Oi SA em Recuperacao Judicial

OTC:OIBZQ

Earnings Call Analysis

Oi's Tough Q3 Mitigated by Fiber and ICT Growth

Oi experienced a challenging Q3 marked by significant legacy business deterioration, leading to a 12% revenue decline for new Oi and 3.4% for Oi ex-legacy. However, fiber revenues counteracted this downward trend with a 6% increase, albeit growth was suppressed by a tougher market. A strict acquisition policy ensured profitable customer additions while maintaining a healthy ARPU trend. ICT growth in B2B was robust at 24%, bolstered by segments like cloud, cybersecurity, and SD-WAN, which recorded substantial growth rates of 174%, 30%, and 28% respectively. OpEx plus CapEx savings reduced by 7% year-over-year, and a headcount cut of 6,000 employees contributed to a 10.1% decrease in personnel expenses.

Transition to a New Operating Model with a Focus on Long-Term Sustainability

The company has been robustly implementing a new model with the intention to provide cleaner and more standardized annual comparisons. After a series of extraordinary operations, the focus has shifted to rigorous financial discipline and transparency. The ongoing transformation is expected to result in initial declines due to the structural changes and a drop in legacy business revenues. However, the business is positioned to suffer through these changes to achieve long-term viability which rests on a triple strategy: debt restructuring, resolution of regulatory disputes, and the establishment of a client-centric digital services model aimed at both B2C and B2B sectors.

Challenges in Q3 Accompanied by Core Business Growth Amidst a Difficult Financial Landscape

The company faced a tough quarter in Q3, with its core segment of fiber and B2B ICT continuing to grow in spite of challenging circumstances. The decline in legacy revenues, which now only account for 10% of total revenues, was a significant contributor to a tough quarter. The company has maintained a focus on operational efficiency, and even within this difficult quarter, the fiber business displayed a growth of 6% year-over-year, in line with a revenue run rate projection close to BRL 4.5 billion for 2023. This was complemented by a stable number of homes connected and a moderate ARPU trend. The ICT revenues, a core growth engine, soared by 24% year-over-year, indicating a robust and improving market penetration.

Operational Efficiency and Cost Reductions

The company's focus on efficiency led to significant expenditure savings. Despite inflationary pressures, OpEx remained stable, which was attributed to cost savings in personnel and services. A noteworthy development was the reduction of recurring personnel expenses by 10.1%, resulting from a substantial reduction of 6,000 employees. Rental and insurance expenses grew, mainly due to the fiber network expansion, which, despite increasing OpEx, significantly cut down on CapEx intensity. This change in business model has ultimately had a net positive impact on the company’s financials.

EBITDA Suffers but Future Margin Improvement Anticipated

The company’s EBITDA took a hit, recording a negative routine EBITDA of BRL 331 million. This was primarily due to an increased drag from legacy operations and a slower growth rate in core revenues. However, there was a silver lining with a non-routine positive impact of BRL 712 million, primarily attributed to mobile cost adjustments and the sale of towers. As the company transitions to its fiber operations, an improvement in margins is projected for the future.

Capital Expenditures and Cash Position

Capital expenditures for Q3 were reported at BRL 201 million, which is expected to be the standard moving forward as the company has transitioned to a CapEx-light business model. As for liquidity, the company's cash position held steady at BRL 2.5 billion, bolstered by the tower sales which significantly contributed to the noncore cash result of BRL 6,782 million, ensuring financial stability during a period of strategic transitions.

Earnings Call Transcript 2023-Q3

[Operator]

[Audio Gap] with simultaneous translation in Portuguese. Please be informed that this conference is being recorded, and it will be available later on the company's Investor Relations website. [Operator Instructions]. Now I'll hand over to Mr. Rodrigo Abreu, Oi's CEO. Please Rodrigo, you can proceed.

