MPM Corporeos SA

BOVESPA:ESPA3

Earnings Call Analysis

Espaçolaser Shows Robust Growth and Expansion in Q2 2024

In Q2 2024, Espaçolaser reported net revenue of BRL 249 million, up 5% year-over-year, boosted by improved operational efficiency and a 4% increase in system-wide sales to BRL 351 million. EBITDA reached BRL 57 million, representing a margin of 23%. The company reduced its cancellation rate by 2 percentage points to 10.8%. With a focus on expansion, 15 new franchises opened, totaling 858 locations across Latin America. Looking ahead, Espaçolaser anticipates continued revenue growth and plans to increase average prices by approximately 9%.

Solid Revenue Growth Amid Operational Efficiency

Espaçolaser reported gross revenue of BRL 326 million for the second quarter of 2024, marking a 1.4% increase compared to the previous quarter. Year-to-date, gross revenue reflects a 1% growth, totaling BRL 684 million. The organization’s focus on improving operational efficiency has resulted in a significant reduction in its cancellation rate, which improved by 15% on an annual basis to reach 10.8% of gross revenue. This reduction indicates stronger customer retention, contributing positively to revenue outcomes.

Growing Net Revenue and Improved Profitability

The company achieved net revenue of BRL 249 million in the second quarter, showcasing a growth of 5% from the prior quarter. Year-to-date figures reveal a similar trajectory where net revenue increased by 4%, culminating in BRL 524 million. Additionally, the adjusted EBITDA for the same period reached BRL 57 million, with a margin of 23%, while the year-to-date EBITDA totaled BRL 131 million, showing an 8% increase and a margin of 25%. This signifies the effectiveness of cost-control measures and operational efficiencies the company has instituted over the past year.

Notable Improvements in Gross Margin

Espaçolaser recorded a gross margin of 39% for the quarter, which can be attributed to a strategic reduction in costs. Direct costs fell by 1% compared to the previous quarter, largely due to a 7% decrease in rental costs and a significant 32% reduction in commissions for credit card transactions. These measures have positively impacted profitability, demonstrating the effectiveness of the company's operational strategy over the last year.

Strategic Expansion in Franchises

The company opened 15 new franchises in Brazil, bringing the total to 233 franchises within its system. A consolidated total of 858 stores were reported, with 798 located in Brazil and 60 in other Latin American markets. This expansion not only increases market presence but also enhances the brand’s reach and operational capacity, positioning Espaçolaser favorably for future growth.

Strong Cash Generation and Improved Financial Health

Espaçolaser demonstrated robust cash generation with adjusted operating cash flow of BRL 60 million for the quarter, translating to a cash conversion of 106%. For the first half of 2024, total cash generation was BRL 106 million with a conversion rate of 81%. The company has reduced its leverage indicator to 2.2 times net debt to EBITDA, down from 2.6 times, showcasing improved balance sheet health and lower financial risk.

Focus on Customer Satisfaction and Brand Recognition

The company maintained its dedication to customer service, achieving a Net Promoter Score (NPS) of 86 and continuing positive relations reflected in customer satisfaction ratings on platforms such as Reclame Aqui. Additionally, Espaçolaser garnered recognition as one of Brazil's best franchises for the third consecutive year, underlining its commitment to quality and innovation in the laser hair removal sector.

Future Price Adjustments amid Strategic Initiatives

Looking ahead, Espaçolaser is implementing price adjustments averaging around 9%, starting from June through September. This initiative aims to remain adaptable amid economic pressures while maintaining service quality. The management is optimistic about demand for upcoming seasons and is strategizing around maximizing consumer engagement, particularly as summer approaches.

Continuous Adjustments and Challenges Ahead

Despite positive overall performance, there are challenges including the potential impact of future machine costs and external market dynamics. The company is closely monitoring operational expenses and is prepared to make necessary adjustments to maintain efficiency and manage profitability. Franchisee relationships continue to strengthen, with indications of a robust pipeline for new stores invested by existing franchisees, which remains a focal point for growth.

Earnings Call Transcript 2024-Q2

[Filipe Souza, executive]

Good afternoon, everyone. Thank you for waiting. I'm Filipe Souza, Head of Investor Relations for Espaçolaser. Today, we're here to present the results for the second quarter of 2024, which were released to the market yesterday. In the release as well as the ITR are available at the CVM and on our IR site.

