Direcional Engenharia SA

BOVESPA:DIRR3

Earnings Call Analysis

Direcional Reports Robust Q3 2023 Results

Direcional's Q3 2023 earnings show significant growth, with net profit soaring to BRL 83 million, a 94% increase compared to the same quarter last year. Adjustments for swap expenses and non-recurring items lead to the best net profit level this year, with an annualized Return on Equity (ROE) hitting 20%. Their growth margin impressively rose to 37%, up 0.5% from the previous quarter and 2% year-over-year. The launches totaled almost BRL 1.4 billion, while net sales broke BRL 1 billion, marking a 19% increase year over year. EBITDA margin improved substantially by 6.2 percentage points to 25%, and net margin doubled to 14.8%. The results also reflected operational leverage gains and efficiency improvements.

Strong Revenue Growth with Strategic Focus

The company has maintained its focus on the low-income economic segment, showing effective management and ownership mentality. Despite a slight drop in consolidated SPV (Special Purpose Vehicle) revenue, the overall growth has been strong at 16%, reaching BRL 804 million in Q3. Total revenue for the first 9 months stands at BRL 2.296 billion.

Margin Expansion Demonstrates Pricing Power

Gross margins grew to 37% in Q3, showcasing the benefits of effective pricing governance. This trend is expected to continue, contributing to a gross margin forecast that is positive due to the company's ability to pass on price increases and a reduction in material costs.

Operational Efficiency Drives Profitability

The company's strategy of digitalizing processes has led to a controlled SG&A expansion, supporting growth with a smaller proportional rise in administrative expenses. The SG&A to gross revenue remains at 3%, indicating that operational leverage is working effectively to enhance profitability.

EBITDA Margin Improvement Signifies Operation Strength

Adjusted EBITDA has grown substantially, with an EBITDA margin of 25% in Q3 and a positive trend expected to continue, bolstered by maintaining SG&A under control.

Sales Strategy and Discipline Optimize Commercial Costs

Efforts to minimize commercial expenses while maximizing sales performance have paid off, leading to improved net income and potential gains in upcoming quarters. The company has focused on enhancing the sales process, with a significant reduction in commercial expenses.

Robust Net Profit Margin and ROI

Company net margin saw an increase to 14.8% from 7.4% in Q3 of the previous year, and the Return on Equity (ROE) was strong at 19.5%. Net profit reached BRL 83 million, indicating a solid financial position and promising trajectory moving forward.

Future Revenue Potential with Riva Segment

A key driver for future revenue is the Riva segment, with margins and future revenue growing more than 20% compared to the previous quarter. Importantly, sales from recent launches have been successful, and this is expected to significantly impact future gross margins as the work is completed.

Capital Strategy and Working Capital Management

The company undertook a follow-on to address working capital needs due to sales acceleration, targeting a minimization of working capital requirements. With increased sales, the company anticipates less capital will be needed moving forward.

Cautious Credit Strategy Amid Inflation Challenges

The company has been cautious with credit granting, reducing the percentage of pro-soluto credit amidst inflation and aiming to enhance customer credit quality. This strategic adjustment is expected to lead to a decrease in defaults and an increase in the quality of the loan portfolio.

FGTS Policy Changes Could Fuel Sales Speed

The future FGTS policy, targeting lower-income families, once implemented, is anticipated to significantly impact the inclusion of families in the market, positively influencing net sales speed and serving as a boon for the company's target customer base.

Guidance on Margin Stability and Growth

Despite the fluctuations in launch margins between the Riva and Direcional segments, the company's overall margin profile remains healthy. There is an expectation that the gross margin and REF margin will remain robust, attributing to a consistent operational performance.

Optimism Despite Potential Challenges from Government Policy

With looming decisions from the Supreme Court and changes in government entities like Caixa, the company is preparing for impacts on housing subsidy programs and possible changes in market conditions. However, operations remain solid, and the technical competence of these organizations is expected to limit any adverse effects. The company will continue to monitor these developments and adapt its strategies accordingly.

Earnings Call Transcript 2023-Q3

[Andre Damiao, executive]

Good morning, everybody. Welcome to our third Q earnings release '23. I am Andre Damiao from IR here in Direcional. Together with me is Ricardo Ribeiro, CEO, and Henrique Paim our CFO.This presentation is destined to investors and analysts. It will be done like we did in the other quarters. We will present the results, the main highlights and then afterwards we will open for Q&A. We would like to ask you, for those that pose your questions use your Raise Hand tools here in the Zoom. This presentation is also being transmitted via YouTube, and the link and the presentation that will be transmitted, they will available in the IR site. And this event is being recorded and it will also be available in the IR site.I would like to give the floor to Ricardo who will begin his presentation.