[Rodrigo de Abreu, executive]

Thank you. Good morning, everybody. Welcome to our Q3 2023 call. Again, I have here with me our CFO, Cristiane Barretto, who will present details on our financial results as part of our presentation. As usual, we will cover the results for the quarter and also continue to provide other status updates about our judicial recovery process and all of the activities involved in our restructuring. Q3 Is likely the first quarter where we go back to a cleaner annual comparison after the closing of all of the extraordinary operations last year. And we are again presenting our numbers and core metrics in a very standardized way to allow for the appropriate comparisons and the assessment of our performance. The new Oi model is still being implemented and ramping up as we have mentioned many times before. And we are in the middle of the natural transformation. We always mentioned our business would suffer, in particular, due to the new structural separation model and due to the significant decline of our legacy business revenues and results, as highlighted many times before. I will continue emphasizing every single time that the 3 key pillars for OE to be viable in the long term and get back to being a sustainable company. are the financial debt restructuring. The resolution of all of the concession disputes we have with the regulatory agency and the associated legacy imbalances. And finally, ramping up our new operating model as a client-centric digital services company, both in B2C and B2B. So let's start looking at the key figures and results for Q3, which again showed mildly positive results in maintaining growth in the core, but continue to present a significant deterioration of our legacy business, greatly impacting overall results. Let's look at the highlights of Q3 by moving to Slide 3. Q3 was, without a question, a tough quarter as our core segment of fiber and B2B ICT continued to grow. Although the revenue evolution was impacted by B2B telco revenues and the macro scenario. On the OpEx plus CapEx front, we had a reduction on year-over-year metrics as we will see. Our legacy revenues now represents only 10% of overall revenues, and the ex legacy [ new way ] revenues were impacted by the wholesale and had a small decline of minus 3.4%. But the fiber continued to grow even in the tough quarter at the clip of plus 6% year-over-year as our homes connections compared to last year grew, maintaining a good ARPU trend. On the B2B front, the ICT revenues had a healthy growth again. But the overall revenues were impacted by the wholesale components, which had a seasonally poor quarter. On the efficiency front, the focus continued to be the OpEx plus CapEx savings. And this had a new reduction of 7% year-over-year or 19% if we exclude the network rental component, with naturally [indiscernible], given the new structural separation model and we expect these components to keep growing in line with the growth of the customer base and core fiber revenues. On the next slide, we provide a more detailed view on revenues. In Q3, the new oil revenues continue to be impacted by the legacy drop and wholesale revenues, as I mentioned. And this was only partially compensated by the sustained fiber and ICT growth. On the consolidated net revenues, our core results are now over 80% of new oil revenues, while legacy drops to less than 10% of total. The remaining 11% represents, as we mentioned before, the DTH revenues, which shrunk this quarter 15% year-over-year and also contributed to an overall revenue decline of minus 12% for the new Oi or minus 3.4% for any Oi ex legacy. On the ex legacy revenues, we can see that the revenue from subsidiaries, in particular, [indiscernible] had a significant decline given the lower volume of activity down on the installation of new homes. And this was also one of the contributors to the minus 3% overall drop on new Oi ex legacy. On the other hand, the fiber growth continue to occur, not enough to completely offset the decline in the other components. Oi fiber revenues now represents close to 60% of overall new Oi ex legacy revenues. On Slide 5, we can further analyze our fiber results. On fiber, our revenues grew 6% year-over-year, and this was influenced both by our continuation of the increase in our customer base compared to last year, but also by a fiber market slowdown. The ARPU is improving sequentially, driven by higher average speed of gross adds of plus 17% year-over-year and a higher quality focus. The year-over-year growth continues healthy, but both the annual and the sequential growth were a little bit smaller than in the past given a tougher market environment and competition. but we continue in line to a run rate of close to BRL 4.5 billion in fiber revenues for the year 2023. In Q3, our Homes Connected number remains stable with a very minor drop given our new focus on quality and a much, much stricter acquisition policy that we have been implementing to avoid churn, and to guarantee just profitable revenue coming into the new ads. But even with the slowdown, the ARPU grew sequentially, and this was driven by the increasing average speeds of our new ads, which are now already above 435 megabits per second. V.tal also had a continuation of the growth in the Homes fast base and is now over 22 million homes covered, reinforcing its role as the key neutral network in Brazil as can be seen by the continuation of signature of new tenants this time with the legal telecom as a new tenant of the FTTH network. To further understand the evolution of our homes connected base, let's now move to Slide 6. Q3 was a quarter here where we felt the most impact of a tougher macro and competitive scenario. And in order to continue pursuing profitable growth we have been completely transforming our commercial strategy on both the portfolio pricing and the channel mix tons. The market as a whole has experienced a slowdown in new net adds, as we can see by the graph. And our regions of strength actually suffered more than the average, resulting in the slowdown of net adds to a very, very minor minus 30 net add result for Q3. But we remain focused on customer experience and fiber access as a headline for future improvement. And we can see the result of that according to recent surveys. Oi fiber customers are the most satisfied fiber customers amongst the major operators. And then we also have the lowest level of complaints amongst the major operators in the high-speed broadband services. As I mentioned, for 2023, we have completely revised our commercial strategy, but results take some months to gain traction, and we're seeing this happen. Some lead indicators such as the new portfolio adoption, the churn reduction and the improvement on the channel capillarity are already visible. And we expect [ this to be too much ] better results towards the end of the year with a good entry into 2024. On Slide 7, we can also have a quick look of what's going on with the B2B results from Oi solutions. On B2B, the ICT revenues were up 24% year-over-year. and remain the core growth engine of [ Oi solutions ], representing 26% of revenues, a 6 percentage point increase year-over-year and helping to reduce the effect of the volatility in wholesale contracts that we experienced in the past quarter. The ICT penetration keeps improving, while other legacy B2B revenues declining importance compared to the past. The driving forces of ICT include cloud, cyber security and SD-WAN revenues, which were all up at very significant growth numbers of plus 174% plus 30% and plus 28%. And with this, our B2B customer base has remained very loyal with a great penetration and a very high percentage of recurring long-term business, and Oi [ solutions ] covers now 80% of Brazil's largest corporations. Now let me turn over to our CFO, Cristiane Barretto, who will detail the results on OpEx, EBITDA, CapEx and liquidity. Chris?

