent performance. In September, we surpassed 2 million fiber customers, growing 92.2% over the year. VivoTotal provides us with a product with a lower churn than fiber and mobile separately. Specifically compared to standalone fiber, VivoTotal's churn is one percentage point lower. In addition to that, currently 83% of FTTH sales in our own stores are with the convergent plan. and we see that we still have space to grow, given that, for example, there are 42% of our convergent customers that are still not in Vivo's total base. Now moving to B2C revenues on slide eight. In the last 12 months, This segment represented around 77% of Vivo's total top line and grew 7.5% in the period by combining our core services with our new businesses, which amounted to 1.6 billion reais in the last 12 months and grew 30.2% year-over-year with important recent developments in verticals such as financial services and health and wellness. This broad and unique B2C ecosystem enables us to capture more value from our customers and assets. The 57 million individuals that currently are Vivo's B2C customers generate an average monthly revenue of R$61.5. This customer-centric approach emphasizes the multitude of products that we offer and solidifies our customer lifetime value with Vivo. On slide 9, we can see the B2B performance, a segment that represents 21% of our total revenue, growing 6.5% year-over-year. This was mainly driven by our B2B digital services, which generated R$ 3.8 billion in revenues and grew 17% over the last 12 months. Looking forward, we see a promising scenario for our B2B services since only 15% of our 1.7 million B2B customers acquire digital services and solutions through Vivo, meaning that we have significant space to grow and capture our captive addressable market. We're always looking to expand our presence, and in this sense, during this quarter, I would like to highlight results related to our agribusiness vertical Vivo Agro. We had a 112% year-over-year increase in the number of sites sold to agro customers, enabling digitalization in the sector. Moreover, through Vivo Ventures, we invested $1.5 million in AgroLand, a fintech that provides credit to small and medium rural producers across Brazil. Moving on to our ESG actions, it's important to highlight the advances with our supply chain partners. By the end of the quarter, we were able to engage 87% of our suppliers on climate-related activities, seeing an increase of 23 percentage points in carbon-intensive suppliers that implemented emission reduction targets since the beginning of our net zero program. We also launched the plural partner program, Programa Parceiro Plural, with the goal of developing the best ESG practice of our business partners. On the people side, our employee engagement continues to be a key aspect of our culture. We are ranked by Great Place to Work as one of the top three best companies to work in Brazil, a recognition that make us very proud. We were also included in the top 100 FTSE Diversity Inclusion Index, being considered one of the public traded companies around the globe with the most inclusive and diverse workplace. On that matter, During the quarter, we opened more than 50 vacancies in the Women of Fiber program and more than 250 vacancies in the Youth Apprentice program, with 50% reserved for Black talent. Thank you, and now the view will comment on our financial performance.