[Ricardo Valadares Gontijo, executive]

Good morning, everybody. Thank you very much for being with us once again in this earnings release. Regarding the third Q '23. I would like to begin with Page 3 which is a very relevant -- which is most important, to go through the main highlights, points we believe are very relevant with regards to the results that are being disclosed today. And somehow are very important to become -- to be very clear to all of you that have been tracking our results and our operations and oftentimes results aren't so clear in the release. So I would like to show you some highlights because they talk about Direcional's operations, what we have been doing, what we have been trying to do, vis-a-vis the context we are in, not only in the country, but in Minha Casa, Minha Vida program that has gone through important changes and has positively impacted our business.Well, I think the main highlight here, the net profit we delivered this quarter when adjusted specifically by swap expenses and also those that are not recurring because of the sale receivables that ends in the third quarter this year -- in the fourth quarters, we have BRL 83 million, 94% growth compared to the third Q last year. And when we don't consider SPV sales that happened in this year, this was the greatest net profit level that we delivered this year. Our annualized ROE 20%, even after an capital increase that happened and was settled on the 4th of July. Growth margin adjusted here, 37%. Also the greatest levels in our history. It rose 0.5% quarter after quarter third comparing the third Q to the second percent and 2% when we compare this quarter to last year's quarter, 37% solid growth margin. Now 37%.Another important highlight are deferred revenue through when we compare the third quarter to the last quarter when we -- it went 3.1%. This is important. This shows solid growth margins in the quarters that are to come. And when launches, when works are launched with this gross margin, that positively impacted our [ REF ] margin when they are finished.This result will go through our financial statement and will impact the gross margins that we will recognize in the following months. And another thing that I would like to highlight here that is relevant, we in Direcional have been, specifically during last year when the market was focused only in gross margin and concerned with cost increases in the sector in '22, now we are going through very solid gross margins, but we have always said, don't only look at the gross margin, pace of sales, recognition of revenue. We've had gains in operational leverage, and this will impact our net margin. Don't only look at gross margin, although our gross margins are very resilient, as I showed in the beginning of the conversation, look at what we delivered in 1 year.So I'll give you some fair data compared. The third Q this year with the third Q last year. As I said before, gross margin went up 2 percentage point, going from 35% to 37%. EBITDA margin 6.2 percentage points, from 18% (sic) [ 18.8% ] to 25%. Net margin, 7.4 percentage points from 7.4% to 14.8%. So we doubled the net margin in the company in 1 year. So I think that these points, when you look quarter after quarter and not what our gain, efficiency gains or the synergy gains, perhaps this is not clear. It becomes difficult to see what happened, but changes have been very significant. And this explains a profit growth of more than 90% when we compare the third Q this year to the third Q last year.Also, I would like to highlight a point that I've noticed, the market has talked a lot about with regards to Direcional. And once again, I want to make very clear, this addresses the revenue recognized in the financial statements. Direcional has some projects that are done in partnership with other companies where the control of these SPVs are shared. And thus because of the share controlled, we do not consolidate the results of these SPVs. But the results correspondent to our stake enters in the equity income line.So some important points here, when we simply show the consolidated revenue in our financial statements, there was a drop of our revenue when we compared both quarters this year and last year, but the equity income line grew 65% in the third Q this year compared to the second one. 37% when we compare the third Q this year to the third Q last year. If we add, if we sum up the revenue, when we manage all the portfolio, we do all the work, our revenue was linear when we compared the third Q this year to the second Q last year. But another important point that oftentimes is not noticed the second quarter this year, that is 90 days ago in June, we sold 7 SPVs for real estate fund. And these 7 SPVs had their consolidated revenue in our finance balance sheet in the second Q, but not in the third. These 7 SPVs were responsible for a recognition of a growth profit of more than BRL 30 millions in the second quarter.Of course, if all of this was recognized in last quarter, they were not recognized this quarter. But it is already recognized in our balance. So it's natural. When you remove 7 SPVs, you will impact the revenue in the quarter immediately after, right? And so this has not been considered, from what I've talked, and I've seen from some comments that have been made.The fact is that since the revenue, considering the SPVs and the drop of revenue because of the sale of SPVs and also the sale of projects to be launched, we're very successful now this third Q, even with this reduction in revenue. Our gross profit grew in a significant way this quarter when we compare it to the second quarter, disregarding the sale of these SPVs. So it's important to stress this. And last point, as I've just said, we had launches that were very successful in the third Q this year, and this impacted not only the margin of our results, future results, but the amounts of revenue to be received, earned. So we closed the second quarter with BRL 1.34 billion to be recognized. And this level went to [indiscernible] 23% growth here.So because of these works not having began and because of the POC is inferior, is lower than the average POC of Direcional the greatest part of this revenue was in the REF. This revenue will come once the works are finished, which has this impact, positive impact here. So I would like to stress here that in our point of view, the results of this quarter clearly demonstrate the continuity of the efficiencies gain and the performance gains. And perhaps this is not so clear for the market as it is for us.Now, I would like to go to the following page and show data. I would like to show you the launches. On Page 5, you see that this quarter we launched almost BRL 1.400 billion. We reached BRL 3.467 billions in launches. And this meant a growth of 18% of launches compared the third Q '23 to second -- third Q '22. And 34% when we compared the first 9 months this year to the first 9 months last year's. In the last 12 months closed in September, we reached BRL 4.5 billion in launches, which meant since 2016, an average growth of 27%, which is very expressive.Now going to our sales on Page 6, this was the first quarter where we had net sales considering the [indiscernible]. This includes the participation of the share of some partners here. Net sales over BRL 1 billion. This was a growth of 19% in relation to the same quarter '22. And when we considered the 9 first months this year, we reached BRL 2.770 billion in sales, 20% growth versus the first 9 months last year. When we look at the last 12 months closed in September, we have more than BRL 3.400 billion in net sales. And when we consider this since 2016, the annual growth of the CAGR was 32%, which is very relevant.With regards to net sales speed was 17%. Direcional was 15%, Riva 19%. Huge highlight here, because this was a segment that was very challenging this year. Riva, right, uses savings account funding. There was an increase in interest rates because of the increase of the cost of this funding. But Riva as performance was very surprising. The VSO, the sales speed was very strong. It was the largest here in the last quarters. And also in June, it was approved by an STF and an increase of the cap prices of BRL 350,000. So, several Riva products became illegible to have an FGTS funding. When a family that buys our product earns less than BRL 8,000 and meets the requirements of Minha Casa, Minha Vida. So several families began to be able to buy a Riva product parting from the change of these conditions when one considers the program of Minha Casa, Minha Vida and funding with very competitive costs.So the impact on the Riva operations has been relevant, and this has become clear in the sales speed index that we have been able to deliver. So a highlight here to Riva because of the impact of the changes in Minha Casa, Minha Vida becoming more concrete this year. So these are the main points in relation to our operational data.Now I'd like to give the floor to Paim to show us the financial highlights here. And I'll be available for questions at the end of the call. Thank you very much.