We inform all participants that this video conference and the slides are being transmitted via Internet on the site, ri.espacolaser.br or either available for download. [Operator Instructions]. I would like to mention that any declarations which may be made during this video conference relative to the perspectives of business perspectives of the company, projections and goals and operational goals constitute beliefs and premises of the directors of Espaçolaser as well as information currently available to the company.

Future considerations are not guarantees of behavior. They involve risks, uncertainties and premises as they refer to future events, which -- and circumstances which may or may not occur. The economic conditions, general economic conditions of the industry and other factors may affect the results of the company and may lead us to results that differ materially from those expressed in these considerations.

Taking you in the teleconference today is Magali Leite and Fabio Itikawa, Director of -- CFO and Director of Investor Relations. I'm going to now pass it over to Magali to start our presentation today. Magali, please go ahead.

[Magali de Moura Leite, executive]

Thank you, Filipe. Good afternoon to everyone. I want to thank you all for participating in our call with reference to the second quarter of 2024. Before going on to the presentation, I would like to take advantage of this moment to present Fabio Itikawa, who has just joined our team as our new CFO and Director of IR for Espaçolaser.

I would also like to reinforce that with this movement, we are strengthening even more our team, our finance team, so that aligned with our strategy of continuing to deliver results and growth -- continuous growth. Fabio, welcome to the Espaçolaser team. I would also like to start our presentation talking about the principal highlights of the period. We closed the first quarter of 2024 and maintaining the consistency of our principal indicators, operational indicators and financial indicators, the period in which was marked by important realizations and strategic advances, which reinforce our commitment to sustainable growth and the value creation for our shareholders.

Going to Slide #4, I would like to mention the principal highlights of the quarter. Following our expansion strategy in the second quarter of '24, we opened 6 new franchises in Brazil, closing the period with a total of 858 stores in the Group, 798 are in Brazil and 60 in Latin America. These openings reinforce our capillarity and increase our presence in the principal regions of Brazil and other countries of Latin America where we operate.

Our system-wide sales was BRL 351 million in the quarter, registering growth of 4% in relation to the second quarter of '23. And in this half, we reached BRL 749 million, a gain of 1% in the comparison with the same period of '23. We continue to focus on the reduction of our indicator of cancellations, which presented another quarter of improvements with a reduction of 2 percentage points to 10.8% of gross revenue. With that, our net revenue grew by 5% in comparison to the second quarter of '23, totaling BRL 249 million. And accumulated -- indicator accumulates weak gains of 4%, reaching BRL 524 million. In line with the last quarters, we have continued constantly seeking gains in operational efficiency by means of efficiencies, initiatives of optimization of costs and expenses.

Again, these initiatives have given us important results with our EBITDA totaling BRL 57 million in the second quarter with a margin of 23%. For the first half, the EBITDA was BRL 131 million, a growth of 8% and a margin of 25% for the quarter. Continuing our search for results, we have delivered a net revenue of BRL 5 million in the quarter, with gains of 111% in relation to the second quarter of '23. And in the accumulated LTW, we totaled BRL 18 million with growth of 37% in relation to the same period of the previous year.

In relation to our cash generation and capital structure, we closed the second quarter of '24 with cash -- with an adjusted cash flow -- operating cash flow of BRL 60 million, representing a conversion of EBITDA and cash of 106%. In the half, cash generation totaled BRL 106 million with cash conversion of 81% in that period, reinforcing our commitment to the diligence and the management of our cash and the financial health of the company, once again, our leverage indicator had a reduction in the quarter with our net revenue to EBITDA reaching 2.2x in comparison to 2.6x in the second quarter of '23. In line with our commitment to the excellence in the client service in the quarter, we were recognized for the third time with the seal of small businesses and big great businesses as one of the best franchises in 2024.

This recognition reflects our commitment to the excellence in quality and innovation in the sector of laser hair removal. We closed one more quarter with notes that were quite positive, both in NPS as well as in Reclame Aqui. Finally, and due to the evolution of the new brand -- Espaçolaser the brand released in our last call, we realized a change from the brands from the principal operations in Latin America, which are detailed on Slide 5.

