Earnings call transcript: Nos SGPS SA reports Q1 2025 revenue growth

Nos SGPS SA reported a 4.5% increase in consolidated revenues to €421 million for Q1 2025, alongside a 4.3% rise in EBITDA. Despite these gains, net income fell by 13% to €59 million, aligning with InvestingPro analysts’ expectations of declining profits this year. The company’s stock price dropped 1.77% following the earnings release, closing at €3.60, down from its previous close of €3.67.

Key Takeaways

[Editor’s Note: InvestingPro data reveals that Nos SGPS maintains strong shareholder returns through consistent dividend payments, having maintained distributions for 22 consecutive years. Subscribers can access 8 additional exclusive ProTips and comprehensive valuation metrics.]

• Revenue increased by 4.5% to €421 million.
• EBITDA rose 4.3%, but net income declined by 13%.
• Free cash flow increased by 5.2% to €83 million.
• Stock price fell 1.77% post-earnings release.
• Continued investment in AI and digital transformation.

Company Performance

Nos SGPS SA demonstrated robust revenue growth in Q1 2025, driven by strong performances in its fiber and 5G network expansions. The company maintained a conservative financial leverage ratio of 1.5x and reported substantial free cash flow growth. However, a decline in net income highlighted challenges in profitability, potentially linked to increased operational expenses or competitive pressures.

Financial Highlights

• Revenue: €421 million, up 4.5% year-over-year.
• EBITDA: Increased 4.3%.
• Net income: Decreased 13% to €59 million.
• Free cash flow: Increased 5.2% to €83 million.
• Cash and liquidity: €352 million.

Market Reaction

Following the earnings release, Nos SGPS SA’s stock experienced a decline of 1.77%, closing at €3.60. This movement reflects investor concerns over the decline in net income despite revenue growth. While the stock remains within its 52-week range, with a high of €4.53 and a low of €3.24, it has shown resilience with a notable YTD return of 28.57% and a positive 6-month performance of 12.5%, according to InvestingPro data.

Outlook & Guidance

Looking ahead, Nos SGPS SA remains confident in its ability to achieve continued top-line growth. The company plans to focus on operational efficiency and further invest in AI and digital transformation. InvestingPro analysis indicates the company trades at an attractive valuation relative to its near-term earnings growth potential, with a strong free cash flow yield supporting its investment capabilities. [Access the comprehensive Pro Research Report for detailed valuation analysis and growth prospects.] However, management expressed caution regarding potential declines in ARPU (Average Revenue Per User) and emphasized the importance of expanding its fiber and 5G networks.

Executive Commentary

Luis Neu Chimient, CFO, stated, "We are scaling AI across its entire operation," highlighting the company’s commitment to technological advancement. Executive Miguel assured investors, "We are not seeing anyone disconnecting PayTV," indicating stability in that segment. He also mentioned, "We still have weapons to fight [ARPU decline]," underscoring the company’s strategic initiatives to manage revenue challenges.

Risks and Challenges

• Declining ARPU could impact revenue growth.
• Increased competition in the telecommunications sector.
• Potential cost pressures from ongoing network expansions.
• Market saturation in certain segments.
• Macroeconomic uncertainties affecting consumer spending.

Q&A

During the earnings call, analysts inquired about the competitive impact of new market entrants and strategies for maintaining ARPU. Nos SGPS SA clarified its stance on wholesale agreements, indicating no interest in pursuing them, and provided insights into the recurrence of B2B revenue, which remains a strong growth area for the company.

Full transcript - Nos SGPS SA (NOS) Q1 2025:

Pedro Cotterilles, Investor Relations, NOSH: Hello, everyone, and welcome to NOSH First Quarter twenty twenty five Results Presentation. I’m Pedro Cotterilles, Investor Relations. We have the full team full executive team with us in the room today. We’ll start with our CFO, Louis Neu Chimient, who will take you through a short presentation highlighting our main achievements and KPIs for the quarter. And then the team will be available to address any questions you may have in the Q and A.

Thanks for joining, and I’ll hand you over to Luis.

Luis Neu Chimient, CFO, NOSH: Good morning, and welcome to NOAH’s first quarter conference call. As usually, we will go briefly through the results of the quarter and then we’ll go into the Q and A. So we will begin with the three main highlights of the first quarter, the closing of Clarinet acquisition, a critical step to leverage NOS ICT and tech capabilities and to improve NOS value proposition. The second, a strong revenue growth, while accelerating our operational transformation based on AI solutions and digitalization and a healthy free cash flow generation from operations and structural lower investments. A quick view on the main KPIs.

