Telefonica Q1 Earnings Call Highlights

Key Points

• Telefónica delivered a solid Q1 with revenue of EUR 8.1 billion, adjusted EBITDA of EUR 2.8 billion, and free cash flow of EUR 333 million, while reaffirming its full-year guidance and EUR 0.15 per share dividend.
• Spain and Brazil were the main growth engines, with Spain posting stronger operating performance and record low churn, while Brazil saw revenue rise 7.4% and added 850,000 contract mobile customers.
• Debt continued to fall as the Hispam exit advanced, with net financial debt down to EUR 25.3 billion and leverage improving to 2.72x, keeping the company on track toward its 2.5x target in 2028.

Telefonica NYSE: TEF reported a stronger start to 2026, with management pointing to revenue growth, improving operating leverage and debt reduction while reaffirming its full-year targets and dividend plans.

On the company’s January-to-March 2026 earnings call, COO Emilio Gayo said Telefónica was “pleased to report a good start to the year,” citing growth in revenue, adjusted EBITDA and adjusted operating cash flow after leases in both constant and current currency terms. He said the company remains confident in its 2026 financial outlook and reiterated its EUR 0.15 dividend per share.

CFO Juan Azcué said first-quarter revenue reached EUR 8.1 billion, up 0.8% year over year in constant currency, supported by a 1% increase in service revenue. Adjusted EBITDA totaled EUR 2.8 billion, up 1.8%, while adjusted operating cash flow after leases was EUR 1.4 billion, up 2.4%. CapEx to sales stood at 10.7%, down 0.2 percentage points from a year earlier.

Free cash flow was EUR 333 million in the quarter, which Azcué said reflected normal first-quarter seasonality tied mainly to working capital. He said the company remains on track for full-year free cash flow guidance of around EUR 3 billion.

Spain and Brazil Drive Momentum

Gayo said Telefónica Spain delivered “a strong operating and financial performance” in the quarter, with the unit recording its lowest-ever churn at 0.7% despite a tariff update in mid-January. The company also reached record customer bases in fixed broadband and contract mobile, while B2C converged ARPU remained above EUR 91.

Spain revenue grew 2% year over year, supported by service revenue, while adjusted EBITDA expanded faster than retail revenue and delivered a 56% margin. Gayo attributed the performance to revenue growth and savings from the company’s redundancy program, which more than offset lower wholesale revenue. Adjusted operating cash flow after leases in Spain rose 2.3%.

In response to analyst questions, Gayo said Spain’s first-quarter results were slightly above the company’s expectations and that Telefónica expects similar trends in coming quarters, with the second half of the year better than the first half. He said the company does not see a major change in Spain’s competitive environment, describing the high-value market as rational while noting that the low-end segment remains more competitive.

In Brazil, Gayo said Vivo delivered another strong quarter, with revenue up 7.4% year over year and adjusted EBITDA and operating cash flow after leases both up 9%. The company added 850,000 contract mobile customers, its highest figure in five quarters, and reached record mobile ARPU. Fiber connections rose to nearly 8 million.

Gayo said Brazil’s B2C digital businesses continued to grow, with consumer electronics revenue up 56% over the last 12 months, supported by new financing options. In B2B, digital solutions were again the main growth driver, led by cloud and IoT.

Germany Faces 1&1 Impact, U.K. Trends Remain Under Pressure

In Germany, Gayo said the business remained resilient despite the ongoing impact from the 1&1 customer migration, which peaked on a year-over-year basis in the first quarter. He also cited weaker handset demand following a strong fourth quarter last year.

Telefónica Deutschland’s fixed revenue rose 4% year over year, while adjusted EBITDA was affected by the 1&1 impact. Gayo said that excluding the 1&1 effect, underlying adjusted EBITDA grew at a high-single-digit rate year over year. He said the company continues to work toward returning to growth in 2027.

Management also discussed Germany’s pricing and ARPU trends during the Q&A. Santiago Argelich Hesse, CEO of Telefónica Germany, said ARPU was affected by the success of family plans and second and third SIM cards, which dilute per-SIM ARPU but support household-level growth. He said household ARPU was growing year over year.

In the U.K., Virgin Media O2 launched O2 Satellite, which management described as the first direct-to-device satellite connectivity service switched on by a U.K. mobile network. The company also said O2 now has the largest 5G standalone footprint in the U.K., reaching 86% of the population.

Financially, Virgin Media O2 service revenue decreased, mainly due to consumer revenue pressure from prior-year customer losses and lower fixed ARPU. Adjusted EBITDA also declined, reflecting the service revenue trend. Gayo said progress on the Netomnia acquisition was continuing as expected.

Debt Falls as Hispam Exit Continues

Azcué said Telefónica’s net financial debt decreased to EUR 25.3 billion, down EUR 1.5 billion in the first three months of the year, primarily due to proceeds from Colombia and Chile. The company’s net debt-to-EBITDA ratio improved to 2.72 times from 2.78 times in December, and management said deleveraging remains on track toward a 2.5 times target in 2028.

Telefónica has sold six Hispam assets over the past 12 months, with Azcué putting the total firm value at above EUR 4 billion. Following the sale of Chile in February 2026 and the agreement to sell Mexico in April 2026, both companies were classified as discontinued operations in the first quarter.

The company also raised EUR 3 billion in long-term financing at the group level during the year. Azcué said Telefónica’s average cost of debt declined to 2.81% in March 2026 from 3.30% in March 2025.

Management Reaffirms Strategy and Guidance

Gayo said Telefónica is executing against its “Transform and Growth Plan,” with priorities including customer experience, B2C convergence, B2B digital growth, network expansion, simplification and the Hispam exit.

During the Q&A, management said the business plan is based on organic growth in markets such as Germany and Spain, while potential transactions would be evaluated against criteria including core markets, core business, clear and measurable synergies, and appropriate terms.

Asked about Telefónica’s participation in a possible European AI gigafactory project, Borja Ochoa, CEO of Telefónica Spain, said the company is leading the Spanish consortium and preparing an offer expected between June and July, with an outcome expected by year-end. Azcué said Telefónica’s investment would be a minority stake, around 10% to 15%, and that the equity contribution would be well below several hundred million euros because the project would be largely debt financed.

Gayo closed the call by saying Telefónica is “more focused, more efficient, and more profitable,” and reiterated that first-quarter performance leaves the company on track to meet its 2026 guidance across key metrics, including free cash flow.

About Telefonica NYSE: TEF

Telefónica, SA is a Spanish multinational telecommunications company headquartered in Madrid. Founded in 1924 as Compañía Telefónica Nacional de España, it has grown into one of the world's largest telecommunications groups. Telefónica provides a broad range of communications services to residential and business customers, including mobile and fixed-line telephony, broadband internet, and pay-TV. The company also develops and sells network infrastructure and related services to support connectivity at scale.

Beyond traditional voice and data services, Telefónica has expanded into digital and IT services aimed at enterprise customers and public-sector clients.

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