Release Date: November 14, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Equatorial SA (EQUEY) successfully completed a capital increase of 2.5 billion BRL through private subscription, achieving 100% subscription in the first round.
• The company reported a significant growth in distributed energy, with a 6.7% increase compared to Q3 2023, driven by rising incomes and high temperatures.
• Adjusted EBITDA for the quarter increased by 16% year-over-year, reaching 2.9 billion BRL, primarily due to strong performance in the distribution segment.
• Equatorial SA (EQUEY) maintained a net debt to EBITDA ratio of 3.2 times, demonstrating effective financial management and leverage control.
• The company achieved a 12.6% growth in consolidated gross margin, with notable contributions from the distribution segment due to market growth and tariff increases.

Negative Points

• The acquisition of a 15% stake in Sabesp led to an increase in net debt by approximately 4.4 billion BRL, impacting the company's leverage.
• Investments decreased by 20% due to the startup of solar parks, which may affect future growth potential in renewable energy.
• The transmission segment experienced a 2.6% decline in adjusted regulatory EBITDA, although this was partially offset by adjustments for complementary ABC effects.
• There were constraints on wind farm generation, with a 36.2% impact on total generation due to restrictions imposed by the national system operator.
• The company faces challenges in the supply chain for transmission and distribution equipment, which could impact future CapEx execution and growth plans.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Signs with EQUEY.

Q: Can you discuss the execution of CapEx for the distribution business given the tight supply chain for equipment? A: (CEO) We have been in negotiations with suppliers to ensure we are preferred clients, which will help us meet our CapEx demand despite the tight supply chain.

Q: What is your view on curtailment going forward after the measures adopted by the ONS and ANEEL? A: (President of Ecogy) We expect a reduction in curtailment with new transmission lines and changes in mathematical modeling. However, we cannot yet quantify the reduction's impact on our portfolio.

Q: How do you view the concession renewal process, especially regarding the requirement to waive legal litigations? A: (Regulation Officer) The new contract is in line with expectations, but we will question the requirement to waive legal litigations. We need to understand this better and work on it in the coming months.

Q: What are your plans for future growth in the sanitation sector, and are you open to opportunities outside your current states? A: (M&A Officer) Sanitation is a priority sector. We intend to assess new opportunities and expand, meeting all requisites from the Sabesp deal. We remain open to opportunities beyond our current states.

Q: With the result expanding across distributors, does it make sense to accelerate the amortization of preferred shares of AUA? A: (CFO) We are always looking for opportunities to manage liabilities. Whenever it makes sense and we see value generation opportunities, we will pursue them.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.