Revenue increased by 4.5% and EBITDA rose 4.3. This positive performance, along with a CapEx reduction of minus 1.8%, led to improved EBITDA minus CapEx of 12% and a sustained free cash flow generation of 5.2%. Recurring free cash flow, excluding extraordinary income related to legal procedures and activity fees, grew 9.8%. Net income decreased 13%, but also excluding the non recurrent activity fees grew almost 21% reflecting a solid operational performance. Strategy update on Knowledge main priorities.

With another strong quarter of fiber to the home expansion, over 5,800,000 households are now covered by Knowledge gigabit fixed network with FTTH representing 84% of households passed. This is a significant increase of 63,000 households during first quarter and three eleven houses year on year. On the five g front, NOES demonstrates five g leadership in Portugal through its extensive network with almost 4.85 g stations, providing 9597% of population coverage. This robust infrastructure supports innovative initiatives such as the first five g standalone network in Portugal and the first five g voice over new radio call. On the innovation side, NOS maintained its leadership in Portuguese patent applications for the second year, filling 22 patents in 2024 covering AI technologies across several areas, reflecting our significant investment and focus in AI.

As we shared in previous quarters, ICT is a strategic pillar for NASH strategy built on a strong brand recognition, a large and diverse customer base, and proven capabilities. So Noche acquisition of Clarinet concluded this March is a key element in our strategic expansion into the fast growing ICT market. This inorganic growth strategy coupled with investment on Gen AI position NOSH for significant growth in the tech space and establishes NOSH as a key player in the tech sector. Just another comment on Clarinet. Clarinet acquisition was only concluded in the March.

Consequently, Clarinet’s assets and liabilities are already incorporated into the balance sheet for this period, but the income statement does not yet reflect Clarinet operating results as full consolidation will be implemented in the second quarter. About generative AI, NOS is scaling AI across its entire operation. Over 125 use cases have been identified across all areas, and 250 employees have already completed Gen AI training, but the program aims for 100% company wide AI adoption. In 2025, NOS scale program will implement six AI driven solutions, including service automation. I will give you an example on the chatbot, from Wu, which is designed to enhance customer interaction, but also to reduce interaction volume.

Scaling to operational performance sites, despite a challenging competitive landscape, NOS achieved a 1.8% year on year increase to almost 10.7 RGUs. This growth was driven by a 2% increase in fixed RGUs and a 3% increase in mobile. Unique fixed assets accesses increased almost 28,000 to 1,500,000, but first quarter showed some new dynamics. Net adds slowed down to 2.5 due to the increasing competition, and rule making Internet is gaining momentum, changing the mix of new customers. Mobile increased 145,000, but first quarter shows contrasting trends.

Postpaid net additions remained very resilient despite competition and posted very strong numbers. Prepaid debt additions operationally decreased by 85,000 in this first quarter with two main drivers, the typical quarter seasonality that accounts for 70% of the reduction, with the remaining 25% attributed to the new competitive dynamics, which are expected to persist in the following quarters. Now moving to cinemas and outdoor visual, a later Easter holiday that only began in April and several postponed movies releases led to a 4.2 decline in cinema tickets in this first quarter. But the outdoor visual segment performed strongly driven by MUFAZA, Sonic three, and Captain America, all top four movies in Portugal this quarter. In total, six out of visual films ranked in the top 10 this quarter boosting our performance.

On financial performance side, NOSH consolidated revenues grew 4.5% to EUR $421,000,000, driven by strong performance in both Telcos and Audios and Cinema segments. Telco revenues increased by 4.6%, primarily due to the strong growth in the B2B business that posted a 13% growth, supported by a health growth of recurring services across all segments and by a significant growth of €4,200,000 in resale. The B2C segment posted a 1.4% growth, showing first signs of deceleration driven by the competitive environment that impacted both operational activity and ARPU. The M and E segment also reported positive growth, increasing by 1.5% driven by auto visuals double digit growth and despite cinema decline. So NOS operational performance and generative AI efficiency program continued to deliver a 4.3 EBITA increase with a robust contribution both from Telco and Media segments, which recorded an increases of four point three and three point one.

