Earnings call transcript: NOS Q2 2025 shows revenue growth amid net income decline

NOS SGPS SA (NOS.LX) released its Q2 2025 earnings, showcasing a 3.2% year-over-year increase in revenue to €458 million and a 5.9% rise in EBITDA. Despite these gains, the company reported a 28% decline in net income to $58 million. The stock experienced a slight decrease of 0.27%, closing at €3.745, near its 52-week low of €0.02. According to InvestingPro analysis, the company’s valuation implies a strong free cash flow yield, suggesting potential undervaluation at current levels.

Key Takeaways

• Revenue increased by 3.2% year-over-year to €458 million.
• EBITDA rose by 5.9%, indicating improved operational efficiency.
• Net income fell by 28%, though recurring net income increased by 16%.
• The stock price decreased by 0.27% following the earnings report.
• Continued expansion in IT services and fiber network coverage.

Company Performance

NOS demonstrated solid revenue growth in Q2 2025, driven by its expanding IT services and network infrastructure. The acquisition of Claranet Portugal and the launch of Naked Broadband across two brands have strengthened its market position. However, the decline in net income highlights challenges in managing costs and competition in the consumer segment.

Financial Highlights

• Revenue: €458 million, up 3.2% year-over-year
• EBITDA: Increased by 5.9%
• Net income: $58 million, down 28%
• Recurring net income: €57.4 million, up 16%
• CapEx: Decreased by 2% to €91.7 million

Outlook & Guidance

NOS expects continued expansion in its EBITDA margin, with a focus on growing its IT services. The recent acquisition of Claranet is anticipated to enhance NOS’s exposure to a larger and faster-growing market without significant integration costs. Further benefits are expected from GenAI-driven efficiency programs. With consistent profitability over the last twelve months and a market capitalization of $0.59 million, NOS demonstrates strong fundamentals. Dive deeper into NOS’s growth potential with InvestingPro’s exclusive analysis and fair value estimates.

Executive Commentary

Miguel Almeida, CEO, stated, "We believe that we will keep expanding our EBITDA margin for quite some time," emphasizing the company’s confidence in its operational strategies. Manuel Ioannis, an EXCOMM member, noted, "Claranet’s acquisition boosts NOS’s exposure to a four times larger and faster growing market," highlighting the strategic importance of the acquisition.

Risks and Challenges

• Increased competition in the consumer segment could pressure margins.
• Managing integration of Claranet without incurring significant costs.
• Potential macroeconomic pressures affecting overall market demand.
• Ensuring continued success of GenAI-driven efficiency programs.

Q&A

During the earnings call, analysts inquired about the competitive environment in the consumer segment and pricing dynamics. Executives addressed the growth potential in IT services and outlined the company’s data center and cloud strategy, indicating a strong focus on technological advancements and market expansion.

Full transcript - Nos SGPS SA (NOS) Q2 2025:

Pedro Cota Dias, Head of Investor Relations, NOS: Hello everyone. Thanks for joining NOS. Second Quarter 2025 Results Conference Call. We’ll have a presentation followed by Q and A as usual. This time we’ll start with Manuel Ioannis, who’s the EXCOMM member in charge for B2B. He will go through some slides on Claranet Portugal to give you a bit more color, since this is the first quarter that we are actually consolidating the company. Our CFO will go through the rest of the presentation before Q and A and I’ll hand you over to Manuel.

Manuel Ioannis, EXCOMM Member B2B, NOS: Thank you, Pedro. Hi everyone. I’d like to give you a quick update on Claranet and to explain why we believe that we have now on IT a much bigger and better growth engine. The first note is that Claranet’s acquisition boosts NOS’s exposure to a four times larger and faster growing market. Basically, we estimate the telco market in Portugal to be the B2B market in Portugal to be worth $1.1 billion and the IT market in Portugal to be worth around $4.6 billion with basically much, much higher structural growth. We believe that this growth is possible basically by driving expansion in key practice areas where either we have significant competitive advantages or have a high growth potential. We’ll see that in the next page. We will be able to reinforce our position in managed services and in professional services as well.

Actually, basically we double the size of our IT services business with the acquisition of Claranet Portugal. We also believe that even the resale part of the business is key in the sense that it puts the NOS Group in the center of the deal flow over the key manufacturers in Portugal of hardware and software. That presents a very relevant opportunity for services growth, as most of the manufacturers will tell you. The second is that IT brings, or this acquisition brings, relevant scale and a full breadth of not only solid offer, partnerships, and talents to our IT business. First of all, Claranet brings the set of practices that we aim to be present in in the IT arena and the full breadth.

