Hello, everyone and welcome to TSA’s Earnings Conference for the Second Quarter of 2024. Thank you for joining us. I am Vincent Ferreira, Head of Investor Relations. Today, we will share our highlights on video and then begin our live Q&A session with our CEO, Alberto Griselli; and our CFO, Andrea Viegas. Before we discuss our results, I remind you that management may make forward-looking statements and this presentation may contain them. Please refer to the disclaimer on the screen, which will also be available in our earnings materials and in our Investor Relations website. With that, we move to our results.

Hello to everyone. I am Alberto Griselli, CEO of TIM Brazil, talking from our headquarters in Rio de Janeiro. I'm pleased to share the highlights of our solid second quarter 2024 results. Despite some macro challenges, we are taking advantage of favorable market dynamics to develop further our 3Bs approach and deliver robust results across the board. In the second quarter, we maintained the pace of growing our service revenue high single digit year-over-year. Our EBITDA grew above our revenues, sustaining margin expansion despite a tougher comparative basis. Our proxy for operating free cash flow reached a record high for the second quarter, growing approximately more than 20% year-over-year. These solid financial results are accompanied by improvements in our services, innovation in our offerings, and consistent infrastructure development. Our results are driven mainly by mobile services with revenues growing by 7.3% compared to second quarter 2023. Consequently, ARPU is expanded by 6.8% through more-for-more initiatives and migration strategy. Our customer base profile continues to improve with postpaid net addition accelerating to solid levels. In second quarter 2024, we added 458,000 clients. We combine initiative to reduce churn and expand migration from prepaid to postpaid to support this performance. Behind these numbers is a sharp execution of our 3B strategy. Building the best offer in the market requires an innovative mind set, bringing novelties valued by the customers at the right price. In the coming weeks, we will showcase our new postpaid portfolio with the best control plans in the market. The best network combined excellent coverage with the best availability and quality. As you know, TIM ranks number 1 in those metrics in 5G and overall. Building this while reducing CapEx pressure requires an innovative and efficient approach. An example is the new 4G and 5G integrated antenna we developed…

Hello, everyone. I'm Andrea Viegas, CFO of TIM. As Alberto mentioned, we delivered robust results across the board. The top line grew 7.5% year-on-year this quarter, with positive contributions from all revenue lines. Our EBITDA showed solid performance despite a tougher comparative basis. It grew more than 8%, with the margin reaching an all-time high of 50% for a second quarter. Considering the lease's effects, EBITDA of the lease grew by almost 14%. This performance continues to benefit from the decommissioning project, which has reduced recurring lease payments by BRL56 million versus second quarter 2023. The EBITDA after lease margin grew notably by more than 2% points year-over-year. In this quarter, our net income grew by more than 20% year-over-year, benefiting from the overall operational performance and positive effects at the G&A line. In addition, we recorded a substantial increase in operational cash flow of almost 24%, with the margin expanding to 24.4%. As we explained last quarter, the seasonal negative impacts on working capital and CapEx are reverting. CapEx will close the year inside our guidance bands, with no material impact from FX and working capital should be positive in the second half. I am pleased with the figures we are delivering, which makes me confident that we will achieve our guidance by the end of the year, even with a more challenging comparison base in the second half. Now back to Alberto.

We just closed better than expected first half. Financial and operational performance are responding well to our initiatives. In the second half, we expect healthy competition to be maintained, so we will focus on evolving our portfolio and looking more carefully into our prepaid dynamics as the macro environment may be a concern for low income clients. Our digitalization program will continue to run both in the more traditional way and through AI projects. We expect more pilots to move from the testing environment to full implementation. In B2B, we expect the coming months to be exciting with more solution being added to our portfolio. We are optimistic about the future and look forward to the opportunities that lie ahead. We are on a long journey to become Brazil's most preferred mobile operator, and our commitment to this goal remain unwavering. This delivery can only be achieved through hard work, creativity, and discipline, and we are confident in our ability to succeed. Now let's move to the live Q&A session.