This change is tied to our strategy of communication and evolution in the consumer journey, reinforcing our position as a pioneer brand, the market leader and synonym of excellence in this sector. Looking at Slide 6, we're going to talk about the operational indicators of our business. System-wide sales totaled BRL 351 million in the quarter, a growth of 4.4% in comparison to the second quarter of '23. And for the first half, the sales reached BRL 749 million, a gain of 0.8%.

The sales indicators in the same-store sales presented gains of 2.2% in relation to the second quarter of '23. And accumulated, it presents a reduction of 1.4% in comparison with -- in the annual comparison on an annual basis. Going to looking at Slide 7 and our strategy of expansion during the semester, we opened 15 new franchises in Brazil, closing the period with 233 franchises.

On a consolidated basis, we closed the quarter with a total of 858 stores in the group being 798 in Brazil and 60 in Latin America. It's important to mention that these openings reinforce our capillarity and increase even more our presence in the principal regions of Brazil and American Latin America, which continues to be one of our great competitive differentials.

Slide 8 -- we show that we are continuing to be a reference brand in quality and satisfaction for the client. We closed the second quarter of 2024 with 86 as our NPS and a Reclame Aqui of 8.4 maintaining our certificate RA1000. Beyond that, as we mentioned recently, we're recognized for the third time with the seal of small businesses -- great businesses among the best franchises in Brazil. This recognition reflects our commitment with continuous excellence, quality and innovation in the sector of laser hair removals.

Now let's talk about our financial performance on Slide 10. We are delivering one more quarter of growth a reflection of our efforts of our sales team, our gross revenue reaching BRL 326 million and growth of 1.4% in comparison with the second quarter of '23. In -- for the half, our gains were 1%, totaling BRL 684 million in comparison with the same period of the previous year. We continue dedicated to reducing our indicator of cancellations, giving continuity to our gains of efficiency in that line, which presented a reduction, a relevant reduction on an annual basis with a reduction of 15% and an improvement of 2 percentage points in the period to 10.8% of gross revenue.

On Slide 11, we see the net revenue totaling BRL 249 million in the quarter with growth of 5% in relation to the second quarter of '23. due to the improved sales and significant reduction in cancellations for the half, our gains were 4%, reaching BRL 524 million. In the graph on the right, gross revenue reached BRL 91 million for the quarter with gains of 18%, an increase of 4 percentage points in comparison to the second quarter of '23. Gross revenue reached BRL 204 million, a growth of 14% and a gross margin of 39%. The improvement in profitability reflects the positive results of our projects of efficiency gains, operational efficiency gain implemented in the last year. For the quarter, our total costs presented a fall of 1% in comparison to the second quarter of '23, with a reduction of 4 percentage points in net revenue.

The increases in direct costs were compensated principally by the reduction of 7% in the cost of rentals and lower cost of marketing in the period. Beyond that, we observed a fall -- a significant fall of 32% in the cost of commissions for credit cards as a reflection of the initiatives of renegotiation with the credit card operators, which gave us important gains with better rates for the company, even with a growth of 13% in the quantity of bank transactions. Important to mention again that as we detailed in the release of results since the first quarter of '24, we have done pre-classifications in our demonstration of results have given us greater clarity and how -- give us better comparability for the analysis and the financial reports of the company.

Summarizing costs that were previously considered expenses, which would be the fund of promotion in Propaganda, technology expenses and systems related to the operation were reallocated from expenses to costs, which results in a difference in the line of gross profit in comparison with what we had released previously. Going to Slide 12, we continue to deliver important improvements in profitability and net profit. In the quarter, our adjusted EBITDA reached BRL 57 million with an EBITDA margin of 23% -- in the accumulated, the EBITDA -- adjusted EBITDA reached BRL 131 million with a growth of 8% and an adjusted EBITDA margin of 25%, gains of 1 percentage point in the annual comparison.

The graph on the right, as a reflection of our continuous efforts of all our team, we delivered a net profit of BRL 5 million in the second quarter of '24, gains of 111% in relation to the previous year. And the accumulated profit totaled BRL 18 million, a growth of 37%. On the next slide, we made an analysis of the cash flow and the capital structure of the company. As we presented in Slide #14, we continue focused on our strategy of the expansion of our franchises, preserving the company's cash. With that, we closed the quarter with cash generation of BRL 60 million, representing once again a robust conversion of EBITDA and cash of 106% for the quarter.

