Earnings call transcript: ISA Energia’s Q2 2025 results show 7.5% revenue drop

ISA Energia Brazil (ESAB) recently held its Q2 2025 earnings call, revealing a 7.5% decrease in net revenue compared to the previous year. Despite the decline, the company continues to invest heavily in infrastructure projects, which are expected to boost future revenue. According to InvestingPro analysis, the stock appears fairly valued at current levels, with a beta of 0.37 indicating lower volatility than the broader market. The stock saw a slight decrease of 0.17%, closing at 23.99 BRL, near the lower end of its 52-week range.

Key Takeaways

• Q2 2025 net revenue decreased by 7.5% to 1,029 million BRL.
• Consolidated EBITDA stood at 779 million BRL, with a margin of 76.8%.
• The company is investing in five major projects totaling 7.3 billion BRL.
• ISA Energia aims to maintain a 75% dividend payout policy.

Company Performance

In Q2 2025, ISA Energia reported a net revenue of 1,029 million BRL, marking a 7.5% year-over-year decline. Year-to-date net revenue also fell by 2.7% to 2,106 million BRL. Despite these decreases, the company’s EBITDA margin remained robust at 76.8%, reflecting efficient cost management and operational resilience.

Financial Highlights

• Revenue: 1,029 million BRL, down 7.5% year-over-year.
• EBITDA: 779 million BRL with a margin of 76.8%.
• Gross Debt: 14 billion BRL.
• Net Debt: 13 billion BRL.
• Net Debt to EBITDA Ratio: 3.43x.

Outlook & Guidance

ISA Energia plans to continue its investment in transmission infrastructure, with five projects currently under construction. These projects are expected to generate over 1 billion BRL in additional revenue. The company is targeting a maximum leverage of 4x Net Debt/EBITDA and aims to decrease leverage as new projects become operational. InvestingPro analysis highlights the company’s strong financial health score of 2.82 (rated as GOOD), suggesting solid positioning for these expansion plans. Get access to the full Pro Research Report and 10+ additional ProTips to better understand ISA Energia’s growth potential.

Executive Commentary

Silva Huada, CFO, emphasized the company’s focus on "responsible profitable growth, supported by financial discipline." CEO Rui Chamas highlighted the opportunities driven by energy transition, stating, "We have opportunities driven by energy transition for our projects."

Risks and Challenges

• Regulatory changes could impact revenue streams.
• Macroeconomic pressures may affect project financing.
• Climate events pose a risk to infrastructure resilience.

Q&A

During the earnings call, analysts inquired about the company’s strategy for growth through auctions and concessions. ISA Energia confirmed its continued interest in these areas and highlighted its proactive approach to climate adaptation and infrastructure resilience.

Overall, ISA Energia remains committed to strategic investments and maintaining its dividend payout policy, despite recent revenue challenges.

Full transcript - ISA Energia Brasil SA Preferencial (ISAE4) Q2 2025:

Unidentified Moderator, Conference Call Moderator: Good morning, everyone, and thanks for standing by. Welcome to ESA Energia’s Brazil Second Quarter twenty twenty five Earnings Conference Call. Please note that simultaneous interpretation is available on the platform. To access it, click the interpretation button using the globe icon at the bottom of your screen and select your preferred language, either Portuguese or English. For those listening in English, there’s also an option to mute the This conference is being recorded and will be made available on the company’s Investor Relations website, www.rrisenervietbrasil.com.br, where you can also find the full earnings release.

The presentation is also available for download in the chat, including an English version. During the company’s presentation, all participants will be in listen only mode. We’ll then start the Q and A session right after the presentation. This presentation may include forward looking statements concerning ESA Energia Brazil’s business outlook, projections and growth potential. These statements are based solely on the expectation of the company’s management and are subject to market conditions, economic performance in Brazil and internationally and other variables, which may cause actual results to differ materially from those expressed in forward statements.