It is a great way to structure the way we look at the IT business and the practices of cloud and infrastructure, applications, security, workplace, data and AI, and third party software. We believe that these are the exact arenas where we want to be present, where we believe we have the synergies and the competencies, and we believe that we now have the full breadth with which to address the market. The second is that we are as a group now very relevant to a number of key technology partners in this market. The transversal partners of Microsoft, HPE, and HP, and the practice specific partners of Cisco, AWS, Cloudflare, Dell, Adobe, EasyVista, Fortinet, Palo Alto, and Google. I believe these are very relevant names in the technology arena and I believe that they all regard the NOS Group as a relevant partner in Portugal.

The third note is that we have now as a group of very relevant scale and a very relevant component, we have 1,900 FTEs managing professional and managed services in IT in Portugal, a very large engineering team and over 200 class certifications with which to help our Portuguese customers address their digital transformation needs. We believe that with this acquisition we have very relevant growth levers to pull. First of all, we have an increase, actually a very significantly increased sales footprint in enterprise and mid market, which crossing with full breadth of IT services brings up full potential that is very relevant for the future. The second is we have practices in our portfolio, namely cloud, cybersecurity, and data and AI, which have in themselves a very high potential for growth. Third, we have a strategic cooperation with Claranet Group that benefits us both ways.

First of all, the ability to serve multinational customers and the second to leverage the scale of our practices in the multinational environment of the Claranet Group. Back to the beginning of my very short presentation, the idea was to say that we have a bigger and better growth engine for IT with which to show your progress in the next few quarters.

CFO, NOS: Good morning and once again welcome to our conference call. Just an additional comment on Claranet. This quarter we fully consolidated Claranet Portugal for the first time and for consolidation purposes, in accordance with IFRS 15, revenues from contracts where Claranet acts as an agent should be recognized on a net basis. Therefore, the €216 million of Claranet gross revenues of 2024 under the Portuguese GAAP must now be consolidated for €130 million of net revenues. It’s a 40% adjustment, but only for consolidation purposes. Following the update on Claranet Portugal, we will now briefly review the quarterly results and then open for Q&A. The main highlights for this quarter are strong operational performance with RGU trend significantly improving quarter on quarter, consolidated top line revenues growing year on year, and EBIT increasing faster than revenues with AI and transformation programs progressing well.

Operational performance, CapEx reduction, and working capital improvement are pushing recurring free cash flow and a solid balance sheet with leverage below reference level despite the acquisition of Claranet Portugal and the dividend payment. A quick overview on our main KPIs: revenues increased by 3.2% and EBITDA rose 5.9%. This positive performance along with a CapEx reduction of -2% led to improved EBITDA minus CapEx of 22%. Recurring free cash flow, excluding extraordinary income related to legal procedures and Cellnex tower sale, increased 8.8% and net income, also excluding non-recurring activities, grew 16% reflecting a solid operational performance. On the operational performance side, this was another strong quarter of fiber to the home expansion. Over 5.9 million households are now covered by NGB6 network with the FTTH representing 86% of the households passed. This is a significant increase of 78,000 households quarter on quarter and 313,000 year on year.

Despite the challenging competitive market, NOS strong offers and commercial capabilities delivered a very strong second quarter with a 2% increase to 10.7 million RGUs with almost 58,000 net adds. This quarter not only represented a significant improvement compared to the previous quarter, but also exceeded the results of the second quarter. On unique fixed assets, we increased almost 2% to 1.5 million. The second quarter showed some new dynamics as net adds recovered to 8.3% driven by lower levels of churn, a competitive WOO offers and naked broadband that is gaining momentum and changing the mix of new customers. With 46 net adds in the quarter, mobile increased 3.3% year on year reflecting a stronger performance both in postpaid and in prepaid. Postpaid had 16,116 net additions posting very strong results above the previous Q4 driven by WOO and NOS initiatives in app and cross sell.

Prepaid net additions decreased by 70,000 in this quarter, but this not only represents a recovery from Q1 but also exceeds the results of last year. In summary, a solid operational performance and a strong recovery from the previous quarter now moving to audiovisuals and cinema business. A later Easter holiday and three strong releases led to a 44% increase in cinema ticket sales in the second quarter. The audiovisual segment also performed strongly driven by Lilo and Stitch and Mission Impossible and we had five audiovisual films ranked in the top 10 this quarter boosting NOS performance. On the financial performance side, NOS consolidated revenues increased by 3.2% year on year to €458 million driven by the resilient performance of the telco segment and the robust growth of audiovisuals and cinema divisions.