NOSH CapEx, continues downward the downward trajectory, a decrease of 1,800,000.0 to €90,000,000 largely driven by a substantial 23% reduction in telco expansionary investment, reflecting the completion of our five gs rollout and the efficient FTTH expansion, leveraging third party networks and the Vodafone Group Agreement. The 6.4% increase in Baselight Telco CapEx is temporary, resulting from network licenses acquisitions that were accelerated in this first quarter. M and A CapEx fell 30% to EUR4 million, but reflects the return to a more normal spending levels after the first quarter twenty twenty four with higher investments caused by the Hollywood strikes in previous quarters. As a result, improved operational performance and efficient CapEx management drove 12.2% year on year increase in EBITDA minus CapEx, and consolidated net income fell 13% to EUR59 million, primarily due to the reduction of the extraordinary income related to legal procedures and activity fees that dropped from EUR22 million to EUR3.8 million this quarter. However, recurring net income grew by 21% to €55,000,000 mainly driven by a solid EBITDA growth, lower financial expenses in result of the reduction of interest rates and positive impacts from joint ventures, particularly a provision reversion on SPORT TV.

Very similar reality in free cash flow, with strong operating performance and lower investments, resulting in a 5.2% increase in free cash flow to EUR83 million, but excluding the non recurring activity fees, recurring free cash flow grew by 9.8%, driven by EBITDA growth, lower CapEx and lower financial expenses. Finally, NOS demonstrates strong financial health, maintaining a conservative financial leverage ratio of 1.5 times, well below the reference of two times that we have. The company also benefits from a lower average cost of debt, 3.3%, reflecting the favorable interest rate environment. As of March 31, Notch held €352,000,000 in cash and liquidity, so reflecting a very solid position. With this, we conclude our presentation, and we are now happy to answer to your questions.

Thank you.

Conference Moderator: Thank We will now take the first question from the line of Joao Pinto from JB Capital.

Joao Pinto, Analyst, JB Capital: I have three, if I may. The first one is on sales growth. Sorry. I have three, if I may. So the first one is on sales growth.

Telco sales increased 5% overall in the first quarter. Do you think is it possible to sustain this growth trend for the remaining quarters? This is, of course, excluding M and A. My second question in terms of margin, do you expect to reach flat EBITDA margin for the full year? Or do you see increasing risks from demand for low cost offers?

And my final question is on Clarinet. Now that the transaction is closed, can you provide us some color on your targets for these assets in terms of sales growth, normalized EBITDA margin and CapEx, it will be great. Many thanks.

Miguel, Executive, NOSH: Okay. Thank you very much for your questions. In terms of sustainability of this level of growth, I think two comments on that. First of all, part of this growth in the first quarter was driven by resale sales. So as you know, those have high volatility.

And as such, we cannot be sure that they will be coming regularly every quarter. They will come, obviously, but I cannot say that this will be at the same level of the first quarter. The second comment regarding the more recurrent business, We are very confident that on B2B, we will be able to continue to grow at the same level. On B2C, we will further see the impacts that were already mentioned in the presentation, but I would highlight a few. The first one is that this year, we didn’t do the usual inflation driven price increases.

Last year, we raised prices by four percent four point something %, if I remember well. 3%. Sorry? 4.3%. Four point three %.

And this year, as you know, there was no price increase. So that will have an impact, obviously. Then the second one is that in the new competitive dynamics, we significantly increased data allowances mobile data allowances to our customers, which means that mobile data revenues look sharper in the sense that the customers have more availability of data. And the final one, so these first two are they are already visible in the first quarter. The last one is more evolving, which is the fact that the mix of gross adds is changing in this new competitive environment.

Obviously, our discount brand is bringing customers, which means that the mix the ARPU suffers from the mix with an increased level of discount sales of gross adds. Having said this, I would also say that still today, the discount gross adds represent less than 10% of the overall gross adds. So we are confident that all in all, maybe not at this level because of the reasons I just mentioned, but we will be able to continue to evolve positively on top line. And for sure, going to the second question, on EBITA margins, because not only that, but also we continue to execute our transformation program, which will bring increased efficiency and will contribute to better EBITDA margins. Finally, on Clarinets.

You asked a few questions that I would call guidance for the future of Clarinets. As you know, we don’t usually give guidance. But, I would say that we will bring some more additional color on Clarinet on the second quarter as we are reporting the numbers from Clarinet, and we will elaborate a little bit more on that.