[Henrique Paim, executive]

Thank you, Ricardo. Good morning, everybody. Welcome to our earnings release regarding the third Q '23. I'd like to thank you for all your attendance here. One more quarter where we still are very focused, maintained the focus and strategic discipline where we do the basic, focused on low income and the economic segment through Riva without any distractions. We have the point of view of -- we have the eye of the owner here, and we are very proud to present the results of this third Q here. And we will share with you the financial data of this quarter.So this first slide, I would like to stress to you this comment Ricardo about the revenue. Here to the left, we try to represent to you the revenue with regards to the SPVs. We didn't consolidate. And this demonstrates clearly a growth of this revenue. When we look at only the SPVs that are consolidated in the balance sheet, we have a slight drop, but when we consider all the SPVs, we can clearly see an important result. We always comment in our earnings release calls that our business depends on launching, selling, building, and then receiving the revenue according to the advance of the works and sales. And this has happened, circumstantially this has happened in more relevantly in the ones that haven't been consolidated. And we clearly noticed an expressive growth. BRL 693 million in the third Q. We grew 16%. When compared this. We reached BRL 804 million.The 9 months consolidated here, we reached BRL 3.300 billion (sic) [ BRL 2.296 billion ] considering BRL 910 million (sic) [ BRL 1.910 billion ]. Gross margin has had a growth trend here, third quarter where we reach a 37% growth margin, going from 35% in the third quarter. The 9 first months of '23, 36.6%. So clearly we can see the effects of our governance, our pricing governance, the committees continually happening every month. Prices are increasing. Every money, we can still transfer the prices. And we have had good news here in a more latent way, a drop in the price of material. And this has a very positive effect, allowing us to look to the future with a very optimistic point of view with regards to the gross margins.The next slide here, I would like to share with you our performance in terms of SG&A. We continue with a very strong work here, digitalizing all the processes. We reached very recently 180 [ RPAs ] in back-office operations. And this has allowed us to support the growth of the company, which has been growing in a lower proportion in terms of SG&A. So when we look at SG&A over the gross revenue, we have 3% in the third quarter. Net sales, 4.5%. And in the first 9 months, our SG&A has been kind of flat in relation to the gross revenue in relation to net sales. So now we will continue doing this optional leverage. And we will continue digitalizing our processes bringing technology to our process, programming [ RTIs ] with IA. So we have -- with AI, we have important gains in the next quarters using technologies in our favor.To the right, a fantastic work we've been doing, maximizing and improving the commercial performance, selling more, paying a commission percentage which is lower, spending less with marketing also, obtaining important results here. So in the last quarters, we talked about our focus to improve this performance of the sales and of the commercial sale expenses. Since we had potential, this has happened. And we have been able through much management here to use this movement of drop of commercial expenses, leveraging our bottom line.Here we have the adjusted EBITDA, which demonstrated the positive vital signs of operations. To the right, we have BRL 140 million in EBITDA, 25% of EBITDA margin, a significant growth relative to the second quarter. A trend of growth here. And when we look at this EBITDA further on, if the normal conditions remain, we believe it will grow. And we will -- if we maintain the SG&A under control, we will see this EBITDA growing. And then the first 9 months of '23, 22.9% of EBITDA margin compared to 19.8% in the first 9 months of '22.Next slide. As has been mentioned, we have grown the revenue in a significant way in projects we have not consolidated. We presented this in the beginning of the presentation. And the results of these SPVs not consolidated are recognized through equity income. And this has grown substantially, demonstrating that these SPVs that are not consolidated, has generated important results, and this line has had a relevant representativeness in our total results. To the right, we have been talking during this quarter that the stake of minority interest in our SPVs have been very important. When we ramped up, we have been doing this ramp-up of launches, specifically in that moment when we were inaugurating new regions of the country. This is not the scenario anymore. We're not doing this anymore. And this minority share has been dropping.And since we carry all the work, engineering work, works management, backups, accounts receivable, all the work is with us. So we recognize these results to the shareholders, almost BRL 36 billion. And we tend to continue seeing this trend in the reduction of the stake of minority interest.Next slide, please. As the results of the equation that we presented in the last slide, we can see clearly an increasing growth profit, 14.8% compared to 7.4% in the third Q '22, substantial growth here. Results of the operational leverage. The last 9 months we reached 13.2% net margin compared to 8.3%. And an ROE of 19.5%, net profit of BRL 83 million, very strong results here. And we are very proud to present to you and share these numbers of the third quarter with you. And when we look in the pipeline, we have very positive, very positive expectations here because of the growth here of the revenue and works. We have a very relevant track record here. So we have -- our work to do here is to keep up with the engineering where we have a strong execution DNA.We are in keeping with what we have been doing and remaining with SG&A expenses under control, which will be very positive for our net margin, showing this positive track record we've had. And lastly, and as important as everything, we settled with success -- with the follow-on. There was a demand 6x more under the supply. Our cash reached BRL 1.341 billion, more than enough to pay all the indebtedness of the company, which is BRL 1.252 billion. So we have BRL 89 million left. So we have here debt amortization schedule very well distributed, capacity to access capital market, recognition of our credit quality, which is with longer deadlines. Current capital, net current capital of BRL 2.5 billion are credit lines. Like this indicated, this index, it shows a lot -- very solid operations, AAA rating. We are the only low-income company with this AAA rating. So we are very happy and perhaps it is the best credit situation in the company. And now I would like to go to questions and answers. Once again, thank you very much for your participation here in this earnings release.