[Cristiane Sales, executive]

Thank you, Rodrigo, and good morning to all of you. Moving to Slide 8, we show that OpEx, excluding rent or insurance remains stable as efficiencies in personal to [ antibody ] services alleviated inflation pressure. Total OpEx increased mainly because of the accumulated AC growth since the change in the fiber business model, which increases expense due to fiber network leasing but reduced significantly CapEx intensity with a positive net result. On the right-hand side of the slide, you can see that recurring personnel expenses fell 10.1% year-over-year, totaling BRL [ 430 million ] in the third quarter of 2023. Oi achieved such relevant decrease with a head count reduction of 6,000 employees in the period, resulting from the continuous effort to adjust the structure for a new way to a lighter and more agile company. Meanwhile, Solid Power Services dropped 8.3% year-over-year with content acquisition dropping 19% due to regalizations and because of the decrease in the customer base to the customer base. G&A expenses fell 15% as many efficiency initiatives move forward, offset by an increase in IT expense, mainly related to the change release strategy of outsourcing. Rental and insurance expenses, on the other hand, grew 21.6% year-over-year due to accumulated fiber network expenses linked to an increasing base of homes connected in addition to the adjustment of inflation for the period. It is worth noting that although our efficiency measures have already shown positive outcomes or still has a great room to improve its cost profile. We had many projects underway directed to simplification of process and acceleration of efficiency for every cost line of the company, initiatives such as digitalization of marketing and customer experience improvement of organizational structure, network decommission and efficiency in G&A will surely contribute for better margins in the long term. Now turning to Slide 9. We present Oi's EBITDA and CapEx evolution for the third quarter. Reported EBITDA reached BRL 381 million, followed the settlement of the mobile arbitration and sales of [ towers ], where routine EBITDA totaling minus BRL 331 million, given the acceleration of the legacy drag and slower growth of core revenues during this quarter. It is important to mention that in this quarter, we had a non-routine totaling BRL 712 million relates to the positive impact of the recognition of the mobile [ cost ] adjustment and the tower sales results offset by the dilution of Oi's stakes EBITDA already expected and communicated in the closing of the operation in June 2022. Such results reflect the transition phase of our fiber operations, and we expect to improve margins in the future as the operation gradual increases its scale diluted [ fix-it ] cost and additional cost reduction initiatives continues to be implemented. Moving to the right-hand side of the slide, we showed that CapEx posted at BRL 201 million in the third quarter, corresponding to around 8% of sales, reducing 2.4 percentage points when compared to the second quarter. This level of CapEx shall be the norm for the company moving forward. And Oi shifted to a CapEx-light business operation and in line with the discipline in smart CapEx allocation focused on promoting growth. Moving to Slide 10. Our cash position remained stable at BRL 2.5 billion. In this quarter, we had a noncore cash result of [ BRL 6,782 million ], mainly related to the cash in of the tower sales in the amount of BRL 905 million in the regular payment of the transactions at [ Anatel ]. This noncore impact compensated the already expected cash consumption of the operation in the third quarter, explained by the legacy drag and while we invest to gain scale in the new fiber model. In addition, I would like also to point that the UK mobile pros adjustment settlement mentioned in the previous slides, even though it was recognized in the EBITDA in the third quarter of 2023, this will impact our cash position of all this quarter since the cash occurred in October. In the debt side, I would like to emphasize that the growth in this quarter year-over-year considers the first tranche of the deep financing, the accrual for regular interest increased by the nonpaid interest related to the bond and sales as a result of the process of negotiation with [ Quadros ] in line with the reduced recovery, offset partly by depreciation of the [ AIs ] in the period. Thank you very much. Now I'll hand over back to Rodrigo.