Joao Pinto, Analyst, JB Capital: Very clear. Many thanks.

Conference Moderator: Thank you. We will now take the next question from the line of Fernando Cordero from Banco Santander. Please go ahead.

Fernando Cordero, Analyst, Banco Santander: Hello. Good afternoon. Thanks for taking my two questions. And the first one is related with the sustained increase in in your footprint. In that sense, you’re increasing your footprint by 5.6% year on year.

That is almost or a little bit more than 300,000 new homes. In that sense, I would like to understand which is your commercial line, I mean, or your commercial success in these new areas. And I would just stand, let’s say, the the kind of penetration that you or market share that you are looking in these new areas. Should we assume that the increased footprint should be having similar, North market share that in in legacy areas, in two or three years’ time? And the second question is related with the comment that you have made on the increased demand from naked Internet, particularly in your in your discount brand.

In that sense, I would like to understand which is your winning from from this increased demand on on a on a on a on a naked Internet. And in that sense, I would just send the the particularly for new for the increased penetration of your services, which is then pay TV would be less relevant going forward. So in that sense, just to understand if the key service in your bundle is migrating from PayTV to Big Sur. Thank you.

Miguel, Executive, NOSH: Thank you, Oparna. On the first question, we are very happy with the commercial success on the new FTTH areas. But I don’t think it would be fair to expect that in a couple of years, we will reach the same level of market share we have on other areas for historical reasons. As you know, these are areas that only had one competitor, but the position of that competitor historically is very, very strong. So it will take certainly more than a couple of years to go up to the level of market share we have in other regions of the country.

But we are very happy with the pace that we are experiencing on those areas and the commercial success as a whole. In terms of the naked Internet, I think in summary, I would say that most of these naked Internet growth that this is additional market. So we are not seeing any movements, cord cutting movements. We are not seeing people disconnecting CTV at all. Zero.

So our reading is that the market is increasing this new competitive dynamic, and more people are coming, more homes are coming into the market. As you know, probably know, we have a lot of recent immigration to this country, a lot of new families established in the country. And maybe those, have a higher weight of naked, than the the the traditional Portuguese consumer. But, again, I’ll stress this. We are not seeing any anyone disconnecting PayTV, migrating from from triple play to naked Internet.

Fernando Cordero, Analyst, Banco Santander: Very clear. Many thanks, Miguel. Yeah.

Conference Moderator: Thank you. We will now take the next question from the line of AJ S. From JPMorgan. Please go ahead.

AJ S., Analyst, JPMorgan: Hi there. I’ve got three questions. The first is just around, the consumer gross ads. You mentioned, that your discount brand has run accounts around about 10% of the gross ads. I was wondering how that compares to what you saw during 2024 and whether there’s been a material step up in that.

Second question, which is slightly related, is how did your EBITDA margin differ, between your main brand and your second brand when you provided the service? And then the last one is just around the telco expansionary CapEx. Do you expect this to trend towards zero? And if so, when would you expect it to get to that number?

Miguel, Executive, NOSH: Okay. Thank you. In terms of the discount brand growth stats and the dynamics of that, yes, we are seeing it’s picking up. So we are seeing much higher numbers, much higher weight on the total number of COSAV than 2024. Still, even with this growth, as I mentioned, we are well below double digit numbers in terms of weight of the WOU brand, the discount brand.

It’s picking up, so it’s increasing. It’s weight on the total gross adds we are making. But even picking up, I don’t expect to ever reach, for example, 20%. I don’t think it will get to that level. It will be always below that.

So it’s material, but still a minor part of our commercial activity. In terms of margins, EBITDA margin at this level, we cannot I cannot give an intelligent answer in the sense that we have an integrated operation, so we don’t allocate every single cost to the discount. In terms of contribution margin, so direct costs and direct revenues, it has a slightly lower margin than the main brand because, first of all, as you know, the prices are lower. But also, you have to take this into consideration, acquisition costs are much, much lower. We are using mainly digital as an acquisition channel.

So with much, much lower costs than we have in the NOSH brand. We the in terms of customer equipments, be it set top box and those that have PayTV or the router, are different equipments, which for us are costs significantly less. So we have the cost structure adapted to the fact that we have lower revenues. And in terms of margin, it’s inferior, but it’s not that significant. Last question on CapEx.