[Andre Damiao, executive]

So now we go to questions and answers. So the first question, Bruno Mendonca, Bradesco. Bruno, you have the floor. You have the floor.

[Bruno Mendonca, analyst]

I would like to ask about the pricing strategies that you have. What your attention is the increase of the REF margin quarter after quarter, 3 percentage points from 1 quarter to the other. This is not very usual. So confirm to me, because this REF margin increase probably comes from the sales in of new launches, so I believe. And if this is true, can you tell us more about the pricing discussions here? Because as far as I have been understood, there was an idea of this being more aggressive here in terms of DSO or the net sales speed and pro-soluto reductions. So if you could tell us about the pricing strategies, the evolution of the pro-soluto and the main reason for this REF margin to have grown so much quarter after quarter. And what are the new measures we are in November, but we're talking about the results of the third Q. The new cap entered in July. So is this already a result of all of these actions that have happened? Could you tell us what's to be expected here?

[Ricardo Valadares Gontijo, executive]

Bruno. Of course, all the adjustments that were done and announced somehow have an impact in the results that we delivered this quarter. The Riva, net sales speed, margins, REF margins, reported margins. Of course, we've had a strong growth, not of the REF margin, but the margin also grew, but we're talking about the absolute value of the future revenue, which grew more than 20% when compared to third Q relative to the second Q. This demonstrate that these were sales that came from recent launches sales and the low park has very little result in the financial revenues. It is future revenue. And this impacted significantly the growth of this amount to be recognized in the future. And since the margins of these launches were very strong, the REF margin was relevant too. And trying to show you the greatest part of these launches that were extremely successful and impacted not only the amount of future revenue, but the margin, they came from Riva. So this segment had a very positive impact for us. These are projects that had solid margins. And naturally it didn't go through the financial statement because it happened in the past. And this makes us very optimistic, specifically if the benign cost scenario remains. And this clearly should reflect in the gross margin once the works are done. But mostly Riva right. It's not that there was a change in the pricing strategy of the products that are already available for sales. No. When we analyze the current perspectives here in this scenario, specifically a gross margin level that we are delivering, the growth we had in the level of launches and sales because once works are carried out, this materializes in the revenue. It is natural that this strong growth demands working capital. This is why we did a follow-on of the market now at the end of the second Q and settlement occurred July this year. So this working capital will be used in our activities in the growth process. This resource will be used to supply this need for working capital because of increase in our operations. But once we speed up sales, this will demand less capital. And this is one of the main points that we have here today that is key in our operations and that we will go for in the Direcional operations. So this increase comes from Riva. And the Riva net sales was record in the last quarter. Our products are very well priced. We're not losing net sales speed because it grew with the growth of margin. So everything is okay, everything is perfect here, right? Our focus really is the gain of net sales feeds in the Direcional segment. Obviously, quarterly analysis when launch has been happening the last month of the quarter. So we don't have a full 3 months to commercialize a product. You might have a false feeling that [ BSO ] is lower, right? But you only had 1 month here. But when you grow the pace of launches, the reported sales speed is lower than the real sales speed because we have these 3 months, right? And this might have happened. So this increment in net sales speed is a priority so that the need for working capital is the smallest possible because of the growth here. In terms of pro-soluto, we have tried to reduce the pro-soluto percentage we've had here in the company. We are being more cautious here with the granting of credit. We know these families have been impacted not only because of inflation, it is more controlled. But naturally, this impacted the credit of these families. So we have used this moment to be more rigorous to enhance even more the credit grant via pro-soluto. We've done adjustments. The percentage granted as pro-soluto in relation to the total amount sold by the company has dropped. We have changed the policy in the way these payments are done. So these are some internal strategies in our view, in the time will reflect a reduction and also reduction of default. And even more important here, perhaps this is even more important here.

[Henrique Paim, executive]

Just to add to this, Bruno, with regards to pro-soluto, in the areas where we have a more nervous type of pro-soluto. We have reduced the income commitment necessary to go through the credit screening, credit demand, right? So we have done this effort to reduce income commitment so that the family can pay for -- and specifically in cash economy and pro-soluto, we grant to allow for the financial equation for our clients, financial possibility for our client.

