Good morning, everyone. Welcome to NOS third quarter results conference call. We will follow the usual format, so our CFO, Luís, will guide you through a short presentation, and after that, we open for Q&A. Over to you, Luís.
Well, thank you, Pedro. Good morning to all, and welcome to NOS third quarter conference call. We will begin as usual with the main highlights of this quarter. A solid revenue growth led by outstanding IT and cinema, more than offsetting a slight Telco decline, mainly driven by the wholesale business. EBITDA growth despite some margin compression driven by higher resale and strong energy costs, and operational cash flow leveraged by top-line growth and structurally lower CapEx. Free cash flow significantly boosted by non-recurring items. As usual, a quick overview on our main KPIs. During third quarter, consolidated revenues grew 5.1% to EUR 480.6 million, and EBITDA rose 1.3% to EUR 225.6 million. This EBITDA growth, combined with CapEx reduction of 8.4%, led to an improved EBITDA AL minus CapEx of EUR 109 million, a growth of 12.5%. Free cash flow, excluding non-recurring items, grew 11.6% to almost EUR 80 million.
Including non-recurring items, mainly higher litigation proceeds and tax devolution, total free cash flow increased 108% to EUR 106 million. Net income increased 35.6% to EUR 88 million, reflecting solid operational performance and D&A positive contribution. As usual, we will discuss each of these metrics in more detail throughout the presentation. NOS mobile network has once again been recognized as the best in Portugal by DECO PROteste for the second consecutive year. NOS was recognized for the best overall performance and the best balance between speed and browsing quality, ranking first in both download and upload speed. This recognition further reinforces NOS position as Portugal's leading mobile network. Our scale program continues to Scale AI across NOS. This quarter's highlight is our new multi-agent conversational GenAI solution, which we have just deployed across both chat and voice channels.
The GenAI chat solution in the NOS app is available 24/7 and covers a wide range of topics such as billing, balance, portfolio, and PIN codes. It already handles over 50,000 interactions per month with more than 85% correct answers. The conversational GenAI voice solution replaces the IVR menu. Customers simply explain their issue in natural language, while behind the scenes, an orchestrated agent identifies their intent and hands it over to the right specialized agent, which answers autonomously. When a customer needs a human, the solution detects and transfers the call to the best team. It already handles over 20,000 calls per month with a deflection rate of over 50% and a 15% improvement in customer satisfaction. Together, these solutions mark a major step forward in NOS AI-driven transformation with a meaningful impact on both operational efficiency and customer experience.
On the operational performance side, more than 6.3 million households are now covered by NOS next-generation fixed network, with FTTH representing almost 93% of the households passed. During the quarter, NOS added 88,000 new homes in the next-generation network and 139,000 new FTTH homes, maintaining strong rollout momentum. This third quarter was marked by strong net adds across all segments, with a positive performance in mobile driven by summer season. Total RGUs increased by 111,000, with mobile RGUs growing almost 112,000, and fixed RGUs adding 14,000, a significant improvement versus the previous quarter. In fixed, unique accesses increased by 7.9 thousand, recovering the trend after a weakened second quarter. Despite the very competitive market dynamics, the quarter has been strong both on TV bundles and standalone offers. Churn remains at low levels, reflecting the strength of NOS customer base and its competitive positioning.
Mobile delivered again a strong quarter with 112,000 net adds, bringing total mobile RGUs to almost 5.9 million. Performance was driven by both postpaid and notably prepaid, supported by the summer season and strong demand from tourists. Postpaid grew by 63,000, reflecting resilience in value-added service and convergent customer momentum. Performance is broadly in line with previous quarters, though below third quarter 2025, as our current offer strategy, which massified unlimited mobile data allowances, has reduced the summer seasonality effect on standalone broadband. Mobile prepaid increased by 49,000, a positive reversal driven by higher SIM card activations and tourist demand during the summer months. In summary, a strong operational performance driven by resilient postpaid and a positive prepaid seasonality. Moving to audiovisuals and cinema.
Cinema tickets sales grew 44% year on year, reaching almost 2.8 million tickets, with August setting an all-time record of 1.3 million tickets on the back of "Spider-Man" and "The Odyssey." NOS Audiovisuais distributed two of top five movies and five of top 10 movies in Portugal. NOS Cinemas continues to invest to provide a unique customer experience in Portugal, and during the quarter obtained the Infinity Vision certification, a Disney certification for sound and image quality standards. NOS consolidated revenues increased a solid 5.1% to EUR 481 million in this third quarter, driven by an outstanding growth in IT and audiovisuals and cinema, partially offset by a slight decline in Telco. Telco revenues fell 0.3%, mainly due to a 14% decline in wholesale. As in previous quarters, this reflects a change to a wholesale model that no longer records revenues and costs. B2C revenues were stable year on year.
