Telefônica Brasil S.A. Q2 FY2026 earnings call

Core Business Execution & Growth

• Maintained consistent solid execution amid a dynamic market, with total revenue growing 7.6% YoY (above Brazilian inflation), outpacing industry growth rates. EBITDA grew 10.9% YoY to a margin of 41.8%, up 1.3 percentage points, marking the first double-digit EBITDA growth in 11 quarters.
• First half 2026 (H1 2026) net income grew 17.9% YoY to R$2.8 billion (strongest H1 growth in three years), operating cash flow reached R$8.2 billion, and free cash flow hit R$4.9 billion. Net debt/EBITDA remains stable at 0.4x with a robust net cash position.
• Mobile strategy focused on upselling from prepaid to hybrid, and hybrid to postpaid, with stable 1% postpaid churn and positive net portability. Completed back-book pricing adjustments in April for over 75% of hybrid and 80% of pure postpaid customers.
• Fiber expansion balanced speed and discipline, with organic growth delivering consistent net additions and falling churn driven by convergent Vivo Total plans that combine fixed, mobile and digital services.

Ecosystem Expansion & Innovation

• Transforming from a pure connectivity provider to a diversified digital hub, adding exclusive Gemini AI and Google Cloud Storage benefits for eligible customers, and expanding bundled partnerships including YouTube Premium to increase plan value and customer stickiness.
• B2B strategy evolved to become a end-to-end trusted technology partner for enterprise clients, rather than just a connectivity provider, winning large custom projects such as the 400km highway coverage partnership with Eco Rodovias.

Financial & Operational Efficiency

• Total costs grew 5.3% YoY, with operating expenses rising only 3.2% YoY (below inflation); personnel costs grew 3.2% YoY, also below inflation, reflecting sustained productivity efforts.
• CAPEX totaled R$2.6 billion in Q2 (16.4% of revenue, slightly below Q2 2025), focused on fiber expansion and 5G coverage, which now reaches 978 cities (over 73% of the Brazilian population, up 325 cities YoY).
• The migration from concession to authorization is on track, generating R$202 million in proceeds from corporate asset sales in Q2, with further value capture expected in coming quarters.

ESG Progress

• 100% of Vivo packaging is now recyclable across all Brazilian states, exceeding the original 2026 target by 66 percentage points. Electronic waste collection volumes grew 28% YoY via the Vivo Recycling program, benefiting 32,000 community members.
• Surpassed 2025 gender and racial diversity targets under the UN Global Compact Brazil Ambition 2030 Initiative, and earned multiple third-party ESG recognitions, including maximum score in FTSE Russell's ESG assessment.

Shareholder Returns

• Year-to-date declared R$2.2 billion in interest on capital (to be paid by April 2027), up 34.5% YoY. A R$1 billion share buyback program remains active through February 2027.

1. Mobile Service: 6.6% year-over-year (YoY) revenue growth. Total mobile base increased 2.6% YoY to 73.2 million total postpaid access, with 52.4 million retail postpaid customers (up 7.3% YoY). Mobile ARPU reached a record R$32.5, with stable postpaid churn of 1%. 5G now accounts for nearly one-third of the non-M2M mobile base. Prepaid revenues represent 30% of total mobile service revenues. This segment contributes ~58% of total recurring service revenues.
2. Fixed/Fiber (FTTH): Total fixed revenue grew 6% YoY, with FTTH revenue up 10.7% YoY. Vivo ended the quarter with 8.2 million fiber accesses (up 11.2% YoY), 213,000 net fiber additions (6% higher than Q2 2025), and a total fiber footprint of 32 million homes passed, with a 25.6% take-up rate. Fiber churn hit a historic low of 1.4%. Vivo Total convergent plans reached 3.8 million customers (up 29.4% YoY), accounting for ~46% of the total fiber base. This segment contributes ~32% of total recurring service revenues.
3. B2B: 12-month B2B total revenue reached R$13.9 billion, up 9.2% YoY. Connectivity revenue grew 5.8% YoY, while digital B2B revenue rose 14.9% YoY. Segment growth leaders: cloud services (+20.9% YoY), digital solutions (+20.2% YoY), cybersecurity (+10% YoY), and IoT/messaging (+1% YoY).
4. Handsets & Consumer Electronics: Revenue soared 27.8% YoY (highest annual growth in 5 years), with 12-month consumer electronics revenue up 63.8% YoY. This segment contributes ~7% of total company revenues.
5. New Digital Businesses: Aggregate revenue grew 33.6% YoY on a 12-month B2C basis. Growth by vertical: health and wellness (+58.2% YoY), video/music OTTs (+25.7% YoY), financial services (+12.8% YoY). Combined new businesses account for 3.4% of total company revenues. Recurring revenues overall make up 84.8% of total service revenues.