Telco revenues rose by 2.3% primarily due to the strong growth in the B2B sector which posted a 9.6% increase supported by healthy growth in recurring services of 6% along with a significant rise of resale. The B2C segment experienced a slight decline of 0.3% indicating early signs of deceleration due to increased competition impacting ARPU. Despite stronger operational activity, the new IT business showed a small decline of 0.8% mainly driven by a reduction in the volatile resale of equipment and licenses. However, this was almost fully offset by a solid 10% growth in IT services. IT net revenues accounted for €49.3 million while the gross revenues accounted for €77.9 million. The audiovisual and cinema division reported strong growth levels increasing by 31% year on year driven by a 44% increase in cinema attendance supported by a strong lineup of movies.

NOS operational performance and the solid results of NOS transformation programs supported on GenAI driven efficiency program continue to deliver a solid 5.9% EBITDA increase, significantly above revenues, with a robust contribution from telco, IT, and media segments, which recorded increases of 4.2%, 18.8%, and 34% respectively. At the same time, NOS CapEx decreased 2% to $91.7 million, driven by a 3.6% reduction in customer related investments and by a 2.3% decrease in base CapEx expansion. CapEx, however, saw an exceptional increase this quarter driven by a temporary peak in NOS FTTH projects. IT CapEx increased by $0.4 million to $1.7 million, driven by customer related investments to support business growth and audiovisuals and cinema. Media CapEx declined 20% to $4.2 million, reflecting a return to a more normal spending level.

As a result, improved operational performance and efficient CapEx management drove a 22% increase in EBITDA minus CapEx consolidated net income. Net income declined by 28% to $58 million, primarily due to fewer positive extraordinary effects in second quarter 2025 compared to the same period last year. These effects included a tower sale to Cellnex and gains from legal procedures, which resulted in a net impact of -$30.5 million. This quarter, however, recurring net income increased by 16% to $57.4 million, mainly driven by a strong EBITDA growth, lower depreciations and amortizations, and reduced financial costs. This performance was achieved despite the $15 million decline in non-current income, mainly driven by an interconnection favorable court decision during second quarter 2024.

Very similar reality in free cash flow, debt declined by 72% to $38 million, primarily due to a -$102 million in extraordinary effects related to the tower sale and gains from legal procedure, which positively impacted by almost $83 million in second quarter 2024. However, this quarter, these effects have a negative impact on additional $23 million in taxes. Despite this, a strong operational performance, lower investment, and the reduction in working capital contributed to a 9% year on year increase in recurring free cash flow even after accounting for higher tax paid. Finally, this quarter NOS debt increased to $1,145 million, primarily due to the Claranet Portugal acquisition and the dividend payment. Despite this increase, the company maintains a conservative financial leverage ratio of 1.7, well below the reference threshold of 2 times.

Additionally, NOS benefits from a lower average cost of debt now below 3%, representing a decrease of 0.3% quarter on quarter and 1.1% year on year, reflecting the lower interest rates. As of end of March, the company held €278 million in cash and liquidity. With this, we conclude our presentation and we are now ready to answer to your questions.

Conference Moderator: Thank you. To ask a question, you will need to press Star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press Star one and one again. Our first question comes from the line of Molly Whitcomb from Goldman Sachs. Please go ahead. Your line is open.

Hi, thank you for taking my questions. I have a couple please. Firstly, I was wondering if you could give us a little bit more color on the competitive environment that you’re seeing in consumer, particularly with DG, in terms of pricing and promotional incremental differences versus last quarter. My second question is how should we think about the capacity for further OpEx efficiencies and synergies at Claranet Portugal? Are there any one-off integration costs that we should think about in the coming quarters or one-off CapEx amounts that we should incorporate? Thank you.

Miguel Almeida, CEO, NOS: Okay, thank you very much. Miguel Almeida here. What concerns the competitive environment? We have to be aware of the context. We have since November last year a new player in the market that has entered the market with heavy discounts compared with the prices that were in place at the time. This is the context. When we look at the dynamics, taking into consideration that this is the context, we are quite happy with the dynamics. You can see from the operational numbers that we are actually posting this quarter positive net adds, and I think that tells you a lot about the churn we are having in the company. We have seen from a trend point of view the second quarter of this year in terms of operationals was actually better than the first quarter. Things are progressing in the right direction.