We'll now start the q and a session for investors and analysts. [Operator Instructions]. You can also send written questions through the Q&A button. Our first question comes from Bernardo Guzman 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 question is relating to margin. You have consistently achieved this expansion. On the revenue side, it's evident that the more-for-more strategy is proving effective, but on the cost side, I would like to understand the main factors that are contributing to this expansion, the key initiatives that can drive this growth moving forward and my second question is related to competition in the mobile segment. It would be great to hear views on possible competition coming from a new player, Nubank as a MVNO. Historically, this market never took off in Brazil, but now there's a new player with great execution capacity. What has changed in this market from a commercial point of view? Thank you.

Hi, Bernardo. So I will start with the second one, and then we will pass it to Andrea for the margin one. So on the first one, I would say, Bernardo, that the competitive environment so far remains pretty rational in terms of what is happening in both postpaid and prepaid. So the more-for-more approach and the shift from volume to value is actually happening. Everybody is more competing on quality of services and innovation rather than a straight on price or price per giga. When it comes to the possible new entrants, we need to see what kind of strategies that we'll deploy. So far MVNO has been operating as niche segments, competing on a different value proposition and again not competing on prices. So, so far the MVNO has not been a disrupt on one lever that is the price as they have been focusing the strategy in specific segments and so they didn't change the competitive dynamic materially. So the on this front, I would say that for the specific case that you mentioned, we need to wait to see what their commercial approach would be. So far, everything is fairly constant and focus on the more-for-more approach, competition on quality of services, meaning new offerings. We are launching some new ones in the coming months, natural services and the likes, less on price.

Hi, Bernardo. Related to the margin, we actually have a very good percentage this quarter. In the region and also in the region after release, we will continue to focus in our productivity to increase our digitalization, but we were happy to remember that we also have to invest in some OpEx also for generating more revenue. So we always have room to improve, but in our guidance show that we will increase margin this year related to the previous years, but we also have to invest. So, we have a good margin results, and we will continue this in this path.

And if I can add something, if you look at the categories of things that we're doing, so we got this all front of digitalization that it's that we mentioned in the presentation before a few examples that are proceeding quite nicely. We have clearly the dynamics revenues that favors also the margins when it comes to the more formal strategy. So it's accretive for margin expansion and I would say it's also that we are starting a few remote -- fine tuning of the make versus buy approach that we are thinking to deploy in the coming quarters that should be assertive in terms of increased efficiency and increased quality of the services that we are related to that specific activity.

Very clear. Thank you, Alberto and Andrea.

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

Hi, good morning to all. Thanks for taking my questions. I also have two. The first, I wanted to question you a bit about the guidance, especially the service revenue growth guidance. So for the second quarter in a row, you are coming above the guidance above the high end of the guidance. Is there room to increase that guidance? I mean or is there some expectation that the second half is going to be particularly weak? I mean, could you please just comment, I mean, on your yearly guidance in face of the results that you have achieved so far? That's the first question. The second question is the lease line and the tower renegotiation. Where are we on that process? What's the outlook for the line of lease payments? Thank you very much.

Okay. Marcelo, I will take the first one, and then we'll pass to Andrea for the second one. When it comes to the second half, I wouldn't say weak guidance. So the, I would say the following, weak guidance and you're right, we've been performing above the bracket in the first quarter and second quarter. Now we what we are foreseeing for the following quarters is something that it's already happened in the previous year. So a sort of slowdown in the pace of revenue growth and there are a number of reasons that we need to be considering that. First of all, we got a less favorable comp versus last year, so we got quite strong second semester last year. The second one is the fact that, when you look at the price up of postpaid, this year was be was less intense versus last year and so you tend to see the results in the second quarter and going forward. So if you look at our postpaid revenue growth on a historical trend, you generally see a strong Q2 and then the effect of the price up tend to stabilize in the following quarters, and so the revenues are slowing down a bit and so this is we expect the same effect this year. We need to see at the prepaid so you see that on prepaid we got a slightly negative revenue growth in this quarter also because we are migrating prepaid to control plans. This is going to happen in the next quarters and so we are fine tuning our value proposition and go to market approach, and so we need to see how this will play out in the following quarters. Last but not least, we got the Ultra, TIM Ultra. So the broadband that we imagine that is going to stay fairly stable. So all in all, what we are likely to see in the second semester is it's a slowdown of the revenue growth and this will put ourselves in the position to achieve fully our guidance, which is the bracket from 5% to 7%.