Thank you, Christian, and good morning, everyone. First, we would like to highlight our cost performance. Our OPEX trend remains solid, with total cost growing 6.8% year-over-year and decreasing in comparison to the previous quarter, which allowed us to increase the EBITDA margin on a year-over-year basis. Cost of services and goods sold grew less than 1%, with services increasing due to more sales of B2B digital solutions, a greater customer base, while cost of goods sold decreased as a result of less handset subsidies and increased share of consumer electronic sales. The evolution of our cost of operation was impacted by factors such as the growth of our customer base, which in turn generates higher commercial and infrastructure costs, and by a tough comparison base in the provision for bad debt and other revenues and expenses line, as during last year's third quarter we had a positive one-time effect helping both. All things considered, we finished the third quarter with an EBITDA margin of 42.4% and EBITDA itself growing 7.4% year-over-year. Moving to slide 12, our capex summed R6.7 billion since the beginning of the year, remaining stable in comparison to the same timeframe in the previous year. In addition to that, capex intensity fell one percentage point in the same period as we are in a path of reducing capital intensity. The combination of a greater EBITDA and a flat CAPEX resulted in an operating cash flow of R10 billion in the last nine months, with a double-digit growth of 12% year-over-year, contributing to reach an all-time high operating cash flow margin of 24% in the last 12 months. If we consider leases in the calculation, we grew 14.9% reaching 6.3 billion Reais in the first nine months of the year. On slide 13, we can see that the net income accumulated over the last nine months reached 6.8 billion Reais, increasing 10% year-over-year with the strongest performance in 2024 being registered in the third quarter. At the end of September 2024, Vivo's cash position was still above financial debt by 1.7 billion reais. Even considering leases, leverage remained at 0.5 times EBITDA. Free cash flow generation reached 7.1 billion reais by the end of the quarter, leading a free cash flow yield of 8.4% over the last 12 months. Overall, our healthy financial position and ever-improving results provide us an important platform to enhance shareholder returns while investing in new and profitable revenue streams. Moving to our last slide, we reinforce our commitment to shareholder remuneration and to meet our guidance. So far, during this year, we pay out 2.2 billion Reais of interest on capital declared in 2023, 1.5 billion Reais in capital reduction, and 1.1 billion Reais in share buybacks, which all sum up to 4.8 billion Reais. Finally, yesterday, November 5th, we initiate the second phase of the capital reduction process in the amount of 2 billion Reais to be executed next year. This initiative shows Vivo's unique ability to enhance shareholder value through operational excellence. Thank you, and now we can move to the Q&A.

We are going to start the question and answer session for investors and analysts. If you wish to ask a question, please click on Raise Hand. If your question has already been answered, you can leave the queue by clicking on Put Hand Down. Our first question comes from Carlos Sequeira with BTG. You can open your microphone.

Hi, thank you. Hey, Christian, David, João, everybody, good morning. Thank you for the opportunity to ask questions. So I have basically two, if I may. One is on the competitive environment and pricing. And specifically, when we look at the controlling plan prices, the entry-level plans, we can see that Vivocine and Claro, the price are very similar. You know, price has been moving, you know, one company after the other, everything's okay. But then came Nubank and announced it earlier. you know, an offer that is, you know, it's like 10 reais lower than the price point we are seeing for the entry-level plans. And we know that for some clients in that category, they can be very price sensitive. So my question to you is, you know, how you see this new price point and how it might change the equilibrium that we have seen recently. And if you plan to do anything about it or how you approach in that situation. So that's the first question. The second one is on lease expenses, if I may. They grew a lot in the third quarter. And, you know, it would be great if we can get a better view on what happened and what is behind it and how we should look at these lease expenses going forward, please. Thank you.

Okado, Christian here. I'm going to go to the first one. I think the new banks entry, it's like an extra competitor, of course, but it's something that we are very used to have. We've been facing competition since the beginning. We still have it in Fiber and Mobile. So for us, it's another competitor. As you know, They have an MVNO model that is the accredited one. So in any launch, it's very aligned with the operator that is providing the network. So I understand that the offer can be competitive, but we need to understand it in more detail. It's a prepaid offer. with a hybrid characteristics, no? So again, they can be a little bit more aggressive in pricing because they won't have the related bad debt, but in the end, it's not a hybrid, it's a prepaid. So if you could see other prepaid offers in the market, I think we still have very competitive ones. And if you go to the hybrid, We may have a difference in pricing, but again, hybrid has different characteristics than prepaid. And our hybrid has evolved a lot recently. So we have hybrid with content, we have hybrid with health, we have hybrid with education, and many other value-added services that we include in our hybrid offering. Actually, We also work in hybrid plus fiber. So we see ourselves in a very different momentum. I think we are leveraged on having the strong in the combination of network quality and coverage, services and product portfolio and distribution channels. Again, we also sell SIM cards and the offer seems to be related to eSIMs. So again, I really don't know if it has a great match with the market they are trying to target. But again, Another competitor, as we are also in VivoPay, we've been since the beginning, lending more than 800 million reais with a credit scoring that I think is unique because we understand this market very well. So we understand everyone has like a huge customer base distribution for digital, in our case, digital plus VivoPay. the physical channels, big data. So we understand our customers and a strong brand want to explore other business beyond the core. So natural movement. And we are very, very confident that we have all the assets to be as competitive as we've been in the last quarters. I move to Davi for the leasing, because if I answered what you wanted in the new cell one.