Overall, we are very well given the context, I would say happy with our performance and how things are evolving. In terms of synergies or integration costs from Claranet Portugal, we will not have any integration costs. Not concerned. Synergies is not our priority. Our priority, as Manuel Ioannis mentioned, is to grow the business. We have a significant ambition in terms of growth and that’s where our focus will be. I wouldn’t expect any costs and not much from synergies also.

Understood. Thank you very much.

Conference Moderator: Thank you. We’ll now move on to our next question. Our next question comes from the line of AJ Soni from JP Morgan. Please go ahead. Your line is open.

Hi guys. Thanks for taking my questions. I had a couple. The first is around your net adds, which obviously were pretty strong this quarter. I just wanted if you give us a bit of color on what portion of those mobile net adds and fixed RGUs are coming from your second brand versus your first brand. My second question is around your native broadband. What’s the main difference here? You mentioned it’s a bit of a growth area for you, so a bit more detail around that would be helpful. Thank you.

Miguel Almeida, CEO, NOS: Okay, thank you. In terms of weights, if we take gross adds as the metric, Woo is still, even though it’s closed, it’s still below 10% in terms of wireline RGUs. Of course, as you can imagine, if we were talking about net adds, this weight is obviously bigger than that. In terms of acquisition, it has been more or less stable, around slightly less than 10% of our gross adds.

CFO, NOS: Martian.

Miguel Almeida, CEO, NOS: What concerns Naked Broadband? I’m not sure where your curiosity is. We have Naked Broadband offers in both brands, so in WU and NOS, at significantly different prices, and we believe also at significantly different customer experiences. It’s consistent with the overall positioning of both brands. In both cases, it’s Naked Broadband, but what we are offering customers is different, and what we are charging customers is also significantly different. It’s almost twice as much at NOS than WU.

Okay, understood. Thank you.

Conference Moderator: Thank you. We’ll now move on to our next question. Our next question comes from the line of José Koch Ferreira from CaixaBank. Please go ahead. Your line is open.

Hi, good morning gentlemen. Just a question on the transformation program. Could you detail the expected savings from this program? How much out of them have already materialized? If you could also explain the amount of provision which are linked to this program, how much out of them have been already provisioned?

CFO, NOS: Okay, so about the transformation program, it’s not easy to know the exact number that has already been achieved. We believe that for the year we have done already about 50% of the transformation that we expected. This is a long term transformation program that we expect to continue to bring the efficiencies for a long time.

Miguel Almeida, CEO, NOS: Yeah, you have different, very different things under this umbrella, all with the same objective of efficiency. We believe that we will keep expanding our EBITDA margin for quite some time, meaning that we are far from over in our initiatives. To give you an example, in what concerns GenAI, the benefits of implementing company wide GenAI are just coming in. We believe that it will increase significantly over the next few quarters. We are talking about always recurrent costs that we are taking away from the company. We are very optimistic in what concerns margin expansion coming from this transformation program, coming from efficiencies which, as I mentioned, have very different shapes and forms but are far from being exhausted.

Okay, just for the question, could you indicate out of the improvement in EBITDA reported in this second quarter, how much out of it would stem from this transformation program?

Everything that doesn’t come from top line is coming from this transformation program because on the other side you have inflation, you have salary inflation, you have different areas of inflation. The way to achieve this 6% growth in EBITDA this quarter is coming basically from the cost structure that is this quarter lower than it was one year ago. Most of it, actually more than 100% of it, is coming from this transformation program. Okay, thank you very much.

Conference Moderator: Thank you. We’ll now move on to our next question. Our next question comes from the line of Antonio Celados from AS Independent Research. Please go ahead. Your line is open.

Hi, good afternoon. I have two questions. First one is to price evolution. According to your metrics, blended prices are coming down by around 1% on consumers. Is this something that we can expect for the coming quarters? You mentioned that you are happy with the results. I guess that you were thinking.

Manuel Ioannis, EXCOMM Member B2B, NOS: About.

Tougher pressure on prices. I don’t know if you can comment on this. Second question is related to your division. I don’t know if you mentioned about growing the business. I guess that you are expecting some synergies on the revenue side. I don’t know if you can share with us what kind of synergies are you expecting. Thank you very much.