[Rodrigo de Abreu, executive]

Thank you, Cris. So now moving on to the next slide and heading to the end of our presentation. Before the status on our key topics, we also have our quick updates on ESG with continued new milestones on all fronts. On the environmental front, the key highlight here is the increase of our energy efficiency and our emissions as we received the [ Silver seal ] from the Brazilian GHG Protocol program. On the [ Astrans ], we had new milestones in culture, education and [ DNA ]. In particular, those with the reaching of the milestone of 100,000 visitors on the [ Futuro's Cultural Center ] that this evolving [ PHG ] program, which won the representativeness category of the diversity in practice 2023 awards by Blended and the launch of [ Pluto ] Voices, a program to turn employees into ambassadors for diversity and inclusion. And on the governance front, we follow with our model of both simplifying and streamlining our internal controls, making them more efficient and at the same time, more robust. So now to close our updates, let's provide a status on the 3 key transformation pillars and what to expect for each of them on the next two slides. On our first and foremost strategic initiative at this time, we had several updates concerning our restructuring efforts. As you saw from many of our recent material facts, we had the notification of prepayment intention with the current DIP financing holders and the agreement with the new debt financing to repay the current dip and provide additional liquidity. We disclosed the unilateral termination by Sky, all the negotiations for the DTH TV customer base. And with that, we are also taking all the appropriate steps to address the DTH business as planned and to secure our rights in connection with the previous process. We reached the post-closing agreements with the mobile Trio after the sale of the mobile operations, granting a cash in of [ BRL 821 ] million in October and settling all of the disputes with the buyers as we had anticipated that we were trying to do in a consensual negotiation rather than moving on with the arbitration. We closed the tower sale transaction with [ Highline ] contributing to the company's cash balance with an influx of $905 million. We signed a copper scrap deal as part of the efforts to restructure our future obligations, reducing then the [ LTLA ] obligations for the future. And we also have negotiations with color nonfinancial creditors ongoing. We began the market selling process with the help of financial advisers to assess our strategic alternatives involving the monetization of [ client co ]. In addition, obviously, to the analysis that have been in doing with Vita as well. And this has been defined as an important part of the future value of the company. And we continue the negotiations with the main creditors group which are still ongoing based on a revised proposal for the [ GR ] plan, which is in discussion. As our key immediate next steps, we plan to widen the usage of restricted tower sale cash up from Anatel to allow for payments relate the concession services. As you remember, those funds were initially restricted by Anatel, and now we are now discussing and close to obtain the approval to use those funds in the concession expenses. We also expect to reach the precedent conditions to receive the new debt financing and repay completely the previously financing facility. And we expect to conclude the final GR negotiations and discussion for presentation by the end of the year. So we can then move to an approval as soon as practical in a new creditors general meeting to be convened by the company's judicial reorganization forward. Moving on to our final slide, Slide 13. We can then look at the next two pillars of the concession resolution and the operational buildup. On the concession updates, the key advancement was the opening of the formal admission by TCU of the consensual agreement process. All TCU Minister approved the admission and the regular meetings of the group have started to occur in October, including TCU, AGU, Anatel, the Ministry of Communications and obviously, the company. The expectation is now for this agreement to be discussed and reached in the next 90 plus 30 days, which is the formal deadline that the consensus group has to finalize its works. And on the operating front, the challenges and execution focus remain the same, both on maintaining growth in the core and reducing costs everywhere else. It's worth highlighting the new deep dive on reducing costs with the help of an external team who is working with us continues to be one of the key activities that we do to simplify and streamline the company moving forward. We also expect to continue the evaluation of the strategic alternatives to optimize the DTH TV business with -- in the light of [ Sky's ] unilateral decision to exit from the DTH deal and to continue pursuing the profitable growth and the scaling of our fiber model. In summary, we know Q3 was a tough quarter in terms of many of the year results, but we're also able to advance very critical topics, such as the settlement with the mobile buyers, the agreement process with TCU and Anatel, the closing of the fixed towers and the continuation of our restructuring efforts with our creditors, which led renewed and improved [ dip ] support as we finalize now, the final touches on our GR plan until the end of the year. As usual, the entire company remains committed to complying with everything that we propose and set out to do. Thank you very much, and I believe we can now move on to the Q&A part of our call.