Oh, thank you.

Thank you very much.

Thank you, Cadu, for the question. So looking to the evolution of the leases, more thinking on the P&N, also looking to depreciation and interest accruals, we are in line with previous periods. And in fact, in the first nine months this year, EBITDA is growing 7.2% every year, and EBITDA after leases is growing 7.1%, so very similar. However, when we look to the cash flow, when we look to the payments evolution, there is some volatility. as we are constantly negotiating and renegotiating the conditions with the Towers Company, which sometimes require cash payments. So therefore, we cannot analyze any specific quarter figures to project to the future trends, no? So if we add up, looking to the cash flow, the principal and interest we pay this quarter, which amounts to something like 1.3 billion reais, this number is higher than the amount we paid the previous year, also in the third quarter, but it's even lower than the amount we paid in the fourth quarter last year, which really proves and confirms what I have just said, that there's a huge volatility over the quarters. I think it's also important to mention that operating cash flow after leases is very strong. And in the first nine months of the year, even considering those payments, we are growing 14.9% year-over-year. And although we are accelerating 5G coverage, as we already presented today, we have already covered 57% of the population. And there are initiatives in place, specific initiatives, to reduce the cost related to tower leases that will benefit future trends.

Perfect, David. Thank you so much. Thank you, Christian, David and João. Thank you. Thank you, Cadu. Thank you, Cadu.

Our next question from Luca Brindgin with Bank of America. You can open your microphone.

Hi, good morning everyone. Thank you for taking my questions and congratulations on results. We have two questions around mobile service revenue growth looking forward. It has been expanding around 9% year over year for the past few quarters now. So we wanted to understand a little bit how sustainable that is and looking at the breakdown. So first for pricing, How are you thinking about the outlook for price hikes in 2025? Should it continue to be above inflation and how should be your strategy on that? And second, we are also seeing very positive trends in terms of user base expansion and also the migration from prepaid to postpaid. Are those trends that should also continue at a similar pace going forward or should we see some change in that? Thank you.

Luca, I think you answered the question. It is sustainable because we've been proving the same numbers over the last quarter. So I don't know how many quarters do we need to prove that it's sustainable growth. So the growth comes from our strategy in all segments. So we've been able to migrate, of course, from prepaid to hybrid. That's part of the strategy. And we've also been able to migrate from hybrid to pure plus paid. And when we are in pure plus paid or even in hybrid, we've been also upselling, like giving more data or more services to customers. So I think our strategy of combining new services or digital service to the offering of a telco plan that's based in data is being extremely successful. And I'm not giving you here also the numbers that we have for fiber, because fiber also, when we have Bevo Total, that is growing in a very accelerated way. It's not only protecting our mobile customer base, but it's also giving us more ARPU. I think there is one number that we started to describe this quarter that I think is important to highlight. We also gave the number of how much we are capturing of monthly B2C revenue considering all the services we are selling. Also, we gave this, it's not the mobile or fixed ARBO, it's a combined ARBO that also adds the value-added service of 61.5. That's our strategy, to be able to not only attract more customers and not our net ads is proving that we are going in the right direction, but also over the customer base that we have. In the case of B2C, 57 million customers. In the case of of B2B, another 1.7 million customers, to be able to sell more services. So that's part of the strategy that we believe will be driving our revenue up. And of course, we are passing through inflation, but that's not the key piece of the strategy because that's why we are proving our number that's double the inflation of the period.

Oh, very clear. Thank you.

Thank you. You're welcome.