Well, it’s never zero in the sense that there are always new construction appearing and we have to cover that new construction, so we call that expansion. It’s never zero. But in terms of five gs, it’s getting close to that. In terms of coverage, we have done 100% of our plan. We already covered more than 99% of the population.

In terms of FTTH, we still have expansion plans for this year, much less next year. And then as I mentioned, it will be basically new areas, new residential buildings that are built and we have to cover.

AJ S., Analyst, JPMorgan: That’s really helpful. And can I just ask a follow-up on the on your price on your ARPUs? So you kind of mentioned the headwinds from no price rises. You’ve got bigger data allowances, so less top ups. And then obviously, you’ve got this trend towards maybe more discount growth ads.

So what are you guys looking to do to support the ARPU? What measures are taking in turn which actually could which could actually hold these hold this ARPU growth to be a little bit stronger? Thank you.

Miguel, Executive, NOSH: Well, first of all, we are defending the NOSH, the main brand and the value proposition on the products or service of the main brand, increasing its attractiveness to our customers. So in the strategy, in the block of our strategy that we call counter offer, in the sense that we offer a different service, different experience to the discount brands, and we are having success there. So mainly making sure that in terms of weight of the gross adds and weight of the customer base, the main brand still dominates significantly. That’s the main objective. In terms of the second brand, again, we are trying to push for as many services per customer as possible.

So yes, we mentioned that we have a lot or a significant number of customers adopting only naked Internet, but still we have a significant part that subscribes to pay TV, Internet and mobile. So we are pushing the number of services, and that applies to the discount brands, and it applies also to the NOSH brand, where we still today increase the number of convergent customers and the number of mobile SIMs per unique customer. So we still have levers to counterattack to this, which will be a normal ARPU decline. We still have weapons to fight it, and we are fighting it.

AJ S., Analyst, JPMorgan: Okay, great. Thank you very much.

Conference Moderator: Thank you. We will now take the next question from the line of Roshan Ranjit from Deutsche Bank. Please go ahead.

Roshan Ranjit, Analyst, Deutsche Bank: Afternoon, everyone. I’ve got three questions, please. Firstly, on the 25%, I guess, competitive dynamics impact that you flagged in prepay. This has now been, I think, around six months since we’ve had the Digi launch. Is it possible to get a sense of how that impact has trended?

Has it been an increasing impact as the months have passed? Or did it start with a kind of big bang? We read about some quality issues initially, and this kind of trended down to a more normalized level. Any sense of how that has evolved over time will be extremely helpful, please. Secondly, on B2B, we saw another strong quarter on the low margin business.

I think through 2024, we saw a similar trend, and that business actually translated into a more recurring revenue stream. Is that something which we could expect going forward? And is that more within the kind of larger corporate segment or still within the SME bucket? And thirdly, in terms of wholesale agreements, you’ve previously been quite strong in your views in saying it’s not something which you want to go down. But as the as Digi continues to roll out fiber, progressively within Portugal, is this something which you may consider?

Or are you a bit more open to a discussion here? Thank you.

Miguel, Executive, NOSH: Thank you very much for your questions. In terms of, the trends and the momentum of the new player, the the scenario that we are seeing is the the the last that you mentioned. Basically, there was, some impact, some big bang on the entry. But after, I don’t know, maybe four or five weeks, what we have been seeing consistently is the momentum going down, and they are losing steam. And the recent recent weeks, that is, very clear.

So in terms of obviously, they’re still there. But in terms of dynamics, the trends, the impact is going down, not up, which obviously is good news from our side. In terms of B2B, you’re right. It’s now recurrent revenues, but they are becoming more and more recurrent. And, so they have volatility, but they will be coming they will be getting more and more recurrent going forward.

That we can expect. Finally, on those sale agreements, the straight answer is no. We are not considering any kind of agreements.

Roshan Ranjit, Analyst, Deutsche Bank: That’s great. Thank you.

Conference Moderator: Thank you. There are no further questions at this time. I would like to turn the conference back to Pedro Costadias, Head of IR, please.

Pedro Cotterilles, Investor Relations, NOSH: Okay. So thanks very much for tuning in. Please don’t hesitate to reach the IR team for any further questions or comments you may have. We’ll be back in July for second quarter twenty twenty five results presentation. So until then, thanks very much, and goodbye.

Conference Moderator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

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