These statements are not guarantees of future performance. They involve risks, uncertainties and assumptions as they relate to future events. Investors should be aware that general economic conditions, market dynamics and operational factors may affect Issa Energia Brazil’s future performance and lead to results that will differ materially from those in the forward looking statements. Joining us today are Rui Shermes, Chief Executive Officer along with Silva Genizoada, Executive Director and Head of Investor Relations and other company officers. I will turn the floor over to Mr.

Rui Chamas. Good morning, and thanks for attending IsEnergia Brasil’s Second Quarter twenty twenty five Earnings Webcast. My name is Rui Chamaz, CEO of the company, and I’m joined here today by our Executive Officers and provide an update on East Energy of Brazil’s main topics. Let’s move on to Slide three. The ’25 was marked by significant developments that unlock value and align with our strategy of sustainable value creation.

I’ll start by highlighting Anil’s decision regarding the financial component of the RBSE, which begins and ends two years of uncertainty. The board decided to maintain the methodology for calculating and paying interest on a deferred basis. It also chose to divide the financial component into two separate flows, one considered noncontroversial and the other controversial, and to update the cost of capital figures until each flow is effective paid. This decision reduced the annual amount which we’ll receive over the next three tariff cycles to approximate 1,270,000,000. In early July, a news board also approved the adjustment of our annual permitted revenue for 2526 cycle.

With a 1.3% increase, our potential RAP grew by 83,000,000, driven mainly by a 10% increase in the policy concession and 5% in auction contracts, which together offset the nominal 10% reduction in the RBSE. We also maintain a strong pace of investments during the period with more than BRL 1,000,000,000 to both reinforcement improvement projects and new greenfield concessions. In June, we energized the Agua Vermera project in sixteen months ahead of a new deadline, an achievement that demonstrates our planning and execution capabilities. The next slide, we explore these topics in more detail. As I mentioned in the first slide, I’ll provide an update on RBSE.

But first, let me give you a brief overview to ensure that we are all on the same page. RBSE stands for basic network of the existing system and refers to the revenue paid to transmission companies that renewed their contracts in 2012 for investments made up to the year 2000 that were not yet fully depreciated at the time of contract renewal. On June 10, ANU resolved long standing uncertainties by issuing a decision in response to a petition from market players regarding the financial components of the RBSE. You can see that in dark blue. This is the update of the total amount between 2012, the contract was renewed, and 2017 when RBS payments began.

As decided by news boards, the methodology for calculating and deferring interest payments related to the RBSE was maintained. This preserves legal and regulatory certainty by upholding the methodological approach previously adopted by the agency. The board also chose to update the walk at each period tariff review in which the financial portion is adjusted, thus aligning economic assumptions more conditions. The key change

Unidentified Operator, Q&A Session Operator: There

Unidentified Moderator, Conference Call Moderator: was significant anticipation around the decision. It could have had a much greater impact had the board followed the rapporteur’s vote. As I mentioned, the fine rent resulting financial adjustment will be made evenly across the last three cycles of receipt with the total amount now set up 1,271,000,000.000 based on June 2025 figures. To date, the company has received approximately 60,000,000,000 and is expected to receive around BRL 7,500,000,000.0 more. As we’ll see in the next slides, the company has proactively prepared not only for various potential outcomes, but also for the end financial component receipts in 2028.

We remain focused on long term value creation through investments that will generate future revenues. I would also like to emphasize that the decision does not affect the company’s strategy of its dividend policy. We’ll, therefore, maintain our practice of paying out at least 75% of regulatory net income to shareholders. On July 15, a new issued resolution three four eight one, which established the new RAP values for East Energia Brazil for the 2526 cycle. The chart on the left shows the factors that drove our potential RRP to BRL 6,400,000,000.0, up 1.3%, surpassing the reduction of the RBC.

The main positive drivers were the inflation adjustment of contracts and the start of operations of new reinforcement improvement projects during the period. On the downside, in addition to the RBSE reduction, we had the expiration of the Eversea concession contract in mid July twenty five, as previously mentioned. Following these updates, our ARAP composition is now made up of 56% from the Polisia concession, 28% from auction concessions already in operation and 16% for new concessions that will be operating in the coming years. To share more on our growth plan, I’d like to dive into the investments made, starting with greenfield projects, which extends the company’s longevity and deliver an average real shareholder return. Investments in auction lots increased 141% compared to 2Q ’twenty four, reaching $723,000,000.