[Operator]

[Operator Instructions] So our first question comes from Mr. Leonardo Olmos, sell-side analysts in UBS.

[Leonardo Olmos, analyst]

So my question is related to the agreement with V.tal for the users of network. I know, of course, you cannot disclose many details. But can you talk about how this agreement has evolved in the last years for Oi in terms of costs, what types of adjustments you had to make to improve profitability for Oi as a client of V.tal, this is the first part of the question. The second part of the question is related to an eventual sale of [ Oi client co ], how willing is Vital to change that contract what could be a potential request of acquirers of related to change in the contract with V.tal, what type of things could change there? Anything -- I know you cannot give details, but anything will be much appreciated.

[Rodrigo de Abreu, executive]

Thank you, Leonardo. On your two questions, first, addressing the agreement with V.tal. Before we dive into the question, we have to remember that, obviously, our agreement with V.tal is a multifaceted agreement because it's at the same time, an agreement that represents part of an M&A transaction. So there are components which came from the M&A transaction, which obviously had to include some guarantees in terms of an investor who is pouring a significant amount of funds into purchasing and infrastructure based on the results that this infrastructure is expected to generate in the current contracts we have with them. And then there's obviously the natural daily commercial topics that appear on a regular relationship between infrastructure provider and consumer of this infrastructure as a renter of this infrastructure, right? As far as the first one, obviously, there are certain components of the agreement, which are natural, which were highlighted in this close when the whole transaction was approved and disclosed back last year. And then they continue to be tweet here and there to actually better reflect the operating nature of the agreements over time, such as how to calculate the minimum usage requirements that we have, how to calculate for what are the granularity of calculation of how we occupy the network insurance of our minimum occupation requirements and things like that, and this continues to evolve. On the other front, on the commercial agreements, obviously, this is based on a natural relationship between provider and clients. And this includes discussing what do we do with the price readjustments every single year. As you know, every single contract has price readjustment conditions that eventually can be renegotiated, can be alleviated or can be maintained and compensated in the next period. And this is one of the areas where we have been discussing. Obviously, we did have some price increases as part of our contract. And I believe this shows as part of our rental increase, rental expense increase that Cris highlighted in her part of the presentation. But we also have interesting things that have been done with V.tal over the last year, such as creating new portfolio offers for specific areas. So we have been launching specific portfolio offers for specific areas, which go away from the original agreements, which were more well defined with pretty much a single view of our portfolio pricing, and now we have been launching different offers with either lower or higher speeds than the base fees. And obviously, with the significant discounts for the higher speed and a more attractive pricing for the lower speeds as well, and so this has been done. We also have been discussing how to increase the efficiency of the installation and how to obviously agree on the expansion of the network, which also brings to us impact in terms of the minimum occupation that we must have in the future. So all of those discussions on a commercial front pretty much happen every single day Leonardo. And there's just a natural relationship between, again, as I mentioned, provider and clients. We expect, obviously, that we will be able to always be as close as possible to market conditions because V.tal Indian has to be a neutral network player and obviously, as we have certain protections in our contracts in terms of the [ MFN ] clauses and things that are obviously -- we inserted so not to keep the contract an unbalanced for us compared to other players. We expect that those contracts will naturally converge to market pricing conditions. While this happens, obviously, it's a natural discussion every single day, but many things have changed since the original agreement, as I mentioned, in particular, new portfolio pricing, new speeds more speeds, increased speeds compared to the base fee that we had at the beginning of the process without any price increase compared to what we had before. And expansion areas, discussions every single