Telefônica Brasil S.A. Q1 FY2026 earnings call

Core Business Growth & Revenue Transformation

• Postpaid mobile remains the primary value creation driver, with disciplined net additions, controlled churn (1.0% for postpaid), and record mobile ARPU up 5.7% YoY, as customers migrate to higher-value plans and increase data consumption.
• Fiber convergence is a key strategic differentiator: VivoTotal convergent plans reduce churn, deepen customer relationships, and improve revenue durability, with penetration of VivoTotal in the FTTH base rising from 24% in Q1 2024 to nearly 45% in Q1 2026. Vivo gained fiber market share to 19.2% (up from 18.4% YoY) and led the market in Q1 net fiber additions, while the second largest player recorded a net loss of 80% of Vivo's net gain.
• The company's revenue mix is becoming structurally more resilient: postpaid and fiber now make up over 74% of service revenues, and new diversified businesses now contribute 12.1% of total revenues, up 1.8 percentage points year-over-year.

New Business Ecosystem Expansion

• B2C: The company is scaling adjacent digital services beyond core connectivity, with strong growth in OTT entertainment, consumer electronics, and health/wellness. VivoPay launched a proprietary installment plan for device purchases to improve access to credit, boost monetization, and increase customer retention.
• B2B: Digital transformation demand across industries is driving strong growth in cloud, IoT, cybersecurity, and custom enterprise solutions. Vivo is positioning itself as a end-to-end trusted digital partner rather than just a connectivity provider, exemplified by new sector-specific partnerships such as the agribusiness collaboration with Marcel Martinho.

ESG Progress

• Vivo retains leading ESG recognition: it leads B3's corporate sustainability index across all sectors for the third time, is the only Brazilian telco in the Dow Jones Sustainability World Best-in-Class Index, and has been recognized by CDP for supplier climate engagement for 6 consecutive years.
• Key ESG milestones in the quarter: 42% of Vivo's Board of Directors are now women, the company won Anatel's 2026 Accessibility Ranking for digital inclusion, and the employee well-being platform Hospital Púrpura now serves over 80,000 employees and family members. Vivo also joined additional UN Global Compact Brazil initiatives to reinforce its environmental commitment.

Financial & Cost Discipline

• Total costs grew at a controlled rate: operating costs grew only 3.9% YoY, with the largest cost component (commercial and infrastructure) rising below inflation for 50 consecutive quarters. Costs for services and goods sold are growing in line with revenue expansion of devices and new businesses, which is expected given the shift in business mix.
• CapEx totaled R$2 billion in Q1, with capital intensity in line with Q1 2025 and below the 2025 full-year average, as the company optimizes CapEx allocation, prioritizing mobile network upgrades and fiber expansion.
• The balance sheet has strengthened materially: net cash is up 65% YoY, and net debt to LTM EBITDA is now only 0.4x. Shareholder remuneration is a core priority, with R$7 billion already confirmed for distribution in 2026, and a new R$1 billion share buyback program approved through February 2027.

1. Mobile: Total mobile access reached 103.7 million, up 1.3% year-over-year. Postpaid mobile access (excluding M2M/dongles) grew 7.2% to 51.6 million, and total postpaid access reached 72.1 million (69.5% of total mobile base), with postpaid revenues up 7.8% YoY. Mobile service revenues overall grew 6.6% YoY. Prepaid access declined, but revenue decline narrowed to -1% YoY, with postpaid and fiber combined contributing over 74% of total service revenues.
2. Fixed Connectivity (Fiber): Fiber connected homes reached 8 million, up 11.5% YoY, with a total fixed revenue growth of 5.1% YoY. FTTH revenues grew 9.3% YoY, driven by convergence. VivoTotal convergent fiber access grew 32.6% YoY to 3.6 million, representing 44.7% of the total FTTH base. Fiber footprint expanded to 31.5 million homes passed, up 6.2% YoY, with a take-up rate of 25.4%.
3. B2C New Digital & Adjacent Businesses: On a 12-month basis, total B2C revenues reached R$45.7 billion, up 5.9% YoY; new B2C businesses grew 31.5% YoY and now account for 3.2% of total company revenues. Key vertical growth: OTT video/music up 24.8% YoY, consumer electronics up 56% YoY, and health/wellness up nearly 68% YoY (Vale Saúde now exceeds 500,000 subscribers). Handsets and overall consumer electronics line grew 26.6% YoY company-wide. B2C revenue per RGU reached R$67.2.
4. B2B: 12-month B2B revenues totaled R$13.7 billion, up 11.8% YoY. Digital B2B solutions grew 23.8% YoY to R$5.4 billion, while B2B connectivity grew 5.2% YoY. Within digital B2B: cloud services up 29% YoY, IoT/messaging up 70.3% YoY, and custom digital solutions up 21.1% YoY. B2B digital now accounts for 8.9% of total company revenues, with new businesses overall (B2C + B2B) representing 12.1% of total revenues, up 1.8pp YoY. Overall Company: Total revenue grew 7.4% YoY to an unstated full quarterly amount. EBITDA grew 8.9% YoY, with EBITDA margin reaching 40.2%. Net income grew 19.2% YoY to R$1.3 billion. Operating cash flow was R$4.2 billion, up 8.5% YoY, and free cash flow totaled R$2.2 billion for the quarter.