Miguel Almeida, CEO, NOS: Thank you. I’m not sure that I fully got the question on prices, but we don’t expect prices to evolve in any direction, up or down, in the coming months. We don’t see space for that. Again, I stress this in either direction, up or down. When you look at our revenues, B2C revenues this quarter, I think it’s important to understand that we have three main impacts that drove the revenues on the quarter down from the same quarter last year. Two of those impacts are one offs, so you cannot extrapolate from that. The three impacts are basically the fact that this year we didn’t do the price increase linked to inflation, which is a one off. If we had done that, obviously we would be discussing today year-on-year growth in terms of B2C revenues. I stress this is one off. It doesn’t mean anything concerning the future.

The second one off was the fact that we had new regulation concerning off bundled data, and that has again a one off impact. This was end of last year, it’s a one off impact, and if not for that we would be growing revenues again. The third one, the one that is not one off, is the fact that given the mix of our products we are experiencing some price erosion, which will continue to materialize in the sense that we keep having today some weight coming from our digital brand Wu, which has lower prices and as such brings our ARPU down. Basically, this is the dynamic, but most of the impact is coming from two one offs and cannot be extrapolated. The third one, obviously, we are expecting to be around for quite some time.

Manuel Ioannis, EXCOMM Member B2B, NOS: Regarding B2B. We believe that there are three sources of revenue synergies. First of all, we have a full breadth of IT services coverage to help businesses form their digital transformation. This wider breadth put into a combined sales force will give us added revenue potential. The second is that we have a wider coverage. Claranet did not cover the full market, not in enterprise and not in the mid market, and telco does. We believe that this added market coverage will produce added results. The third is that we have basically doubled our scale in key practices. Double scale means double maturity and means more competitiveness and an aggregated value proposition. We believe that this combination will give us a higher success rate in the businesses that we have in our deal flow. We believe that this combination will produce a much better result.

Okay, thank you very much.

Conference Moderator: Thank you. We’ll now move on to our next question. Our next question comes from the line of Mathieu Robillard from Barclays. Please go ahead. Your line is open.

Good afternoon and thank you for the presentation. I had two questions, please. First, in terms of the price increase that you did not do and that one of your competitors actually did increase prices, I was wondering if that had any impact in terms of the portability numbers between you and that operator. Positively, I would expect. If you can comment on that, that would be interesting. Second, on the IT division, you flag the very strong growth potential of that division. I was wondering if you could give a bit more color on the data center and cloud business. A number of companies in Europe have sold their data centers. I think you have kept yours.

If you can confirm that and also if you could give a sense of who are the main players and maybe even what is your capacity when expressed in megawatt hours, that would be very interesting. Thank you.

Miguel Almeida, CEO, NOS: Thank you. You’re right. One of our competitors did increase prices beginning of this year. I’m not in a position to know what exactly happened with them. What we can see in terms of portabilities, as you asked from us to them, or vice versa, we didn’t see any relevant change. In terms of market dynamics, I cannot say that we witnessed any kind of impact driven by that price increase.

Manuel Ioannis, EXCOMM Member B2B, NOS: Regarding the data center business, we believe that the data center business is, depending on which scale you look at it, it can be still a big opportunity. What we’re seeing is that there is some move back to operate a cloud and to on prem out from the cloud, given some bad surprises that some customers had on cloud costs. Now the pressure to drive IT efficiency has driven some of them back. The second is the sovereign issue, which makes public customers that still haven’t had their problems fully solved in cloud environments build or share local environments in the cloud. We believe that there is still room to grow in the cloud, in the data center business.

We also are ready for that growth in the sense that we can grow still three times our current capacity with the assets that we have and the assets that we acquired with Claranet Portugal. We’re confident that we’re still able to help customers in their hybrid environments do whatever movements they feel are more appropriate to their strategy. We believe that we have a role to play in that service area.

Can you give any color in terms of what kind of capacity you have, or you’re not disclosing that?

I wouldn’t like to disclose that, but what I can tell you is that we can still grow three times without changing our asset structure.

Thank you very much.

Thank you.

Conference Moderator: Thank you. There are no further questions at this time, so I’ll hand the call back to Pedro Cota Dias, Head of Investor Relations, for closing remarks.

Pedro Cota Dias, Head of Investor Relations, NOS: Okay, thanks. Please get in touch if you have any questions or follow ups. Thanks for tuning in and we hope to see you after summer for the third quarter results.

Miguel Almeida, CEO, NOS: Goodbye.

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