day, okay? So this is the first part of the question. I mean it's -- again, as you mentioned, we cannot provide all of the details given that we have competitive information as part of it. but discussions have been occurring pretty much every single day with V.tal. On your second question, the eventual sale of [ Client Group. ] First, let me just take something over the table when I know that in many cases, people are asking, given that we announced with a material fact that we had hired financial advisers to assess the market and restand the value of our clients as part of our discussions of the JR plan going forward. Let me remind you that even in our first version of the plan that we presented at the beginning of the year, we always had several components of value for the company in the future, remembering that we must have a way of actually both reducing our debt and then being able to pay our adapt with results from the operational results of the company going forward, but also with the results coming from asset sales, in particular, we've always mentioned that the V.tal would be an asset to be sold in the future to take care of that. And in our first version of the plan that we presented at the beginning of the year, we had included the sale of a percentage of our clients go in order to face some of the debt reduction obligations in the future. So obviously, we understand that this was part of the game plan for the future. In terms of what would happen with this eventual sale, as we discussed and we announced in the material fact, we know that we must assess the market, and we hired advisers exactly to do that. We know that, as I mentioned in response to your first question, the overall relationship with V.tal should convert to pretty much market conditions and market pricing and in a natural relationship between a neutral network player and clients. And we also know that as part of the first set of conditions that we have with V.tal, which came from the M&A components, some of those might be discussed or will have to be discussed between potential buyers, potential interested parties and V.tal and I believe that this is just a natural as it happens, okay? So I mean, I don't see any impediment for what we're doing here just because of the relationship we have with V.tal. Obviously, it's something that will have to be discussed in the future. But our whole process of assessing the market comes exactly to understand what are the critical points that we must address in the future, what is the -- what are the ranges of valuation that we can have when considering this as a part of the overall assets of the company to take care of that in the long term. And it's just natural that this is going to occur during this process that we have running right now.

[Operator]

I will now hand it over to Luis Plaster, IR Director, for questions from the audience.

[Luis Plaster, executive]

Okay. Thank you. So as usual, we now move to Portuguese where we focus on the questions received on the platform in Portuguese, and we will answer them in Portuguese. [Interpreted] So with the first question we received here came from Daniel Graziano from R2C Investments. And he is asking about what will happen with our stake in V.tal until 2025. If we can give any projections on the company's performance and what can happen until 2025? And how this participation can advance. So if you can tell us a bit more about that.

[Rodrigo de Abreu, executive]

[Interpreted] Yes. So as I said during my answer to Leonardo, the agreement that we had with V.tal and our -- this entire process was made public. So there are some conditions in the contract that allows some changes in this stake in the future depending on a few effects. Some of them are natural, so future capital increases. We had an event after closing the agreement with [ CPTD ] in our participation, our stake in the fund and also with V.tal's future performance according to some of the agreements laid out in the contract. So these metrics were natural to protect investors as they have an expectation based on the seller case, but the future metrics, of course, can't be determined beforehand. We still have some time until the end of 2024 to assess how these metrics will be complied with. So we can't say in advance how much it would be diluted by the end of 2024, if it would be. There is a possibility. This is a part of the contract, and this is provided for the contract and all of our plans in our restructuring plan as we've communicated to the market Obviously, we can take more extreme or more conservative positions to calculate this, and you can also have an average position. So it's hard to predict because these are metrics that will be based on V.tal's performance and not Oi's performance. So we have to wait and see what's going to happen to their performance over time.