• Maintains full year 2026 commitment to distribute at least 100% of net income to shareholders, consistent with prior guidance.
• Reaffirms the target of R$4.5 billion in total proceeds from copper asset sales and real estate divestments; as of H1 2026, only ~R$650 million has been completed, with management expecting acceleration of sales in H2 2026. 47 properties valued at R$600 million have been listed for sale, with initial offers received.
• Maintains the target to keep annual lease payment growth below mobile service revenue growth; as of the latest 12-month period, lease payments grew only 1.8% YoY, which is on track to meet the target.
• No change to annual CAPEX intensity guidance, with Q2 2026 higher CAPEX attributed to seasonal variation, and the long-term trend of gradual improvement in annual CAPEX intensity remaining intact.
• Expects organic fiber growth of 2-2.5 million additional homes passed per year to continue, with management open to selective M&A if attractive targets with limited network overlay and appropriate quality/valuation emerge.

• Competition remains most intense in the prepaid mobile segment, with current average prepaid prices at R$30/month creating a large price gap with entry-level hybrid plans that slows prepaid-to-hybrid migration.
• Competitive pressure from new low-priced "light plan" offerings across the industry could create margin pressure if not managed properly.
• Cannibalization risk of higher-priced hybrid plans from Vivo's new low-priced light plans, though management maintains the light plans target a different customer segment (prepaid customers unable to qualify for hybrid plans via credit scoring) and do not currently cannibalize the existing hybrid base.
• Device/handset sales have lower gross margins than core connectivity services, which could create margin pressure from revenue mix shift, though offset by higher-margin accessory sales and incremental service sales from increased in-store customer traffic.

Q: The competitive landscape in mobile remains balanced, but where is competition most intense? Prepaid posted positive sequential net additions this quarter — is this a structural shift or one-off, and how much stems from changed strategy versus market dynamics?

A: Competitive dynamics are largely unchanged from last quarter, with the most intense competition in the prepaid segment. Vivo's strategy remains focused on disciplined upselling from prepaid to hybrid and hybrid to postpaid, which has delivered stable 1% postpaid churn and positive net portability. Positive prepaid net additions are the result of routine commercial initiatives, not a major strategic shift, and are driven by offers like zero-rated WhatsApp that maintain customer engagement. Prepaid only makes up 30% of mobile service revenue, and capturing prepaid customers remains a pipeline for future upselling.

Q: New low-priced "light plans" are emerging across the industry; what is the risk of cannibalizing your higher-priced hybrid plans, and what is the strategic benefit of these offerings for Vivo?

A: Light plans are targeted at prepaid customers who cannot qualify for traditional hybrid plans due to credit scoring constraints, so they do not cannibalize the existing hybrid base. The offerings have lower onboarding friction and eliminate bad debt risk, since they require upfront credit card payment (the R$30/month price is for annual plans, guaranteeing 12 months of recurring revenue with no credit risk). Light plans allow Vivo capture recurring revenue from prepaid customers who would otherwise remain on variable-prepaid plans, aligning with Vivo's broader more-for-more growth strategy.

Q: Strong device sales growth has been a sustained trend for three quarters; what impact will this lower-margin segment have on overall company margins, and are there offsetting levers for the rest of 2026? Also, can you confirm if the R$56 million tax amnesty financial revenue is recurring?

A: The R$56 million tax amnesty gain is purely non-recurring. Even including device sales mix, Vivo delivered 10.9% YoY EBITDA growth and expanding margins, because the device strategy drives incremental benefits beyond direct revenue: it increases foot traffic to Vivo's 1,700 retail stores, driving additional service sales, and Vivo sells higher-margin accessories alongside lower-margin smartphones that boost overall segment margins. EBITDA after CAPEX continues to grow strongly both in absolute terms and as a margin, confirming the strategy is net positive for the company.

Q: A competitor claimed Vivo was aggressive on discounts in Q2; what is your response, and what drives Vivo's lower churn versus competitors? What tangible benefits does lower churn deliver?

A: Vivo is not pursuing more aggressive discounting than usual. Lower churn is driven by a combination of factors, led by Vivo's leading convergent Vivo Total offering, which combines fixed, mobile, and digital services in a single plan. Vivo Total has grown 29.4% YoY to 3.8 million customers, and convergent customers have inherently higher loyalty than single-service customers. Vivo's reputation for superior network quality and customer service also drives lower churn, which directly translates to sustained, consistent revenue growth across consecutive quarters. Almost 20% of Vivo's revenue now comes from non-telecom products and services, which further increases customer stickiness.

Q: Could you update on prospects for accelerated asset sales in H2 2026, and will that drive accelerated net income and dividend growth?

A: Vivo's original total target for asset sales (copper and real estate) is R$4.5 billion, and only ~R$650 million has been completed as of H1 2026. Sales activity is accelerating: copper sales hit R$202 million in Q2, up from R$86 million in Q1, and 47 real estate properties valued at R$600 million have been listed for sale with initial offers received. Management expects the pace of sales to rise further in Q3 and Q4. No additional dividend guidance was provided beyond the existing commitment to distribute 100% of 2026 net income.