Next question from Marcelo Santos with JP Morgan. You can open your microphone.

Hi, good morning, Christian, Davi, João. Thanks for taking my question. The first question I wanted to ask you is about the CapEx outlook. So you mentioned that you're in the path of reducing capital intensity. Could you make brief comments about how do you see this unfolding in 2025? And the second question is about the EBITDA margin. But instead of looking at the whole EBITDA margin, I would like to point the margin that you highlighted the margin x others that margin had a very good improvement year over year so is that improvement something sustainable have you achieved a new level of margin that we should look from now on these are the two questions

So, Marcelo, we are not giving guidance on CapEx. What we've been saying is that our ability to reduce our CapEx over sales, if you look at nine months, 2023, combined revenues and CapEx, our ratio was 17.3%. And the same period now in 2024, our ratio is one percentage point lower, 16.3%. Here is a combination of optimizing CapEx deployment, but also more importantly, ability to grow in revenues. And we've been growing revenues in all lines, the traditional ones, but more importantly, we are also growing in the lines that we call new business or digital service that already represent almost 10% of our total revenues. And they don't use CapEx. So we're talking about the digital services both in B2B and B2C. So that's the trend. The services continue to grow. They represent more. And we'll be also able to optimize the CapEx, not taking any risk of giving up our leadership in the largest and most powerful network, both in fiber and mobile in the country. I will pass to David to answer your EBITDA question.

Thank you for the question. So a couple of comments. So first of all, I mean, we prefer to look to the margins at the operating capital level because there are particularly the new businesses As Christian already commented, they will bring without CAPEX, but they will bring a higher OPEX. But overall, if we look to the OPEX structure, we have the first block have to do with the cost of goods sold. That will continue to be growing as we will accelerate all those new businesses. And regarding the cost of operations, there are still many pools we can look for. And digitalization, simplification, this is something that we are we we believe that there are opportunities that the unitary cost to serve the customers and to digitalize back offices and and channels should bring reduction so we foresee a change in the mix on the opex that will improve the margin at the operating traffic level okay thank you very much for both answers thank you

Next question from Bernardo Gutmann with XP. You can open your microphone.

Hi, good morning, everyone. Thanks for taking my question. Actually, I have two on my side. The first one is regarding the migration process from concession to authorization. What are the economic benefits that we can expect in terms of the companies OPEX and CAPEX? run rate and what's the expected time frame for regulatory approvals. If you can give us any color here, it would be great. And the second question is about competition in the fiber segment. How things are trending in this arena? Any concerns regarding growth or ability to readjust price? Thank you.

So, Bernardo, on the migration, so as you all know, we got the first approval of the negotiation committee that was comprised by Vivo, Anatel, TCU, and the Minister of Communications. We came to this mutual understanding regarding the proposed terms and conditions, and then we had to go through the approval of TCO. So it is there. We have already a proposal that's being analyzed by the minister, that is Jonathan de Jesus. He had initially 30 days to prepare his report. He requested an extra 30 days. So we are now in this period of the extra 30 days. And also, two weeks ago or 10 days ago, he requested an opinion of an AGU. And we expected the AGU to come with their opinion and present it to the minister in the next days. So if everything goes in this right schedule, we may expect that to be voted by the board of TCU by the mid and November. So that's what we expect right now. But again. We are just clarifying where we are right now. So we are in the 30 days, extra days requested by the minister to report his analysis and go for approval in the board. We don't talk now about the benefits for the company. We are pretty sure that we'll be able to to optimize costs and investments, but we prefer to have it approved to give you more color on the impact that we foresee. On the second question and on the fiber, I don't know a specific one. We are very confident about our strategy. We've been growing the footprint. So as I stated before, we reached 28.3 million home pass. We're going to get to 29 million by the end of this year. We increased at 12.5% homes connected, so we reached 6.7 million customers. The art pool, because we are reaching new cities and new areas, we may be more aggressive. in the entry point, but although we keep growing our pool when you compare one year ago, 1.2%. And again, here there's also the combination of the convergent offer VivoTotal that sometimes may impact as a little discount. But what's good is to show that we grow revenues in total, as you saw, very robust growth in revenues for FTTH. And net additions, no, I think we have a very solid number, 192,000 in the quarter. Going forward, we continue to grow Vivo Total customer base. today it's 2.1 over uh the 6.7 it doesn't mean the convergent is only that we still have much more no more than double this number that is converging but it's not in vivo total so here there are two movements first try to have all of them convergent and also have all of them in Vivo Total because it has a very strong impact in lowering churn. Vivo Total's churn in fiber is one percentage point lower than the standalone fiber. Apart from that, I don't know what specific question would you have for the market. The market is still there. A lot of players. Consolidation will happen. We don't know what. And we're still looking if there is any target that may interest us. So far, nothing happened so again we continue to grow and if we have the migration from the concession to authorization we may have still more ability to overlay copper by fiber in the state of sao paulo very clear creation thank you very much thank you next question from daniel federli with bradesco bbi you can open your microphone