Competitive pressure on WOO growing share of NOS customer base continues to more than offset the annual price increase, although this negative impact is narrowing quarter on quarter. This third quarter, however, a strong rise in seasonal revenues, namely premium channels and tourist mobile revenues, kept B2C revenues flat. B2B revenues grew 4% to EUR 80 million, maintaining the growth path of previous periods, reflecting a higher volume of projects and resale activity. IT revenues grew 39% to EUR 59 million, maintaining driven by a solid 5% growth in services and an outstanding 137% increase in the volatile equipment and licenses business unit. The audiovisuals and cinema division posted strong revenue growth of 37% to EUR 35 million, driven by the exceptional cinema performance discussed above.
Therefore, NOS EBITDA grew 1.3% to EUR 226 million, while the consolidated EBITDA margin decreased 1.8 percentage points to 46.9%, reflecting a revenue mix effect from higher resale and equipment revenues, as well as higher energy costs, which were not fully offset by efficiencies from our transformation program. Telco EBITDA declined -1% to EUR 203 million, with a margin reduction of 0.4, driven by a strong increase of B2B projects and resale with lower margins and higher energy unitary costs. IT EBITDA increased 24% to EUR 7 million, but with a margin reduction of 1.5, driven by the outstanding increase in the lower margin equipment and licenses business unit. Audiovisuals and cinema EBITDA grew 32.5% to EUR 16 million. Finally, consolidated EBITDA AL increased 2.3% year-on-year, driven by a 4% reduction in our leasing. NOS CapEx continues its structural declining trend.
In this third quarter, total CapEx, excluding leasing, dropped 50.8% to EUR 84 million. Telco CapEx declined 9.6%, driven by a 17% reduction in technical CapEx, impacted by higher percentage of FTTH deployment rolled out over third-party networks, thereby reducing our expansion CapEx. IT CapEx, always more volatile, decreased 35% with lower customer CapEx in the quarter. Audiovisuals and cinema CapEx increased 24%, mainly driven by the opening of a new cinema complex. As a result, improved operational performance and lower CapEx drove a 12% increase in EBITDA minus CapEx, reaching EUR 109 million. Net income grew almost 36% to EUR 88 million, driven by an EBITDA contribution of EUR 2.9 million, D&A improvement of 13.7, mainly reflecting structurally lower CapEx and a negative one-off in the third quarter 2025, and also a EUR 2.8 million improvement in net financial results, as well as a EUR 3.6 million contribution from joint ventures.
Recurring free cash flow grew 11.6% to EUR 79 million. Operating cash flow improved by EUR 2.3 million, as the EBITDA AL minus CapEx growth of EUR 12 million was partially offset by a negative working capital impact of EUR 9.8 million as a result of normal fluctuations in payment to providers. Interest payouts contributed positively by EUR 0.4 million, driven by lower average debt, and income taxes paid added a further EUR 4 million to free cash flow, reflecting higher payments on accounts in third quarter 2025. Non-recurring items improved by EUR 47 million versus the third quarter 2025, mainly due to higher non-recurring taxes paid in last year and to higher cash in from legal proceedings, and obviously also by positive impact from non-recurring taxes in this third quarter, bringing total free cash flow to EUR 106 million, an increase of 108% year-on-year.
At the close of the third quarter, NOS net financial debt declined to EUR 975 million. Consequently, the financial leverage ratio improved to 1.4, comfortably below our reference level of 2x . NOS average cost of debt increased to 3.1, reflecting the higher interest rate environment. With this, we conclude our presentation, and we are now ready to answer your questions.
Thank you so much. Dear participants, as a reminder, if you wish to ask a question, please press star, one on your telephone keypad and wait for your name to be announced. To withdraw a question, please press star, one, and one again. Please allow our compere to queue in the roster. This will take a few moments. Now we'll move to our first question. It comes from the line of Molly Whitcomb from Goldman Sachs. Your line is open. Please ask your question.