Hi, Marcela. Related to the leases, this quarter, we have, still the impact of decommission, but as we mentioned before, we ended the major part of the physical decommission. So we still have some positive impact in the decommission sites, but we also have the inflation. We have a lot of contracts that have the inflation adjustment in this quarter. So we have the lease in the same, level of the first quarter, but from now on, the trend is to increase a little bit. We, still have some, renegotiations with the towers company that is continuous with for us and related to the panels, we will also have some panels in the second quarter because we still have around 200 sites that we are, ended, the final the final discharge of the contract. So the trend is to increase a little bit in the least in the second half of the year.

Thank you very much.

Our next question comes from Vitor Tomita with Goldman Sachs. You can open your microphone.

Hello. Good morning, all, and thanks for taking our questions. We have two questions from our side. The first one is, since you cited some AI initiatives on the cost side and some other sides, do you believe those could be major enough to support some upsides to long term EBITDA guidance assumptions depending on how they play out? And our second question would be, you mentioned just now also a change in make versus buy approach. Could you give some more color on that? Thank you very much.

Okay. So, let me take, the first one, and then we'll interact with Andre on the second one. So when it comes to the artificial intelligence, we are following a quite pragmatic approach. So we are deploying it. We are measuring the results. If the results are there, we are going to scale this up, in the coming years. So we organize ourselves since 2023 with an organizational structure that is quite transversal between the among the company that select the case studies and the one with the most potential economic potential, and the one that are closer to our strategy. So, this, this process led us to select something like 100 use cases where artificial intelligence can be applied. Now of this 100 potential use cases, we went down to a number which is around 10. There are the most promising in terms of alignment with the strategic fit and potential benefits and there are two clusters of these use cases that we are actually in the in the phase of implementing. One is related to the customer care, and the other one is related to the network maintenance. Why these two? Because these are in line with our strategic objectives that is to increase the quality of services that we are providing to our customers and at the same time, increase productivity. So where do we stand now with these use cases? We are rolling them out. As a matter of fact, we are rolling the artificial intelligence use case to all our internal service attendants for the call center. So we are moving from the piloting to the rollout and we are doing this, this month and the same we are doing with predictive maintenance of network. So we already we got three main vendors and with one of these vendor, we are already engaged in rolling out predictive maintenance based on artificial intelligence for field services. So what does it mean that starting from now, we will be in the position to see the impact of those use cases on a large scale, and we will be able to see if our initial hypothesis of increase of productivity and quality of services stands. If this is the case, if this is proved on this rollout, then we are talking about double digit reduction roughly in terms of cost to do these activities and at the same time, a potential benefit in increased NPS or network availability for the network side. So, we are planning this also. We need to see if it works, and we are in the process to prove this in two specific larger use cases for call centers and network maintenance. In the meantime, we are scaling up also the others that we selected, but the two main ones are these two that I've been mentioning. Don't know if it's clear for you, Vitor, this year. If yes, we move to Andrea for the for the second question.

Very clear.

Related to the make or buy, we are always looking for another way to increase our productivity. So we are always make this kind of study about make or buy. For example, now we are studying about the on one part of the maintenance of our network, the operation of the network. Maybe we can have a BPO in this in this area. We are studying another area, some administrative area that maybe we can also do outside of the company with better productivity. So this is kind of make or buy that we are studying now.

Very clear. Very pragmatic as well. Thank you.

Next question from Gustavo Farias with UBS. You can open your microphone.

Hi, everyone. Thank you thank you for taking my questions. I have wo as well. The first one is regarding, the prepaid operation. If you could put more color, on what, you are you guys expect, on revenues going forward and the second one, regarding the fiber operation. As we have seen, limited growth and other players in the market considering selling their operations, What's your strategy on the fiber operation as a whole? Thank you.