The increase was driven by the processing construction of the Piraquel and Riaxo Grande projects, which accounted for about 7510% of the amount. I would also like to highlight the amortization of the Agua Vermilla project in early June, which enabled the addition of BRL 8,500,000.0 to our RIP. Our portfolio currently includes five projects under construction in a total of BRL 7,300,000,000.0. Once energized, these projects are expected to generate over BRL 1,000,000,000 in addition revenue. It’s worth noting that execution is proceeding according to plan.

And over the next twelve months, we expect to energize fully or partially Riasco Grande, Zacarenda and Pirake. We continued the upward investment trend in reinforcement improvement with $379,000,000 invested in 2Q ’twenty five, an increase of 11% over the year. This quarter, we received new authorizations totaling $275,000,000 investments. Our authorized project portfolio now stands at about BRL 5,700,000,000.0 as of June 25 to be executed through ’25, as shown on the chart on the left. To emphasize, these projects are eligible to receive RAP equivalent to 12% to 17% of the investment made, enhancing security and reliability of the grid by minimizing the risk of equipment failure, reducing maintenance costs and updating the asset base, guaranteeing high quality services.

Also important to note that investments in reinforcement improvement projects are concentrated in renewed contracts such as the Polista concession. Revenue from large scale projects energized between February 23 and June 25 will begin accruing upon organization, while revenue from smaller scale projects will be recognized starting with the tariff review scheduled for ’28 when these projects will be reassessed and incorporated into the RAB. Now I’ll turn over to our CFO, Silva Huada, who will provide the detailed explanation of the quarter’s financial results. Silva? Thanks, Rui.

The company’s net revenue totaled BRL 1,029,000,000 in 2Q twenty five and 2,106,000,000 in the ’25, representing decreases of 7.52.7%, respectively, mainly driven by two nonrecurring effects. First, Enel’s final decision on the RBSE, as Rui mentioned, by establishing a new payment schedule, the decision triggered a noncash reversion of BRL 249,700,000.0 from the adjustment portion of the RBSE financial component. This adjustment portion was related to the RBSE’s return on equity, KE, and had been recorded in 2020 following the first periodic tariff review of the Pagliza concession. With the reprofiling introduced by ANU, the return on equity was incorporated into the financial component and payment flow extended until 2028. The company had been amortizing approximately 20,000,000 per quarter from the remaining balance.

The second effect relates to a favorable new decision regarding the company’s petition to revise certain aspects of the 2023 RTP for the Pauvista concession. This is technical note of 2025, which generated a positive impact of BRL 145,000,000 related to the adjustment portion, an amount that will mostly be received as of June. In addition to the position, revenue excluding our BSE also increased due to the IPCA adjustment of the 2425 tariff cycle as well as effects from the published RGP started in July 25. Highlights include the incorporation of RRP related to small scale reinforcement improvement projects between ’eighteen and ’twenty two and the resumption of annual improvement payments, which bring forward a portion of revenue associated with the execution of small scale improvements of 36,000,000 per year. Other positive contributors to revenue include the energization of large scale reinforcement and improvement projects between the periods and the energization of Minu Anu in November 25 and Magua Vermelho in June 25.

When analyzing costs and expenses related to personnel material services, PMSO, we observed a 7% decrease for the quarter and a 5% reduction in the year to date result. This was primarily due to greater capitalization of technical staff hours for expansion projects and ongoing pursuit for efficiency, which allowed us to keep manageable costs under control with a 2.8% reduction compared to 2Q ’twenty four. Additionally, we recorded a BRL 9,000,000 reduction in private pension costs following an annual reevaluation conducted in December. The rise in the NTNB in ’24 impacted the discount rate used to calculate the present value of future obligations. As a result, our efficiency indicator measured by the ratio of PMSO to net revenue, excluding RBSE, improved to 30%.