Hi, good morning. Thank you for taking my questions. I have a couple, please. Firstly, just on CapEx, you talked about how CapEx is trending downwards. It's come down again in Q3. Just a little bit of color on if we can extrapolate this into the next quarter and into the next year, and how we should think about more mid-term CapEx given the current trends. A little bit of color on that would be great. Secondly, just looking at the margin pressure in Telco, a little bit of color on that would be good as well, please. Clearly, this quarter, the cost savings have not managed to offset other pressures. So, just maybe, do you expect this to change going forward? Do you think there's still enough capacity on the cost-cutting side to offset pressures in Q4 and into next year?
A little bit of information on how you see that trending would be great. Thank you.
Okay, thank you very much for your question. Good morning. We expect CapEx to continue to decline. I think a good proxy to see what's coming ahead is to look at year-on-year decline over these nine months. So, we expect that decline to be also You can see that on the full-year results. Going forward, obviously, the rate of decline is not possible to maintain since this year we already had the decline driven by a lower expansion CapEx. Still, what we expect, and our main focus will continue to be in free cash flow, and we expect CapEx to continue to trend down, even if at a lower rate. In terms of margin, EBITDA margin in Telco, you have a number of effects here.
In terms of top line, as we have been discussing in previous conference calls, we don't see our digital brand in terms of gross adds increasing its weight, so it's stable. But what that means is that when you look at the customer base, the weight of the low-cost digital brand is increasing at a stable pace. It's not accelerating, but it's not also going away, which means that in terms of overall ARPU, it's still under pressure, and it will continue to be under pressure. Again, we don't expect this trend to accelerate or to go away. In terms of costs, what happens, we still have efficiencies plugging in, and these efficiencies are mitigating the fact that a lot of costs are going up. You have things going up by a lot, like memory chips or fiber cables or energy or gasoline.
We have a number of items that are going up considerably. Despite that, with efficiencies, we have been mitigating those price, those cost increase. Going forward, again, it's not that we don't have efficiencies going forward. We believe we have, and we will deliver them. But we don't see this inflation, these costs of these items or other items driven by inflation, we don't see that going away. So, going forward, we'll still have some pressure on costs, and that will offset the efficiencies that we are delivering.
Very clear. Thank you very much.
Thank you. Now we're going to take our next question. The question comes from the line of Antonio Rodríguez Vicens from JB Capital. Your line is open. Please ask your question.
Yeah. Hello. Good morning. Thank you for taking my question. I wanted to go back to this EBITDA decline in the Telco division. In the last quarter, you were mentioning that it was expected to keep growing, and still it is declining. You mentioned some increase in OpEx, in some parts of the OpEx. Basically, I wanted to know first, what came as a surprise in this quarter in order for EBITDA to actually come down, given that, well, business revenues were accelerating, wholesale revenues were declining by the same EUR 4 million than the previous quarter. So, what came as a surprise in the first place? In the second place, just a clarification on your previous answer. You mentioned that the pressure that you expect to remain on costs is likely to offset the efficiencies that you are finding.
Assuming the same pressure on the top line, do you think that the net effect will mean that in the next two quarters, the EBITDA will come down again? Do you expect to more than offset the pressure on top line in such a way that the EBITDA will manage to increase in the next couple of quarters, year-on-year? Thank you very much.
Well, thank you for your question. I wouldn't say that we were surprised by the numbers. It's true that the top line went We were surprised by the top line increase, but this was mainly driven by low-margin items like resale of equipment and licenses, and handsets, mobile handsets. So we didn't see that increase in terms of service revenues or the more recurrent revenues, which have the higher margin. We didn't see any decline that we were not expecting. So, as I mentioned in the previous answer, the trends are very stable. To be clear, this means that they're not accelerating and they're not going away. So, I wouldn't say that we were surprised. What was, if anything, is surprising, going back a few months, is the level of inflation that we have in some items, some of those I already mentioned.
Just to give you an example, in terms of memory chips, the price increase is over 60% or 70%, which is quite considerable. You have other items like energy in this quarter. The main surprise came from energy costs, which were considerably higher than in the first half of the year. Not going away from your question, in terms of guidance, as you know, we don't give guidance. But I think it's fair to expect that these trends will continue. We don't see, again, and let me be very clear, we don't see these trends accelerating, but also we have to be realistic. We don't see these trends going away. So, I think it's fair to expect these kind of trends to continue going forward.
Okay, very clear. Thank you very much. Just a clarification on one point. Do you have a rough number on the percentage of OpEx that comes from energy in your case, in Telco?