Thank you. Good morning, everyone. My first question is a follow-up on the CapEx question, because I understand the company is concluding an important project in deploying 29 million homes passed with fiber, and also a lot of the 5G rollout has been concluded in the main cities. So my question is more, which areas could require additional or more CapEx in the upcoming years to deploy? to like to offset the reductions in those, in the FTTH and 5G rollouts. And the second question is if you see any reason to not distribute 100% of your free cash flow to the shareholders, if you are seeing any like potential cash disbursements in the future. Thank you.

Daniel, thanks for the question. Our guidance for the next three years, 24, 25, 26, is 100% or more of net income. So that's what I can state right now. We just announced another 2 billion capital reduction that I believe is great news. If it's approved and up to next year, July, we'll be able to pay it. So I think it's good news. And apart from that, I cannot share what are our ambitions as a business. Now, strategically, we may have other options. to use the free cash flow difference. And so I cannot share. And regarding the CapEx, I don't know if I got your question, but yes, we got 29 million. It doesn't mean that we're going to stop on that. So we may have more fiber to deploy. Here we have alternatives. Now the alternative is organically growth. The usage of neutral fiber network eventually also M&A. So that's our vision going forward that we're not going to be on the 29. We're going to go further and The capex to connect customers is four times higher than deploy HomePass. Again, you have to consider that we still have capex for that. Although prices are going down, the cost of connection is going down. We're still talking around R$800. At the penetration level that we have today is not what we aim to have. because we are deploying new areas. So we're gonna grow the penetration over the 29 million that we may have in the end of the year. And also in the new areas that we may deploy in the future. So part of the CapEx will still be there now to increase penetration of the overall network. In 5G, We have 57% of the population covert. We need to have more. We're going to go there and we're going to do that while we see the penetration of the 5G devices going up. So if price of the devices are more reasonable and we see more people adopting, as I stated here in the beginning, we have today around 17% of our mobile access with a 5G device. We need to have much more and to deploy much more. The good thing about the 5G deployment is where I'm putting 5G, I'm reducing significantly CapEx on 4G. There is a natural replacement, one technology over the other. So again, the CapEx guidance is the one that I stated before is over revenue and we are in a very, very strong positive trend. Daniel, I don't know if I answered your question. Yes, I think people are still connected. But anyway, let's move.

OK. Our next question comes from Gustavo Farias with UBS. You can open your microphone.

Hi, everyone. Thanks for taking my questions. also two on my end. The first one is regarding B2B. We've been seeing B2B growing a lot and specifically cloud acquisition of IPNet. My question here is what is the size of the ambition in B2B? And if you could comment on how you look at margins here, how margins tend to be here, particularly in cloud, any comment would be welcomed. Uh, the second question is regarding, uh, we, we, we noticed a, a help, uh, in margins coming from, uh, handset and electronics cogs, uh, basically from, from, from what we saw, uh, a better mix, uh, in, in electronics. Uh, would that be structural tends to, to look like this going forward? That's my second question. Thank you guys and congratulations on the results.