Other operating costs and expenses increased 28.56%, mainly due to our participation in a new Zizinhala program to settle regulatory fines that had previously been challenged in court as well as other provisions and depreciation expenses, which totaled 2 and 15,800,000.0. Depreciation rose to a higher level following the RTP of the Polista concession, which recognized the efficiency of investments made between 2018 and 2023, thereby increasing the regulatory asset base. It also reflects the energization of Minu Ano. Company results were also impacted by the BRL 7,000,000 increase in the write offs and asset disposals, driven by the higher level of investments in reinforcement and improvement projects. As a result, the company’s consolidated EBITDA totaled BRL $7.00 9,000,000 in 2Q ’twenty five with a margin of 76.8%.

In addition to operating performance, net income was impacted by higher net financial expenses, reflecting increased debt levels to support company growth and rising debt indexers, IPCA and CGI. The quarter also included the recognition of nonrecurring income tax credits in the amount of 77,000,000, which generated an additional BRL 28,000,000 in monetary adjustment. Slide 10. We ended 2Q ’twenty five with gross debt of BRL 14,000,000,000 and net debt of BRL 13,000,000,000. The increase was mainly due to funding raised in 1Q ’twenty five, specifically the eighteenth debenture issues and the fourth disbursement from BNDS, partially offset by the settlement of the seventh debenture issuance in April ’5 in the amount of 9 and 28,400,000.0.

As of June 30, fifty percent of our debt was indexed to IPCA, 38% to CGI, with an average real cost of 7.6%. The company’s leverage ratio measured to net debt to EBITDA ended the period at 3.43x. Currently, only BNDES loans, which totaled BRL $7.00 7,000,000 carry financial covenants. They are based on a net debt to EBITDA cap of 3x. It’s worth noting that covenant compliance is measured annually based on the financial statements as of December 31.

We are currently in discussions with the bank to obtain a waiver. Again, considering 12/31/2025. In July, we completed the nineteenth debenture issue in the amount of BRL $580,000,000 with a tenure of approximately ten years and a cost of IPCA plus 6.7 per year. This offering was priced at a 34 bps negative spread to the NTNB $2.40. It’s also our first bullet issue, meaning that interest and principal will be paid only at maturity.

The increase in leverage was anticipated and is consistent with reflects the pace of investments, close monitoring and project execution to ensure expected returns and solid risk and opportunity management. This is what we call responsible profitable growth, supported by financial discipline and our policy of paying out 75% of regulatory net income. This concludes my remarks. Roy, thank you, Silvia. We wrap up our presentation, I’d like to share an update on the progress in the sustainability agenda.

This is very important, especially for the reduction of SF6 gas losses. This gas has a high impact on greenhouse gas emissions while also contributing to eco efficiency losses in energy and water use. In addition, our managing approach focused on generating social environment impacts enabled us to climb 17 positions in the B3 Sustainability Index. We are proud to be part of the index for three years. Finally, to close our presentation, let’s move on to the next to final slide.

Slide 12 summarizes Issa Energia Brazil’s defining characteristics and core capabilities, and the objective is reflecting our commitment to maximizing sustainable value creation for all shareholders and stakeholders. Is Energia Brazil is a manager of concessions that has predictable revenues and high regulation and very well structured. We have opportunities driven by energy transition for our projects and also reinforcing existing networks. We have a proven tech record in the delivery of projects, in auctions, and also the use of innovative solutions to solve the major challenges of energy transition in the country. We have financial structure that supports our growth.

And with the payout of dividends that we have maintained in recent years and also a long term view with a positive and environmental impact of our assets. That concludes our presentation. I’ll now hand it back to the operator to begin the Q and A session. Thank you very much for joining us, and let’s start the Q and A.

Unidentified Operator, Q&A Session Operator: We’ll now start the Q and A session. Our first question comes from Jean Miguel. Do you plan to finish works in 2025? Which projects do you think will be finished in 2025? Thanks for your questions, Jean Miguel.