Around 4%.
Fantastic. Thank you very much.
Thank you. Now we are going to take our next question, and it comes from the line of Ajay Soni from JPMorgan. Your line is open. Please ask your question.
Hi, guys. Thanks for taking the question. I have two. The first is on the consumer side, but I am trying to get a sense of what portion of your customer base is within your lower-value digital brands. I think you have said it is stepping up, so if you could give that percentage, that would be good, or maybe even the year-over-year increase, if you cannot give the actual percentage. Then with these customers, are they mainly down trading from NOS's main brand, or are they coming externally? So that is the first one. The second one was just around, I think there was a bit of a tailwind from the closing of the RRF program. I just wanted to understand where exactly that tailwind came. Was that in Telco B2B, or was that mainly the IT equipment and licenses revenues, which grew 100+%?
Are you expecting that to become a tail, sorry, a headwind as we go into the coming quarters as that RRF program has completed? Thank you.
I will start with that. Thank you for your question. I will start with the second question. There was a tailwind coming from those programs, both in IT and Telco B2B. It was quite clear in the third quarter top-line results. It is not that we will face headwinds going forward. It is just that we will not have that tailwind going forward. So, there are other programs that will replace this. They will take some time to pick up. So again, the tailwind is not going to be there, but I would not say that there are headwinds. In terms of B2C, I understand your question, and it is a fair question, but for commercial reasons, we would rather not answer and not say how much, what is the percentage, the weight of the digital brand in the total customer base of NOS. Sorry for that.
That is fine. Could you give us maybe a sense of what the percentage increase is year-over-year within the digital brands?
No, sorry. What I can tell you, again, going back to the previous answers, it's stable in terms of gross add weight. Obviously, it has less churn than the main brand, so in terms of net adds, it has some impact, which means that it has some impact in terms of the overall customer base, consequently on the overall ARPU. But I wouldn't be too concerned in the sense that this is not accelerating, which is good news. Obviously, there is the bad news that it's not going away. But by now, I think most of you, and probably also us, would be expecting, were expecting this trend to accelerate, which is not happening. That's very good news.
Thanks. Very clear.
Thank you. Now we're going to take our next question. The question comes line of Fernando Cordero from Banco Santander. Your line is open. Please ask your question.
Hello. Good morning, and thanks for taking my, footprint performance . In that sense, it keeps growing, and I would like to understand at which extent-
Sorry to interrupt you.
Yes.
The question, could you repeat it, please?
Yes. Yes. Can you hear me right now better?
Yes, we can hear you now.
Okay. Okay. Thank you very much. The first question related with the footprint expansion. You continue to expand your addressable market, and in that sense, I would like to understand at which extent this also related with the potential opportunity that you may have with increased penetration of fixed broadband services in second residences in Portugal. In that sense, just to first to understand where do you see the, let's say, the maximum number of homes passed, and at which extent are you already facing this opportunity of increased penetration in second residence, particularly in fixed broadband in Portugal? Second point is also a question related with churn, and you have already said that you are in minimums of churns, but also at the same time, you're increasing the volumes of handset sales.
Also, trying to understand at which extent you would be willing to start using handsets as an additional element to manage the churn in that sense, just to understand which are your thoughts on that point. Finally, and this is just a minor one, just willing to understand on top of the typical seasonality, what has been the reason behind the strong growth in prepaid mobile during the third quarter? If we take back to the third quarter last year, there hasn't been such seasonality, but it happened that year. Just to understand if there is any reason for that. Many thanks.
Thank you, Fernando. I'm afraid that starting with the last question, I'm afraid we don't have a good answer. It is very much pushed by tourism. I would love to have a good answer, but we don't see, in terms of what is the Portuguese consumer, we don't see significant material changes in behavior. But in the summer, as you know, there's some seasonality. There are a lot of tourists buying prepaid SIM cards, which when they leave, are going to the trash. But I don't have a very intelligent and a good answer to your question. In terms of handsets and doing something with handsets, if I understand correctly, your question is something around subsidies in handsets to help prevent churn. If that is the question, there are no plans whatsoever from our side to subsidize handsets in B2C.
In B2B, we always had handset subsidies, but it's not something, it's not a variable that we want to increase at all. That is not our plans for sure in the coming future. In terms of footprint expansion, well, we are expanding to some regions where the incumbent had a monopoly. We're talking here not only second homes, but also main homes. We don't see the second homes as a huge potential, to be honest. We don't have that many second homes in our country, and we were already covering that with DTH and where we didn't have fiber. It's not something that we see as a significant opportunity.