Gustavo, thank you for your question and your comment. Again, just to state that you mentioned IPNet. That is a company that we bought last quarter. That is a very important Google Cloud integrator, just to confirm the numbers of their revenue. It's not the third quarter results that we just presented, OK? Because the closing was recently. And so as you stated, now here we have different type of services. We have cloud, we have cybersecurity, we have IoT, big data, messaging, IT equipment, sales and leases, and the margins are different. So when you have a cloud, maybe when you distribute a cloud from one of the big players, your margin is low. But when you also have managed services over the cloud integration, your margin is very high. So there is a combination here. And when we see a lot of messaging or even big data or IoT solutions, the margin is also very high. So it depends on the service. The margins may vary. Of course, everything that includes also consulting on managing services that we have the ability to do. And that's why we are buying companies. We bought Vita IT. It was a great Cisco integrator. And now we bought IPNet. That is a Google Cloud integrator because we're also buying companies. the skills that these people have and a lot of people with certified capability to implement these solutions in our customer base. Here we have to leverage that we have 1.6, 1.7 million customers in B2B ranging from a small company to the largest companies of the country and the ability to be closer to this customer with 5,000 sales reps that can understand the technological need of these customers and can offer the best solution. Also, the positive thing here is only 15% of our customer base in B2B have acquired the digital services or B2B digital service from Vivo. So we do see a great opportunity to sell even more, especially if you go to the top, to the bottom, sorry, of the pyramid of our customer base. Digital B2B is growing in the last 12 months, 17%. It represents a lot of our total revenue already, more than 30%. And it's also leveraged the B2B traditional telco business because once you have the complete offering, of course, you are able to capture even more of the b2b data and telco solution so again all of them are growing and we are very positive that is going to be contributed not only to keep customers more loyal but to drive our revenues up and i think i answer or not so if i if i do thanks christian Thanks, Christian. Yeah, yeah. I will give David the second one.

So Gustavo, so thanks for the question. So the evolution of cost of goods sold is mainly impacted by two factors. One is the reduction of subsidies. And the second one is the higher relevance of electronics, consumer electronics that we have in our P&L. So if we looked in the presentation, consumer electronics in the last 12 months, we sold 388 million. and growing 37% year-over-year, those electronics, they have a higher margin than the handsets. So if everything continues as we have today, so in terms of lowering subsidies and the acceleration of consumer electronics, we foresee that we can also maintain the margin trend that you mentioned.

So consumer electronics, what he means is everything that's not smartphones. That's right. Being able to sell a lot of these devices. We even have our own brand for accessories or essentials from smartphones that is doing pretty well. And the margins are much higher, as David just stated.

And obviously, Gustavo, there could be some sectionality. It doesn't mean that we are going to see exactly the same trends every quarter, no? But in the middle term, this should be our ambition.

Yeah.

Thank you, guys. Thank you, Gustavo.

Next question from Gabriel Gousseau with City. You can open your microphone.

I'm not getting the question from Gabriel.

Yes, I believe he's having some trouble. We are going to move on to the next question from Vitor Tomita with Goldman Sachs.

Hello, good morning, all, and thanks for taking our questions. Two questions from our side. The first one is on the... On the prepaid segment, we are seeing there's some ARPU growth despite continued migration of higher ARPU prepaid customers to postpaid. So could you give us a bit more color on the recharge dynamics and how the prepaid segment has going in general in your view? And the second question from our side would be on the fixed side, but actually on the legacy fixed revenues, it seems that the pace of of decline of those revenues decelerated a bit this quarter, improved a bit. Do you see any specific drivers behind that? Thank you.

