Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Q2 Earnings Call Highlights

Key Points

• Revenue grew but profitability declined: Adjusted revenue rose 9.4% year over year, including EMAE, supported by tariff increases and customer additions. Adjusted EBITDA fell 2.3% to BRL 3.5 billion, while adjusted net income declined to BRL 1.2 billion amid higher costs, financial expenses and depreciation.
• Investment is accelerating: Year-to-date CapEx reached BRL 7.5 billion, up about 16%, with Sabesp targeting BRL 20 billion for 2026 and more than BRL 40 billion in contracted projects through 2029. The company expects to rely largely on debt in the near term as it expands universal sanitation coverage.
• Customer service and sanitation access are expanding: Sabesp is investing roughly BRL 800 million in commercial initiatives, including new service locations, staffing and call-center capacity, while nearly 2 million units now qualify for discounted social tariffs. Management also emphasized stronger safety controls as its workforce and construction footprint grow.

Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp NYSE: SBS reported second-quarter results marked by revenue growth, lower adjusted profitability and continued expansion of its investment program, while management emphasized customer-service upgrades, workplace safety and progress toward universal sanitation coverage.

Chief Financial Officer Daniel Szlak said adjusted net revenue, including the consolidation of EMAE, rose 9.4% year over year. Excluding EMAE, adjusted revenue increased 6.7%. The company said tariff adjustments and customer additions supported growth, though milder weather, changes in customer mix and implementation of an enterprise-resource-planning system affected quarterly performance.

Water production totaled 779 million cubic meters during the quarter, down 4.3% from a year earlier. Szlak attributed the reduction to milder weather and nighttime pressure-management measures implemented by SP Águas for roughly 10 hours a day during the quarter to strengthen system resilience. Sabesp ended the period with 9.5 million water connections and 8.2 million sewage connections.

Revenue growth offset by mix and weather effects

Sabesp said the January 2026 tariff cycle contributed 8.7% to core revenue growth. New customer units added 1.0%, while metering upgrades contributed 0.6%. Those factors were partly offset by lower consumption tied to weather conditions.

Average temperatures were about 1.1% lower than in the prior-year quarter, according to the company. The revenue mix had a negative 3.1% effect, including a 2.3% impact from customer-category mix and a 0.6% impact from consumption-band mix. The category effect primarily reflected expansion of low-income tariffs.

Nearly 2 million units now have access to discounted rates, an increase of approximately 15% from a year earlier and nearly double the level before Sabesp’s privatization, management said. The company said the social-tariff program has kept the average consumer price broadly flat compared with the pre-privatization period. Szlak said the discounts are contemplated in the regulatory framework and are expected to be addressed in future tariff reviews.

Meter replacement activity also slowed temporarily because of import constraints, affecting the pace of metering upgrades.

EBITDA and earnings decline as costs rise

Adjusted EBITDA was BRL 3.5 billion, down 2.3% year over year on the basis including EMAE, with an adjusted EBITDA margin of 58.3%. Excluding EMAE, adjusted EBITDA declined 3.2% to BRL 3.5 billion.

Management cited increased customer-service spending, inflationary pressure on chemicals and a difficult comparison with the prior-year quarter, when Sabesp recorded BRL 230 million in reversals of legal accruals. The company said service costs reflected expanded customer-service channels, field operations, call-center capacity, customer communications and marketing activity.

Szlak said geopolitical conditions added about BRL 28 million of inflationary pressure during the quarter, mainly affecting chemical costs. He said oil prices had increased costs for some chemicals linked to Middle Eastern supply chains, and the company was working to renegotiate those costs lower in the second half.

Management said that excluding prior-year legal gains, ERP timing effects, customer-experience investments and extraordinary inflation, underlying EBITDA would have increased close to 20% year over year.

Personnel expenses increased 1% despite a 4.4% wage adjustment, as workforce optimization initiatives and voluntary dismissal plans partly offset the increase. Power costs rose 2.2%, mainly due to transmission and sector charges, although 88% of the company’s total energy consumption is now sourced through the free market.

Reported net income was BRL 1.5 billion, while adjusted net income totaled BRL 1.2 billion. The year-over-year decline reflected higher financial expenses from a larger average net debt balance used to support the accelerated investment program, as well as higher depreciation and amortization from asset-base growth. Sabesp said its asset base increased from about BRL 55 billion to BRL 70 billion year over year. A lower effective tax rate of 29%, compared with 34% a year earlier, partially offset those effects.

CapEx execution and financing

Year-to-date capital expenditures totaled BRL 7.5 billion, up roughly 16% from the previous year. Sabesp ended the quarter with more than BRL 40 billion of contracted backlog through 2029 and said capital spending is typically weighted toward the second half of the year.

Chief Executive Officer Carlos Piani said the company was targeting BRL 20 billion in CapEx for 2026 and expected activity to accelerate as contracts for further phases of its universalization program are signed. Sabesp currently has about 1,500 active construction fronts and expects to approach 4,000 simultaneous worksites at its projected peak by the end of next year.

The company said it had effectively met its water targets for the year as of July, while sewage collection and treatment targets had reached 90% and 82%, respectively. During the quarter, Sabesp delivered the Caieiras and Água Vermelha sewage treatment plants, adding a combined 0.4 cubic meters per second of treatment capacity and providing 127,000 additional people with access to treated sewage.

Szlak said about two-thirds of capital spending is directed to sewage treatment and one-third to water, while roughly 10% supports maintenance and network upgrades. The company expects to finance the program largely through debt in the near term, with cash-flow generation expected to reduce reliance on debt beginning in 2028.

Gross debt totaled BRL 52 billion and net debt was BRL 34 billion at quarter-end. Net debt stood at 2.5 times EBITDA. Sabesp held BRL 17.4 billion in cash, covering more than four years of amortization, and said 64% of its debt matures from 2031 onward. The weighted average debt maturity was 6.1 years.

Customer service and safety initiatives

Piani said Sabesp plans approximately BRL 800 million of spending and investment in commercial initiatives during 2026. The program includes a dedicated customer-experience team, about 200 additional full-time-equivalent personnel, 12 new stores, 34 store retrofits, 20 new Poupatempo service centers and 120 additional call-center positions.

Proactive customer communications were about 2.4 times the level of the second quarter of 2025, management said. Average call-handling time in June was 87% lower than in December 2025, while complaints through critical channels declined 31% sequentially.

Szlak said a little more than half of the commercial initiatives could be recovered through tariff cycles or regulatory mechanisms, while management expects some remaining costs to improve through productivity as customers shift toward digital channels.

Piani also highlighted safety measures as the company’s construction activity expands. Sabesp’s workforce, including employees and third-party workers, has grown to about 55,000 from approximately 30,000 two years earlier, while active construction sites have increased to around 1,500 from about 200. The company has expanded safety zones around underground infrastructure, made ground-penetrating radar mandatory within those zones, tripled field inspectors and created an operational safety group reporting directly to the CEO.

About Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp (NYSE:SBS)

Companhia de Saneamento Básico do Estado de São Paulo (SABESP) is a Brazilian utility that provides water supply and wastewater collection and treatment services. As the principal sanitation company serving the state of São Paulo, SABESP operates a wide range of infrastructure spanning water capture, treatment plants, distribution networks and sewage systems. The company’s activities support residential, commercial and industrial customers and are focused on delivering potable water, ensuring water quality and expanding access to sanitation services.

SABESP’s service offering includes the operation and maintenance of water treatment and sewage treatment facilities, network expansion and rehabilitation, meter reading and billing, customer service and environmental programs aimed at improving sewage treatment rates and protecting water resources.

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