We have a couple of projects that will be energized in the coming twelve months. Riaxo Grande, which is an underground construction here in Sao Paulo, the longest underground line in Brazil under construction now, connecting Sao Paulo and Sao Caetano Do Sul should be energized in the next twelve months. Also, the Jacaranda project, which is an extension of a substation, which will also be energized in the coming twelve months. Piraquet is also expected to be energized in the coming year. The Piraquet project is the largest B2B project under construction, 3,700,000,000.0 in investments with the ability to move 18 gigawatts of energy, renewable energy from the Northern part of Minas Gerais to the South.

When you combine those three new operations, we will also be energizing by the end of the year another project which will redirect the current flow. We call it flexible AC transmission system, which will optimize load use in the Ribeiro, Puerto Grafiera line. So several projects which are ongoing investments being made, but advancing really well. Thank you for your question. Next question from William A.

Silva. Good morning. With the end of the concession of 20,000,000 we do you see a chance of renewing it, the $20,000,000 concession? I believe that the $20,000,000 concession that you’re referring to, the Spiritus Central concession. Correct?

Which is managed by every c, our partner, which finished in mid July just now. Well, that concession matured this month, as you said, but it had been put up for another bid. Last year, there was an auction. So we have already been paid for the residual amount of assets to the tune of BRL 40,000,000. So as of mid July, that concession is no longer part of the group.

It accounted for less than 0.5% of our AP and will easily resume previous levels with new projects. Our next question comes from Judea Ferreira. Can you give us some color on the installments you received in the quarter for adjustments? Are they recurring payments? Hello.

As for those installments, we had two important events, one positive, one negative. The main event was the one concerning to the PA of the CAE about the financial component of the RBIC, which had been put together back in 2020 during the first RTP for the Polista concession. We extended that term in 2021. And now with this decision by ANL, we had a remaining balance. So this was written off as something to be received.

So there’s no impact on the cash flow of the company. There was an impact of about $250,000,000 in the negative side. It is a one off effect because we have already adjusted all the issues concerning that effect. Moving forward, we’ll be receiving it as cash as we presented in our slides. As for the PA of the RTP, it is also a one off event relative to demands made by the federal agency that can be explained by our technical manager.

But that has to do with the tariff review, which was approved last year. So once again, that refers to topics which have already been covered. We have already provisioned for those effects. So the cash effect will happen mainly will unfold mainly in the next twelve months. A small portion of it will be received the new tariff review cycle until 2028.

Claudio, if you want to jump in. Yes. If I may, when we receive authorizations to deactivate equipment, which still has some asset value, we are entitled to recompose, if you will, that amount, the value of that asset. So for the new cycle tariff review, we will inform them the amount which was remaining and will be compensated for it in the form of a PA in the next tariff cycle, as it was said. We have another question from Giulio Ferreira.

Congratulations on the results. Can we expect anything on the RBSE front from Anil? Thank you, Julia, for your question. No, the answer is no. As Rui mentioned in his presentation, the RBSE topic is done and over with at the administrative level, there’s no appeal that could bring that back to the table.

Next question from Daniel Pravitsky from Safra Bank. Could you please comment on the impact coming from the reduction of receivables from RBC in the company’s leverage level? What’s the maximum leverage level you aim for? And do you see any impact on the company’s covenants coming from that new leverage level? Hello, Daniel.

The impact of that reduction in receivables from RBSE, it was relatively positive because it was already included in our planning, right? We already had contemplated for that. We would move from annual receivables of BRL 1,500,000,000.0 to BRL $830,000,000. So we had already planned for it should it occur. But then at the end of the day, it was 1,100,000,000.0, was not that serious.

So it was more favorable, if you will, to us vis a vis our planning, and that helped us manage leverage levels. As for the maximum leverage level to your question, we do have an important benchmark, which is four times net debt over EBITDA. That would be an adequate level if you consider that in a non recurring base, especially with the company, it’s such a robust margin levels and cash flow levels. So as per our growth cycle, with all the projects we have in the pipeline, that leverage level tends to continue to go up until 2027. And as those projects unfold and go live, And we have five projects in the pipeline that combined are about up $1,000,000,000 And as they go live, we tend to reduce that leverage as they become contributors to our bottom line.