Thank you for your question. It's because what's remaining is a small piece of the legacy. As you can see, for the quarter, it's a little bit over R$1 billion over the R$14 billion that represents as a total revenue. So I think here there's voice, P2B voice. that companies may keep voice as a service. So what we see is a very, very limited amount of revenues coming from the legacy. And what is here maybe will be in a more... less actually less volatile way so nothing specifically about that here what we have is legacy and our going forward we are trying to replace as much as we can by new technologies so Nothing positive to state, but what we have here is that maybe it will remain because it's voice, mainly some XDSL and nothing more than that, because DTH, as you know, we stopped selling it and we disconnected customers more than one year ago. Regarding prepaid, we are very rational on our strategy on prepaid. So as you know, our offering is the R$17. We've been able also to drive customers to monthly offers. So that's also, I think, our ability to upsell customers. to customers that are recurrently topping up with us. We're also being able to consume from the top up. So we have, again, a vast portfolio of value-added service that may interest also these customer segments. And again, there's our ability and I think the strategy that Vivo has very powerful. It's not only topping up, but also being the ability to migrate customers, not only to Harvard, but to to monthly tariffs and also the ability to sell value-added service that accelerate consumption and again contributes in a positive way to our revenue in the prepaid. That's what we believe we should do in prepaid. Now to give this differentiation also to the future to be able to migrate them to hybrid. And again, we are also, sorry, only to highlight, we are not giving social networks for free. We just have WhatsApp. So I think also it's our ability to drive more consumption because we are not giving it for free.

Perfect. Thank you.

Next question from Mathieu Robillard with Barclays. You can open your microphone. Sir, you can open your microphone, Mathieu. He appears to have some trouble. We are going to move on to the next question from Gabriel Vas de Lima with Morgan Stanley. You can open your microphone.

Hey. Thanks for taking my question. Just wanted to get your sense in 2025, how you're seeing, I mean, we see mobile accelerating to double digits in growth. So just wanted to understand your ability to grow above inflation, if that is sustainable for 2025. And what do you see in both mobile and fixed to give you confidence in that?

Hi, Gabriel. I don't know, that's your statement, not about the budget. What we are, we have an ambition to grow above inflation. And here, what we are seeing is not only mobile or fixed, but our ability to sell more to customers. And here is mobile is fixed, but also the other new services that are just described, both from B2C, B2B. Our focus is increasing lifetime value. We've been able to prove that now it's already 10% of our revenue is coming from new services. And a churn is clearly going down. And part of it is the ability to sell more to the same customer. And we continue doing that. We continue to do that. We continue to segment our customer base in the right way. to have the right offering to the right customers. So we are very confident that our ability to continue to grow, to grow revenues. We are not giving guidance again, but our ability to grow revenues, grow EBITDA, and also reduce capex over sales, as we stated before in our Vivo Day. That's what I can share with you right now. We are very optimistic about the future. And as I stated before, no worries. We've been proving the same theory and the same thesis over the last five, six quarters. So one after the other. So I do believe that it's time for everyone to be clear that we are in the right direction and we're going to continue with this path. Thank you. Thank you.

Thank you. The question and answer session is over. We would like to hand the floor back to Mr. Christian Gebara for the company's final remarks.

So thank you, everyone, to be with us in our third quarter call. As you can all see, the very, very consistent and solid numbers in all dimensions. And the growth is being clear in revenues and EBITDA operating cash flow, free cash flow, and also in our net income. We continue to be driven by what I've just stated in the last question. to grow above inflation and to be optimizing our CapEx allocation. Considering that we are the leaders, we are the ones who have the full portfolio of services, and we continue with this stretch of maximizing the penetration of service over this large customer base that we have, leverage all the assets that normally state the brand, the channel, and our ability to give a better and superior customer experience. So if you have any other question, about anything related to the third quarter our whole team is here at your disposal so thank you again and hope to see you soon in our next call thank you vivo conference is now closed we thank you for your participation and wish you a nice day