[Bruno Mendonca, analyst]

But as a percentage of the value of the unit is this -- can you see?

[Ricardo Valadares Gontijo, executive]

It's slightly lower at the moment. But we are more focused in the reduction of the duration. The impact in default is great. And perhaps here in some months, we will have more concrete and real data to share with you.

[Andre Damiao, executive]

Thank you, Bruno. Next question. Fanny, Santander.

[Ricardo Valadares Gontijo, executive]

Very quickly, Bruno, very quickly, if I said that [indiscernible] didn't change how come the duration didn't reduce. So we capture more in the beginning, okay?

[Andre Damiao, executive]

Fanny, you have the next question. Your mic is on.

[Fanny Oreng Avino, analyst]

A follow-up here, with regard to Bruno's question. Ricardo talked about the accounts received. I would like to understand the margin behavior in Direcional. Have you seen an improvement in the level of margins of Direcional launches, which I believe will be more representative. This is my first question. Second, industry. Could you tell us a little bit about the STF, what you are seeing here. There is an expectation that this was going to be postponed again, would go for '24. And so I would like to better understand with regards to this. And also what you believe in terms of future FGTS? Do you see any movement from the cash in this sense? These are my questions.

[Ricardo Valadares Gontijo, executive]

Fanny, margins of the Direcional segment, I would say that launch margins had a greater increment in Riva than Direcional. This is because of what we saw in terms of this quarter's results. Direcional focused in net sales speed. But what has happened since projects launched at the end of '21 and beginning of '22, they were more impact because the price increase -- cost increases last year. If the margin set up as a trigger at the moment of the launch was remained in the same level. The hurdles that we use if they are the same this year. And it is natural that launches this year where scenario is more benign in terms of cost increases, they are going through a financial statement with higher margin than better than last year. So once all the launches are delivered and has less representativeness in our revenue, the Direcional margin rises. So this is because the ones in the past had a better impact because of what happened last year. And currently, the launches now, we have not noticed this -- so these are harvest with lower margins, leave with better margins. And but this does not mean that the trigger for launches was altered. None of this. But the consolidated in terms of recognized margin rises because of the different margins in the different harvests. With regards to the STF, the Supreme Court, Fanny, they are the same news we've seen in the media, right? Perhaps there might be a postponement. Up until now, we've had nothing that's different. So we are waiting to see if there is going to be a decision today or if there is going to be a change. But I have no different type of information here. They are the same as has been shown in the media, which are very public, right? And I think that what is very clear in the last weeks is the relevance of this decision for a very important segment of the country, which is low-income houses, basis sanitation, health. These are segments that are financed by the FGTS, the long-term segments, right, and demands competitive cost. And an eventual change considering the relevance of the FTF from a social point of view here for the country might have very negative impact. And I believe from what we've seen and read, we are trying to mitigate this at this moment. So nothing very different from this, but we still are -- we had the expectation that when all this information becomes public -- and when details become clear for society, then the vision with regards to the decision will change, and we will be more optimistic with the results because I believe that this is very important for our country, employment, jobs and health, for social development, and for all everybody that is involved in the operations of the different segments that FGTS finances. With regards to future FGTS, I don't have a precise date to show you here. What I can say, it is still a priority. There was a change in Caixa, that we have a new CEO, and this might have impacted the different areas of the bank. But I believe that it will come into effect within the schedule established by Caixa, which will be now in November, but I don't have a big specific date here so that the future FGTS comes into effect. But it is important to stress here, FGTS, once it is implemented, as imagined, I believe that this [indiscernible] announced with regards to subsidies, the change in curve, deadlines, and interest rates reduced for certain income levels. Perhaps this will have the greatest impact in the inclusion of families in our market where we have customers that can purchase our product. So I think that this measure once in effect is very positive, specifically for lower income families that are the ones that most need the program. So this is a measure when implemented certainly will have an important impact in the inclusion of families. Consequently, the net sales speed of the product, specifically for these families where the future FGTS will be implemented for the low-income families.