• Full-year 2026 capital intensity is expected to gradually improve (decline) as previously guided, with the company remaining committed to this target.
• The company reaffirms its commitment to distribute at least 100% of 2026 net income to shareholders, with at least R$7 billion in total distributions confirmed for 2026.
• The target of R$4.5 billion in total proceeds from concession-related asset (copper) sales by the end of 2028 remains on track, after a temporary tax-driven pause in sales in March 2026 that was resolved in late April.
• Management maintains expectations for full-year 2026 revenue and EBITDA growth above inflation, alongside continued optimization of capital allocation.

• The Brazilian telecom market remains highly competitive, particularly in the broadband and mobile segments, requiring continued investment in network quality and value proposition to maintain market share.
• Bad debt provision increased slightly in Q1 due to a single large B2B customer default; excluding this one-off event, bad debt as a percentage of gross revenue improved to 1.88% from 1.92% full-year 2025, with all other customer segments remaining fully under control.
• Copper sales were temporarily halted in Q1 due to an unexpected temporary tax change, which created a quarterly timing impact on proceeds; the tax change was subsequently reverted and sales have resumed, with the full target still on track.
• Tower lease costs are impacted by the dual priority of expanding network coverage to maintain Vivo's market leading position and negotiating lower unit costs/ increased co-location; while the long-term trend is for lease costs to grow below mobile service revenue growth, near-term quarterly variation can occur from continued network expansion.
• Forward-looking projections are subject to general macroeconomic and industry uncertainties that could cause actual results to differ materially from management expectations.

Q: Given Vivo's strong fiber growth in a mature market, what is the outlook for fiber pricing, VivoTotal penetration, and prepaid pricing? / A: Vivo already implemented a 25% back-book fiber price increase in January 2026, and a VivoTotal price increase in April 2026, following normal annual pricing cadence. The company's core fiber strategy is expanding VivoTotal convergence, which already reached 45% of the FTTH base (up from 24% 2 years ago), and will continue pushing penetration to reduce churn and increase lifetime value. For prepaid, management sees clear room for additional price increases, and is shifting customers to monthly tariffs to improve monetization; the prepaid revenue decline has narrowed sharply from over 11% YoY in Q1 2025 to just -1% YoY in Q1 2026, showing the strategy is working.

Q: With higher growth in lower-margin B2B digital services, can dividends keep pace with free cash flow growth, given dividends are tied to net income? / A: Net income grew a strong 19.2% YoY in Q1 2026, and R$7 billion in shareholder distributions is already confirmed for 2026, which is above last year's total distribution. Higher cost of services sold this quarter is entirely tied to growing revenue lines (B2B digital, B2C OTT, device sales), and the small uptick in bad debt is from one single B2B customer default, with all other segments fully under control. The copper sales temporary pause was due to a reversed tax change, and sales have resumed, so proceeds will pick up in Q2. There is no threat to planned dividend growth.

Q: Can you recap your annual price increase calendar for different product lines, and confirm your 2026 CapEx guidance? / A: In 2025, price increases were implemented in April/August for hybrid and postpaid, spread across January/June for fiber, and April for VivoTotal. In 2026, 76% of hybrid, 79% of postpaid, and 100% of VivoTotal received increases in April, with the remaining increases scheduled for August (date to be confirmed), following the same cadence as prior years. Management reaffirmed the long-term target of gradually declining annual CapEx intensity as a percentage of revenue for 2026, with Q1 intensity already in line with last year's Q1 and below last year's full-year average; CapEx remains focused on mobile network enhancement and fiber expansion to maintain market leadership.

Q: What is the outlook for copper sales proceeds in 2026, is the R$7 billion distribution floor or fixed, and is there room for tower cost reductions like peers have achieved? / A: Copper sales resumed in late April after the tax reversal, and proceeds will increase quarter-over-quarter throughout 2026, with the 2028 target of R$4.5 billion still on track. The R$7 billion 2026 distribution is a minimum, in line with the commitment to distribute at least 100% of net income. Vivo is actively negotiating with tower companies to reduce unit costs and increase co-location (current co-location is 1.4 vs over 2 in Europe, giving room for improvement), but the priority remains expanding network coverage to retain Vivo's position as the leader in 5G and postpaid coverage. The long-term target is to keep lease expenditure growth below mobile revenue growth, which the company has achieved, with operating cash flow margin after leases rising to 17.1% in Q1 2026 from 14.5% in Q1 2024.