Very clear. Many thanks, Luís.
Thank you. Now we are going to take our next question. The question comes line of António Seladas from AS Independent Research. Your line is open. Please ask your question.
Hi, good morning. Thank you for taking my questions. I have three. First one is just a clarification on your EBITDA margin on Telco. I understood that this trend to continue and this trend, reduction on margin about 30 or 40 basis points year-on-year. That is what I understood from your words, if you can confirm. Second question is on consumer revenues. In fact, your speech is not very optimistic. Nevertheless, they were just flat year-on-year. I think it is the first quarter this year that they were flat. They were negative before. I do not know if you want to comment on this. Last question is on spectrum. There were several comments from your competitors on spectrum, on the price in the last few weeks. I do not know if you also want to comment on this. Thank you very much.
I can start with that last question. You saw comments from our competitors. I think we were the most vocal about the spectrum process that is going on. We were quite vocal around that and the regulator positions. Look, the spectrum that we have is going to be renewed, most of it for 15 years and part of it for six, seven years. That is what is in the- It is not a decision, it is a likely probable decision. I do not know what is the technical name. Even if the final decision goes according to this probable decision, I think what is important to stress is that the spectrum will be renewed.
Obviously, we don't agree with this renewal of spectrum in the sense that, according to the European Union, the recommendations from the European Commission, spectrum should be renewed at least for 40 years, and that is not the case in this process. That is not what the regulator is apparently willing to do. We don't agree with that. We think that to renew spectrum for six years is not enough. It never happened in the past, so we are fighting to make sure that this is renewed for a long term, as it is the recommendations from the European Union. In terms of customer revenues in Q3, there is a seasonality in Q3 which comes from the sales of handsets, and they were quite strong in the quarter, also driven by the new iPhone, and that helps overall B2C revenues.
In terms of more recurrent service revenues, the trends that you saw in the first half of the year remained in the third quarter. Maybe slightly better in terms of the decline was lower than in the first half, and this is what we expect moving forward, this is expected to happen in the near future. The first question was on
What was the question?
Tell.
What for?
I don't know if, again, that is very precise guidance which we are not able or willing to do. I can comment on overall trends. I think I already did. We don't see this trend getting any worse. We don't see this trend getting better in the short term.
Okay. Thank you very much.
Thank you. Dear speakers, we are now going to take our final question for today, and it comes from the line of Harrison Williams from Morgan Stanley. Your line is open. Please ask your question.
Hi, morning, everyone. Thanks for taking my questions. I wanted to ask on capital allocation. Again, this quarter you've seen CapEx continuing its structural decline, and clearly the balance sheet is very healthy. Just wanted to ask about how you think about use of that balance sheet headroom in terms of distributions versus I know you talked about some M&A, or further M&A potentially in the past. An update there would be useful. Secondly, I also wanted to ask on one of the discussion points in the sector at the moment, which is the risk of personal AI agents. Can you outline, I guess, how you perceive that threat, particularly in terms of spend-down risk, given some of the trends we've already discussed on this call? Thanks.
Well, again, starting with the last question, we don't see a particular threat coming from AI agents. We believe that our value proposition is competitive, and the AI agents will recognize that. We are working to make sure that that is the case. To be completely honest, I don't see AI agents having a significant role in terms of Telco operator choice in the near future. Maybe in the long term, but short term, I don't see agents having a significant role. Even if they have, we are aware of the meaning and importance of making sure that AI agents or AI in general look at us in a positive way when compared to our direct competitors. We'll keep working on that, and we believe we are confident and optimistic that we will be able to do it.
In terms of capital allocation, again, we are not expecting in the short term any significant M&A, at least material, in the sense that to be material, it should be in the Telco arena, and we don't see Telco M&A, Telco consolidation. We see it as something that will happen for sure, but it will not happen short term. So we don't see any significant M&A in the short, medium term. In terms of dividends, which I believe was, at the end of the day, the question, that's a decision for the board that will take place in February. It's true that we have some headroom in terms of balance sheet, but it's still too early to say how it will unfold.
That's helpful. Thank you.
Thank you. Dear speakers, there are no further questions for today. I would now like to hand the conference over to Pedro Dias, Head of IR, for any closing remarks.
Great. Thanks very much. Thank you, everyone, for joining, and we'll see you next time. Bye-bye.