[Fanny Oreng Avino, analyst]

A follow-up with REF. According to when you launch in Direcional it's relevant here. Might this REF drop a bit because Riva has a larger margin than Direcional. Can REF return here if you have more launches in Direcional?

[Ricardo Valadares Gontijo, executive]

Fanny, I'm always very careful with the reported gross margin and what should be the recurring gross margin of our business. Consequently, the REF margin, the growth margin is a consequence of the REF. So everything is very linked here. REF becomes growth once the works are executed. Obviously with some adjustments here, some differences here. But one is based on the other. So we have a gross margin and a REF margin that is very healthy, both are very healthy and in levels that in my point of view are superior to what should be when we look at the past, the recurring margins of our business. So I wouldn't say that this is going to change or that there might be an impact in the growth of the REF margin. In terms of reduction here in the next quarters, right? It is difficult to say how the market will behave in the short term. But even because we are operating with gross margins over 34%, right, and in our view, this is something that is recurring and has been happening for some years now, right, Fanny? So somehow, I -- since I'm very careful by saying that REF and gross margins, recurring ones are lower than the levels we have been delivering in the last quarters, I can't say when this will happen because it's been some years now where we've been able to operate over those levels that for us was historically recurrent. But Direcional gains more relevance, certainly the REF and the growth is lower. But the working capital is great, right? So this doesn't mean it will impact the ROE of the company. It's lower in Direcional because of need for capital and a return of equity reported ends up being greater than Riva. So one can simply say margins might be impacted, but return might be impacted in the opposite sense than the margin. So obviously if Direcional gains representativeness, but this doesn't mean that will be a lower return. This must be very clear.

[Andre Damiao, executive]

Thank you, Fanny. Next question, Andre Mazini, Citibank. You have the floor.

[André Mazini, analyst]

So my first has to do about guarantee that was recently approved. It seems that several types of fundings will be allowed for based on the same real estate as a collateral, right? So what does this mean for Direcional? Could the pro-soluto have a collateral to effect? Can you imagine this in the future? And direct impact, right? This should facilitate home equity, the impact in the home equity, several loans, right, based on the same property. And then the new CEO of Caixa. So every time things might change here, specifically with regards to housing. So do you believe there will be a change in strategy in the operations? And if people below the vice president here should change or should remain.

[Ricardo Valadares Gontijo, executive]

Andre, yesterday we had a conversation. On Monday and Tuesday this week, we had conversation with regards to the benefits that this guarantee milestone this brings to our business. Here we're talking about the pro-soluto that might have a second guarantee. So this has already been much discussed and studied here and is very positive. So there might be positive impact. Our expectation is that this will be very positive. In Direto it's the same thing. So there is an impact. But here, we see interest rates closing. So I think that in Direto, in the last 2 years, we have been coming against the wind in spite of Direto having less than 2 years' operations. Winds have gone against it. Now things are opposite, inverting. It seems that every day wind seem to blow in our favor. Direto consumes more capital today. So we're very disciplined with our operations to generate cash and to stand alone, not depending on partners to contribute with capital. So we are very positive here, not only by the guarantee milestone, but a scenario we believe will be a reduction of interest rate and capital costs, which will be very positive here. And also for the pro-soluto here, this is something we're very focused on, trying to analyze this as fast as possible because this might be very positive in the short term a little more for Direto. But everything is a novelty, but we are excited with the new perspectives. We just need to confirm some points that are ongoing. Caixa, the Caixa team, when we talked about the real estate area, which is the main area of Caixa with which we deal with every day, the team is extremely competent. It is a benchmark not only in Brazil, but the whole world in terms of real estate credit. We've seen several management. Ever since Minha Casa, Minha Vida was announced, different governments, different types of management, administration. No impact here. No problems in transition here, transactions. The technical team has always been very competent and solid. So we are absolutely at ease with Caixa's operations. Everything that happened in these 14 years, we've had no problems with operations here. And I believe that now this is going to be the same. We don't know how the vice presidency will be. But everything -- this is something that currently we should have an impact. We don't even know if there's going to be a change. So we are continuing with life, no alerts, no red lights specifically with regards to routine. Perhaps we might have some change what Fanny said, the future FGTS. I think that if there was an impact, it was unnoticeable but perhaps certain policies, certain matters being discussed in a macro, there might be a macro, there might be an impact. But in our daily operations, it's no change whatsoever, specifically with the macro, nothing changes. But in our daily work and routine 0 impact.