[Luis Plaster, executive]

[Interpreted] Thank you. We've also received several questions about the rent and insurance side. So I'll take one question. So [ Clel ] cloud hits from [ PF ] says that since this line went up from 12.7% to [ BRL 1.1 billion ] and with the number of connected households has not grown either. How can this explain an increase in cost? And where are the most favorable conditions for oil in fiber contracts?

[Rodrigo de Abreu, executive]

[Interpreted] Okay. So this line includes transmission contracts, which is done with V.tal and some other items. An important impact that affected this quarter was a readjustment in inflation during this period. It was applied in June and July, and it had a bigger impact than the previous quarter. So this line reflects the growth in houses connected and B2B in our client base, not only in that month. We also have the cost of new client acquisition and also that deferral on contracts for past periods. So this is based on a prior history, and it's not necessarily connected to the quarter itself. This is an accounting model where we allocate costs to different months throughout this period, besides inflation, as I've also mentioned. There's also an important impact of the B2B and wholesale contracts that is not directly connected to the fiber business.

[Luis Plaster, executive]

[Interpreted] Thank you, Cris. I have a question here from the platform. And this question is from [ Alessandro Cavalcanti Gonsalves ]. It's for Rodrigo. So what is your intention to sell client co? Is it a partial sale? Will it only be -- will it be or the entire client base? So if you could give us some more details on the company's intentions there?

[Rodrigo de Abreu, executive]

[Interpreted] As I've said in the answer I gave to Leonardo during the Q&A session in English, when we had our first version of the plan that was communicated to the market in the beginning of the year, we had already foreseen that on the long term, the company would need to for its normal operation. And for the possibility of making it cover cost of debt after negotiations, the company would need to have nonorganic movements, including selling stakes in V.tal in the future. And a part of [ client go ] as we saw in the plan that was published in early 2023. Since we are adapting this plan with all the changes that happened to the market and since we need to adapt this is something that is sustainable for the company long term, our contracting of advisers was due to this understanding of what our stake would be at client. So we don't have a definition on what kind of sales would be, what size. But of course, thinking strategically you can't -- it wouldn't make sense to sell some of our base because this is a business that depends on scale, and it depends on growth which has been taking place, although, as we highlighted during the presentation, Q3 has been a quarter in which growth has not been so slow. There's been some decrease that can be disregarded, but basically, the base has remained stable. So when we consider this process of selling ClientCo, I mean this needs to be based on market analysis, which is what we're doing right now with our financial advisers. And they are going to tell us what is the potential valuation of this size 0of this part of our business for the future. So these definitions don't exist yet. They are being discussed. There are several scenarios being created. But beforehand, we understand that our stake or our client operation. It is significant. It's one of the biggest fiber operations in Brazil, and it will definitely help us in the future to meet our obligations to pay debt and to create a sustainable organization to really normalize the company's status.

[Luis Plaster, executive]

[Interpreted] Thank you, Rodrigo. We also received many questions about our churn for Oi and how it's been advancing and how it stacks up to the rest of the industry and there was a lot about expectations. So we talked about a new strategy focused on quality. And what is the company's expectations on the evolution of churn or the number of homes connected?