As for impacts on the company’s covenants, well, the only one the only financial covenant we have today in place is the one linked with BNDES, which is quite restrictive, 3x net debt EBITDA ratio. Today, if we were to measure that, we would be above that level, but it is based on an annual assessment. So we are complying with their annual assessments. Next one is in December. We have been talking with the BMDS and all on track.

We do not anticipate any major impact related to Our next question comes from Eduardo Mendez. Any news on the reconciliation between the State of Sao Paulo Treasury Department? Thank you for the question. We have been in negotiations with that issue. You’re referring to the retired pension act, right?

We have a new hearing scheduled for August. Conversations are moving forward and talking with the state treasury department. And the idea is to build a constructive solution for that. As that unfolds, we’ll be sure to communicate all stakeholders. Our next question comes from Pedro Perez.

Good morning, everyone. The strong winds we had last week had impacts on the operation. Morning, Pedro. Thanks for your question. I’m Pedro.

I’m Operations Director. The climate events we had last week did not have major impact on our operations. Our operations were not disrupted. But just to expand on your question, we are now working on a plan to reinforce our infrastructure to adapt them to climate change. We have to take into account an increase in the strength and speed of the winds.

But the main objective is not to avoid damage, but also to be able to provide a prompt response to those situations. I can cite an example of what I’m doing. We are updating our logistic departments. Our first responders are also being trained. We are conducting drills, mock situations, and that already happened earlier this year.

And we started we’re able to restart a transmission line in less than twenty four hours because of those protocols. Thank you. Our next question comes from Carlos La Good morning. My name is Carlos La Serda. It’s important for me to know this.

The officers, are the officers or the executives of the company buying company’s shares? Well, within the rigor and the discipline described by the SEC, any purchase of shares by company’s executives has to be reported and has to be mentioned in reports that we send to the SEC every year. So if you want to find that information in detail, just look for the communications. There are monthly updates of that at the company’s website in conjunction with the Securities and Exchange Commission. Once again, to ask a question, please click on the q and a button in the bottom part of your screen.

Mhmm. Our next question from Artur Sanji from HSBC. Thank you for your presentation. You are quite objective and efficient. Can you give us some color on your appetite to participate in the transmission auction in the second half of the year?

And what’s the regulatory VAC for investments and improvements for greenfields? Thank you for your question. The company remains interested in growing revenues, growing the business. We have three potential growth fronts, auctions, projections for the Polista concession. Any of those fronts need to be thoroughly vetted.

It has to be profitable, of course. Financial discipline has to be preserved so that we remain a company which is able to raise funds in the market in a competitive manner as we have been doing for a long time. And also to preserve our dividend payout practice, which is 75%. So whenever an opportunity comes up in any of those fronts, we analyze all of the possibilities and it’s the case for this year’s auction. And if we identify a profitable opportunity that is in compliance with all our criteria, we will go after that growth avenue.

So we continue to follow that disciplined track to create shareholder value, always respecting the criteria I have just listed.

Unidentified Moderator, Conference Call Moderator: Our next question comes from Paulo Cesar Freitas about the dividend payout with revenues going up. Do you intend to keep the 75%, or do you want to change the policy to 50% and have cash for expenses with expenses growing up? Paulo, our practice is a minimum 75% payout over the net regulatory profit. All our growth plan already assumes that the payout of dividends will be kept as is. So we do not want to change it.

The Q and A session is now closed. We are going to turn back to Julio Shimas for his final remarks. Well, thank you all for your interest, the large amount of questions we had. Lots of people attending the call. To us, it’s very important to be able to explain what we have been doing, managing our concession portfolio, our growth project.

And today, we have the satisfaction of bringing something to you, which is the discussion that had been going on with Anil for a long time of RBSE, which allows the company to move forward without uncertainties regulatory wise to grow with profitability and to keeping its dividend policy and financial discipline together with the operational discipline that our operations director referred to to provide excellent services to society even in the light of climate events. So please continue to follow our information. Our IR team are at your disposal in case of questions. And the idea is that we are going to inform you of any advances in our management. Thank you, everybody, the team that organized the call, and we wish

Unidentified Operator, Q&A Session Operator: you

Unidentified Moderator, Conference Call Moderator: a very good day.

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