[Andre Damiao, executive]

Thank you, Andre. Gustavo Cambauva, BTG. You have the floor.

[Gustavo Cambauva, analyst]

I would like to ask 2 questions here. The first one, Paim mentioned in the presentation with regards to the administrative expenses and sales. The company has been growing a lot and expenses expenditure is in a very -- is a level that is very similar to last year with the reduction of fixed expenses, right? So I'd like to understand if you would have to reinforce some structure in the team, sales or administration for next year, right? Because of the increase in launches and sales that you are imagine, so should we work with an increase? Or should we -- should this be in keeping with inflation? Second question, the sale of portfolio. Do you think of doing something here in terms of sale of portfolio, specifically the follow-on, the deleveraging of the company, if it makes sense to continue with these operations? Or do you believe that you should carry this portfolio a little more in the company?

[Ricardo Valadares Gontijo, executive]

The first one, I will answer the first one. Paim, you do the portfolio. Expenses dilution. I mentioned in the highlights. In nominal terms, when we talk about commercial terms, the 9 -- the first 9 months this year, we are spending BRL 5 million less than the 9 first months last year. We sold BRL 470 million more. When we look at the work that we have been doing in the company relative to expenses, which is the gain we've been able to deliver in terms of operational leverage where the gross margin rose 2%. EBITDA growth, 6%. So net margin doubles. So there is a strong merit with the work that has been done. We continue very disciplined in terms of expenses. It is difficult to say whether we will continue with inflation, for example, because I see a growth of revenue that is still very strong. When we consider the revenue with regard to as nonconsolidated [ STVs ], which is fair here, we're launching 55% more than the revenue received when we consider the last 12 months. So large pace is still surpassing revenue, there should be an increase in operational leverage here. However, compare the growth of expenses with inflation, perhaps it's not inflation, perhaps trips and tickets, airline tickets have grown. So operations has grown a lot here. But it will grow less than the revenue, right? I still see operational leverage, commercial expenses here. One does not even talk about percentage here. We reduced this in nominal terms. So a relevant part of this work is reflecting in our financial statements. We have some things with recent operations, some areas. So we're gaining market shares here. But I think that the work was very strong here and in keeping with what we said to you in the last quarters, I think we are certainly complying with what we have been seeing in the last earnings release in all these calls. And it's clear in the numbers we delivered this quarter.

[Henrique Paim, executive]

Just to add to Ricardo, just to give you an example, the back office here, which deals with accounts receivable, accounts payable, all the back office. We -- 4 years ago, we had the same amount of headcount we have today. And we are at the end of the discussions for the '24 budget, and we do not see an increase of not even on headcount. So certainly, we will continue seeing the capacity of the operational leverage of the company continue growing, recognizing more revenue with a very controlled G&A growth at a pace that is significantly lower than the growth of the revenue and thus using all the benefits of a stronger bottom line. I'm convinced about this. The sale of the portfolio. We are always open to analyzing opportunities. Capital cost for us is important. So the discount demanded for the acquisition of these portfolios is important. We don't need to sell additional portfolios. We will only do this if we notice that there is an opportunity, like we noticed in the last sales of portfolio. We did a follow-on. We are net -- we have net investment here or application here. If we see an opportunity, lower interest rates and credit spread, we see an opportunity that makes sense, we can do it. But we have good portfolios to sell. It's important, the real estate funds continue. Even the ones that bought our portfolio in 2020, they're still contacting us to buy real estate receivables in pro-soluto. So we'll analyze everything in a case-by-case basis. It will depend on the spread that will be demanded by these investors.

[Andre Damiao, executive]

Thank you, Cambauva. [ Maria Dela Castro ], Itau. You have the floor.

[Unknown Analyst]

I have 2 questions. Cost dynamics in the company. How do you see the different labor costs in the different areas you work in? And also some news that came out this week, the income level. Do you have an expectation with regards to these new rules?

[Ricardo Valadares Gontijo, executive]

Maria, with regards to cost, we are in a very comfortable scenario. Sao Paulo is the area where we are more cautious with labor availability. There has been a great amount of launches and labor costs are great. There are greater challenges. So although we don't have a very great representative, it's very diluted here. But you -- clearly, you won't see an impact here in our margins. But Sao Paulo is an area that has a greater demand for labor than the other areas in Brazil. With regards to the BRL 12,000 I think if there is a funding of this funding availability equation, is okay, then the news is just fantastic. Many families in the Riva segment will be potential buyers of our product. But we have to be very cautious here, understand the funding where it comes from because we are here for to be in the long term, something that is sustainable, not to have huge demand for 1 or 2 years and then a drop of demand here because of funding reduction. So it's a little early to make some kind of comment here. We should try to understand how this can materialize too, so that I can give you an opinion. In the first analysis, just fantastic, but we have to be careful here because of funding availability for this potential new demand that would come as a result of this. Thank you very much.