Okay, Gustavo. So let's start with the prepaid. When it comes to prepaid, I think that there are two main dynamics that determine our revenues is performing and going to perform in the future. One is in our hand and is the prepaid to control migration and this is something that we are fine tuning quarter on quarter. We discussed this in last quarter. As a matter of fact, we are accelerating a bit, keeping control of the overall effect that is positive for the company, which is accretion on revenue growth. So this trend is there and is there to stay and so this will impact the revenues as we're going forward as it is impacting it today. The other element is more related to the, let's put it this way, the elasticity of the demand versus the price adjustment that we've been doing in the over the last quarters. So when you look at prepaid, prepaid is it's a mixture of a number of segments or sub segments. So in this structure, you find people that have a limitation on available income and so their ability to commit a specific amount of money to that specific amount. So let's say, low level -- lower income segments, whereby at the same time, you have people that have the availability to put recharge and it could be also postpaid customers, but they prefer to be prepaid because they prefer to have the flexibility of spending the money as they please and what we saw when we applied the adjustment over the last quarters is that the elasticity response is different in different segments and it's sort of obvious. If you are lower income, your response is not that great. If you are higher income, the response is better. So what…

Thank you.

Our next question comes from Daniel Federle with Bradesco BBI. You can open your microphone.

Hi, good morning everyone. My first question is more like a follow-up on Marcelo's question. Your three-year guidance also implies deceleration in the upcoming years versus 2024. So my question is why the mobile industry should grow less in 2025 than this year? Which are the drivers for a deceleration? And the second question related to selling expenses, they are growing in line with revenue and, we were not expected to see some like efficiency gains with lower churn. Right? Churn close to all-time lows, selling expenses could be benefiting from that. Thank you very much.

Okay Daniel let me take the first one, and then pass to Andrea for the second one. In terms of the first one, I would say that the rationale is sort of pretty simple. So when you look at the revenue growth and you look at the performance of the sector, over the last 10 years, you see they've been if you take away 2022 and 2023 where the sector grew above inflation because the market rationality and market repair was already in place. In the last previous years, we have been growing below inflation. So the thesis of the more-for-more approach is that is the one that we discussed in our Investor Day. So you have a situation where the market is shifting from volume to volume, so more importance of quality of service versus price. This is confirmed by all research that we are running. At the same time, on the demand side, you see that we got in our hands pretty essential services with let's put this way, low usage and low prices because of the competitive dynamics of the previous years and so the opportunity to catch up this gap that has been growing over the last years and the at the same time you got the macroeconomic environment where inflation was. Now it's a bit less going down over time, but it's still going down over time. So when you put what is the ideal growth rate, it's 1.5% to 2% above inflation, and this is basically what we put in our guidance at that time. A stronger growth at the beginning because we have some ground to catch and then a growth that slowed down to something above inflation and this is by the way subject to the fact that a rational environment will keep staying in place for the next years and the ability to have a positive demand elasticity response when implementing the more-for-more strategy and that it is basically behind our assumption for the guidance. So 5% to 7% for the bracket for 2024 and 5% to 6% on a longer time horizon as inflation goes down and our therefore the inflation plus goes down as well. Was it clear, Daniel?

Very clear, Roberto. Thank you.

Hi, Daniel. In relation to the selling expenses, we are increasing them below the revenue because remember last year we have the credit when we incorporate Huawei. Huawei recognize a credit after sell. We when we took this value from last year, you see that our increase in selling expenses is below revenue. We have also, for the achieving these expenses, the same expenses are increased. It's basic related to the to the expenses with the revenue -- with the project revenue, where we have a service and also the bad debt have the same rationale on revenue. So we consider that we have a very good results in the all expenses and we will continue to grow this one. For example, second quarter, we have more [Indecipherable] and other we will launch other products. So we have increase in this part, but related to the go on already, we have a very good ratio in this and expenses. I don't know if I answered your question.

That was perfect. Thank you, Andrea. Congratulations.

Our next question comes from [Indecipherable]. When do we must expect dividend guidance revision since the company is generating much more cash than predicted?

Well, we have some formal moments in our governance where we update our guidance, and that would be the guidance for next year that are going to be released in February next year. So far, we gave a guidance for three years already that this was a big, put it away, positive novelty and respond to a demand of you guys to have a more long term view. So we move to the BRL12 billion overall three years’ guidance for 2024, 2025, and 2026. So the number is in place. It covers already three years. As we said many times, we want to have some flexibility on our side for potential inorganic activities and the I would say at this point in time it is going to next year when we update the D3 annual industrial plan.