[Rodrigo de Abreu, executive]

[Interpreted] Great. So as you know, we have many companies that are public, right? Major operators and some ESPs that became public companies, and no one really gives their churn in detail because this is one of the most competitive metrics among companies. What we have seen is that obviously. At first, with the sequence of growth that we see in the market and with a deterioration of the macro environment, we've seen churn levels increase significantly at the end of last year. These levels obviously have required us to review our strategy. We've seen a general reduction in the market, and you can see that the total market growth is still positive as someone highlighted in 1 of the questions but growth reduced significantly for all players in the market. And this was due to not only a macro total, but also a reduction in churn and some defaulting. We are relatively impacted by our work and our geography in general. We have a very robust base. As was said, it has over 4 million clients. It's the second biggest in the country, but we have a geographic share that is basically in areas where we have a higher churn due to client defaults. So the most important thing for churn in our strategy, and we've changed our acquisition strategy recently. So this is due to this change in results. Our goal is to have better quality acquisition. It's not hard to have higher acquisition. But obviously, when you do it, you reduce the quality of that acquisition since that's going to become churn in the immediate future. So we really focused on improving quality for our acquisition. With that, the number of net adds has gone down. but it's gone down in a good way, and we're bringing in clients who have an expectation of having positive returns. Of course, that can't be the only explanation, and that's why I mentioned in my presentation that one of the company's main focuses from the end of the first quarter has been a change in commercial strategy, and that implies changes in the portfolio with regional portfolios, right? In that question about V.tal, we've talked about how we're creating a portfolio that will have different characteristics and different pricing for different regions. So regions that are more susceptible to this kind of offer. Changing our portfolio is important to change the quality of our acquisition and even to make sure that our churn will reduce. We've made some changes in our credit analysis to prevent clients who have low quality from coming in. And at the same time, we're also increasing our capillarity for channels. But we're doing it differently with larger channels and also emphasizing our own digital channels. Looking at churn trends, although we don't publish specific numbers, they have gone down. This has been a sequence of quarters where the churn has gone down, and it continues to go down during the third quarter. We believe we will see a much better aligned churn, although we're working in areas that have a higher chart. So churn will go down. And connected to that, we have to remember a couple of other things. Obviously, we've also had portfolios for higher quality clients, not only clients with higher speeds. So we're trying to include clients with higher consumption patterns with new offers like [indiscernible] so our aim is to bring in clients who have more quality and high availability funds. So we see that, for example, clients in Oi [ shoes ] have lower churn levels. So we're also working on this side on consumption. Finally, it's worth reminding you that our NPS is quite high. Our NPS in comparison to other major operators, I would say, is probably a benchmark for Oi Fibra. And this is the most important element for us so that we can make our long-term churn drop. But many things affect our short-term churn. So for example, credit policies, pricing policies, but at the end of the day, this will all depend on the quality of the service we provide. So we've been focusing on having high-quality services. There are some studies, in fact, from some agencies that measure network quality, and they show that [ Oi FIBRA ] is the best in the country and several of the metrics used and this reflects -- this is reflected in our NPS. So churn will tend to go down. We know that it has to, and all of our initiatives in the company are aligned to make sure that it does.

[Luis Plaster, executive]

[Interpreted] Great. Thank you, Rodrigo. So I'm looking at the platform, and I think we were able to answer all of the questions that were asked. Many of them are repeated, but those were the main ones. So I'll pass it over to you. And Cris, if you'd like to -- any final messages to the market.

[Rodrigo de Abreu, executive]

[Interpreted] Thank you, Louise, and thank you, everyone. We know that there's still a lot that can happen. There's still a lot of work to do. We have some things to be done in the restructuring front. I give you some updates on that. With negotiations with creditors, and looking at the company's strategy, there's a front with Anatel and TCU, and we're very confident that we'll be able to have a good result with it, and it's absolutely essential for the company to be viable. So we've made some great advances in the last months there. In the most crucial phase of the negotiation with TCU, Anatel and AGU and obviously, the operational front, meaning strategic changes, a reduction in costs, new offers, reducing the impact of the legacy. And this is a new front that we didn't even give you many details on, but there are many initiatives there to reduce the company's cost. And what we expect is to present a plan that can really be viable for the company across all of its fronts. Costs, restructuring and paying future debts, valuing our assets and in the operational front to expand our results. So thank you, everyone, and we'll speak during the next call. As a reminder, the Investor Relations team is always available to answer the questions you sent us throughout this time. Thank you.

[Operator]

Thank you very much. We're just about to end the conference call for Q3 of 2023. And for more information, do not hesitate to access www.oi.com.br/ri please, you're free to disconnect now.