[Andre Damiao, executive]

Next question from Ygor Altero, XP.

[Ygor Altero, analyst]

Two questions here. We saw a strong acceleration of the Riva net sales speed because of the -- and I'd like to understand if this greater net sales speed level, do you believe it's sustainable? Or should it stabilize in this level? Second question, if this dynamic, the revenue growing less because of the stronger equity, equity income stronger, right?

[Ricardo Valadares Gontijo, executive]

Riva, Riva we are optimistic with the Riva business. It is positive, specifically with an important part in our products in Minha Casa, Minha Vida, right? So we continue with a strong demand. It is difficult. I think it's in a very healthy level. Works execution is longer than Direcional. So it's a healthy net sales speed index. We do not see -- I believe that nothing is outstanding for having reached 19% this quarter. I think it's normal in Riva operations. Can you ask your second question again?

[Ygor Altero, analyst]

Lower revenue. Can you answer this for us?

[Henrique Paim, executive]

Ygor. Our vision is the following. We had contracted revenue growth. It is very relevant. In the last 12 months, we have launched BRL 4.5 billion. And there is a revenue gap that is important to close here. I believe that certainly, we will see revenue growth, independent whether this will be with nonconsolidated SPVs. The results will happen, obviously, projects are performing well, and this will impact the equity income. However, in my point of view, in the pipeline, perhaps not the next quarter, but the gap will be closed in relation to -- revenue in relation to sales. And we will continue delivering growth in revenue independent of nonconsolidated SPVs.

[Andre Damiao, executive]

Thank you, Ygor. Next question, [ Rafael ] from Safra.

[Unknown Analyst]

Two questions. First one, a follow-up with regards to STF. Considering the worst-case scenario, if the savings account compensation changes, I would like to know if you have an estimate as to how this could affect the program in relation to the budget, considering that this year, it's almost BRL 100 billion for Minha Casa, Minha Vida. Second question, I would like to talk in more details about new state programs, housing programs here in Sao Paulo. We've already had Casa Paulista. But I remember that in other states, there's been a strong incentive to create programs here with regard to affordability. I would like to know if you have any news here that you could share with us here.

[Ricardo Valadares Gontijo, executive]

STF to compensate for the savings account, we only see subsidies here. We don't see liquidity here for credit granted. There is no funding restriction, but there is a cost retraction here. So the impact to pay for funding via subsidies. We certainly see a deficit here. There is not enough profit when we look from here on, when we do all our calculations to pay for savings account based on these deposits, we would have to find a way out to find a way to pay for this if there is no other kind of modulation. We don't believe that this is a probable scenario because of the impacts that have become very clear in the last weeks, so impacting the subsidies. Then the people that are more penalized, the lower-income families. So this is a major, from a social point of view, impact the lower-income companies. Subsidies would become 0, and there would not be enough resources in the -- by the FGTS to pay for this. So the trauma -- not the higher-income families, but the lower income families. That is the problem. And as I said, but this is not going to be a very probable scenario. In case this happens, we have to try to understand the measures, the government measures to see the program here from here on, state programs. We've seen several states involved here, not only in Sao Paulo, but Amazon, several municipalities. So I think when there is a routine here because everybody wants this, right? So I believe there's going to be a standard. So states can shift in -- you can't customize everything here, right? So there might be a relevant impact, specifically with lower income families. And this would come as an extra subsidy, purchasing capacity for lower income companies. No state is perfect yet at this moment here, right? But it's in final stages. And there's a lot of interest. And this is a future, is another point that might have a relevant impact in operations in the pipeline. It's too early to consider anything here, right? Perhaps it's too optimistic, but it's most probable that this happens very soon because it's a priority, not only for the states but also for cities.

[Andre Damiao, executive]

Thank you for the question, Rafael. We have more questions here. So now I will give -- we have no more questions here, so I'll give the floor to Ricardo.

[Ricardo Valadares Gontijo, executive]

Well, once again, thank you very much for the participation. I think that perhaps I have been able to show you the messages [indiscernible], I've given you some important messages with our operations. Thank you very much again. I'd like to say that IR team are at your disposal for any more questions. We continue with our work. We believe that this resilience, this operation somehow -- this very consistent operation will remain in the next quarters. This is the scenario we see now vis-a-vis our business, the program. So somehow, we are very optimistic to what we've seen, the perspectives. We're going to do our very best to deliver the most consistent results for our customers, employees and shareholders. Once again, thank you very much, and have a very good day, everybody.[Statements in English on this transcript were spoken by an interpreter present on the live call.]