Thank you. [Operator Instructions]. Our next question comes from Gustavo Farias with UBS. You can open your microphone.

Hi, everyone. One additional question, regarding, the bad debt. Do you believe in an increase in bad debt given a higher mix in postpaid going forward? Thank you.

Gustavo, what we are seeing now is that our bad debt, even with our increase in the net adds and increase in the revenue is still under control. We are not seeing any kind of increase in bad debt. Our collection is still the same. Our collection curves for the future it's still the same. So we are seeing a very good results in this way, even if we increase in our base of particulate base. So far so good.

Okay. Thank you.

Next question from Felipe Cheng with Santander. You can open your microphone.

Hi. Thank you so much for taking my questions. two on my side. If you guys could provide a little bit more detail as to what stage we are in in the infrastructure sharing agreement with Vivo, right, if this has already been an important driver here for OpEx and CapEx, what to expect in the upcoming years, right, for this infrastructure sharing agreement, that would be great and my second question is related to the B2B business, right, the IoT solutions, how this has been evolving, if you could provide also a little bit more detail, if it has been running ahead of expectations or not. So these are my two questions. Thank you very much.

So, Felipe, let me start with the second one and then I will pass Andrea for the first one. On the second one, on the B2B, we are on track according to our plan. So we have quite an ambitious plan by the way and this is something that is going to, in our view, contribute to revenue growth in the medium term is already contributing but so far it's an absent business. Nonetheless, over the last two years, basically we increased by 10 the revenues contracted revenues of this sector. So we keep closing contracts in the three main verticals where we're operating. That would be the agribusiness that would be the logistic business and the utilities business. So on both these verticals, we are making steady progress and consistent progress and the pipeline of the contracts that, you know, the cycle to close this contract is pretty long. It's something that it takes from six months to 18 months to close. So the pipeline is pretty strong, and our positioning is pretty strong and so the answer is we are in line with our plan and we're moving we are moving forward and you will see a number of tailings appearing in the next quarters in terms of commercial wins and potentially new verticals that we are going to open. We got the priority to expand our customer base from one side and also to increase our portfolio on the second one. So finding partners to enrich the portfolio and provide additional services on our customers. So we are unsatisfied with the progress to date and the last but not least, we are also looking at non organic activities and when we have some news, of course, we're will share you with you.

Hi, Felipe. In relation to the infrastructure agreement with we still on in this in this project. We mentioned in our presentation. We have an update some series. We have the two fronts. One single bridge and another one is to shut down the 2G network. We are moving forward in this, and we are looking for another series inside the what we have approved with the [Indecipherable], but it's a complex project that not very fast like we want but we are continuous to in this project and we think that, until the end of the year or first quarter of next year, we are completing this project.

Maybe it's worth remembering that when you Felipe, when you look at this, it would be the one that is the 2G shutdown is basically energy saving, but that's the main driver whereby when you look at the single grid, we shared the entire infrastructure and so there is some cost avoidance in terms of energy maintenance and actual cost and it's clearly much more complex to implement and then when you move forward, what it could be, that would be CapEx avoidance if we decide to extend this to 5G at some point in time, but for this weapon, of course, the 2G and the single grid needs to work and the process needs to work and this is something that we are proceeding with Vivo at this stage.

And just remember that's only for series with 30,000 people -- less than 30,000 people.

Perfect. Very clear. Thank you so much, and congratulations on the great results.

Ladies and gentlemen, without any more questions, I am returning to Mr. Alberto Griselli for his final remarks. Please, Mr. Alberto, you may proceed.

Thank you everyone for staying with us. We are delivering a very strong first semester for this year. So first half of the of the job is done, and now we're fully focused on the second half. I would like to thank the entire team for the hard work that allowed us to deliver, another great quarter, and I look forward to meet you guys on the one-to-one conference call in the coming days and weeks. Thank you everybody.

Thus we conclude the second quarter of 2024 conference call of TIM S.A. For further information and details of the company, please access our website tim.com.br/ir. [Operator Closing Remarks].