For the first half, the generation of operational cash totals BRL 106 million with cash conversion of 81% in the period. Going to the final slide of the presentation, Slide 15. We talk a little bit about our capital structure, again, reducing our indicator of leverage, which is 2.2x the net debt -- net revenue to debt, establishing the third issuance of debentures. It's the lowest level of leverage in 9 quarters. Beyond that, we have reduction of net gross debt with BRL 72 million, an improvement of 9% in relation to the second quarter of '23. I now close the presentation, and we're going to go to our section of Q&A, which will be conducted by Beatriz Silva, our coordinator of IR.

Good afternoon, everyone. This is Magali Leite, CEO of Espaçolaser. Welcome to one more event for the sharing of our results. I would like to take advantage of this moment, I would like to present Fabio Itikawa, our new CFO and IR lead. We're very happy with his entrance into Espaçolaser. And I'd like to ask Fabio to present because he will speak quite a bit with several of you as time goes by. Fabio, welcome.

[Fabio Itikawa, executive]

Thank you, Magali for your messages welcome. Good afternoon to everyone. It's a pleasure to be here with you in this first release of the results of Espaçolaser. It has been very -- I'm very animated. I'm very excited to be here on the Espaçolaser team, a highly qualified team, which has been implementing several initiatives in terms of growth, operational efficiency and allocation of capital. So I'm joining this team, and I hope shortly to be with you all to tell you a little bit about my trajectory and the initiatives and other ideas that we have for the Espaçolaser company. Thank you.

[Beatriz Silva, executive]

So I'm now going to start the Q&A session for analysts and investors. As Filipe mentioned [Operator Instructions].

Please unmute your line, Kelvin from Itau BBA. Go to the next question from which is Irma from Goldman Sachs.

[Irma Sgarz, analyst]

I have three questions, but I promise I'll be quick. First, I would like to know the temperature that you're feeling of the demand in the stores. I know that winter is not necessarily the best time when your services are most sought out. But looking in spring and preparation for summer, how do you feel about the demand of your services and the flexibility to be able to work with shorter periods of time. I know that you've implemented several measures to shorten -- and you shortened your period -- of your payment period for the use of your services.

Also understand the temperature in your franchisees, which is an important pillar in the stores -- store structure. And I wanted to understand some feedback on the level of profitability and the appetite that they have to invest and increase your network, especially since we are now in a period of higher interest rates for a certain period of time.

Obviously, this is a question which might not be specifically for this next quarter. But looking at this cycle of -- a longer cycle, we have an important component the segment of the machines. And I'd like to understand how you're looking at this -- possible pressures in relation to the machines.

[Magali de Moura Leite, executive]

Irma, I'm going to -- it's good to talk to you. Thank you for your questions. And starting from the last to first, in terms of the exchange rate cycle, yes, we have a park which is relatively updated. We're working very strongly on the management of our logistics and our supply chain. We have a strategy for the control of costs, which is very strong. We're improving more and more in the sense of effectively bringing the acquisitions of machines and consumables, which will be effectively used without generating any increase -- additional increases in our inventories so that we will be able to make this -- balance this out better.

In any event, I'm going to comment perhaps going forward as our initiatives of our results, we are able to pass these increases to prices. We've had an increase of a readjustment in the base price between June and September because fatally, this will serve as a point for balancing out the exchange rate cycle. We have to do some work, a very strong work in the second half of the year. We just have 1 month -- we're only 1 month into this half, but we're very satisfied with the results that we've had so far.

We have a strategy which is very well designed, very well defined to reach the results and the goals which we are imposing on ourselves for the second half. We're animated with the demand that we've seen in the market, and we are going to continue working on this continuous search for efficiency in all of our fronts. And what we can tell you is that the entire strategy for capturing the maximum demand that we can develop for the second half of the year is in effect and that the best people are -- we're very prepared for October which we treated as a Black Friday, which for us, it's a month of intensive work, a very strong month, and it's very important for Espaçolaser results.

And so we're very well prepared for that. And with relation to our franchisees, it's a constant labor to increase our relationship, our points of contact and to work in the sense that our own franchisees would be able to increase the investments in their stores in regions that are strategic for us, which are adequate for us to install other stores, other franchise stores. So the relationship is intensive.

We have a very high volume of business people among our franchisees. And they have the head for business, and we have felt a robust pipeline of demand for new stores, especially of these -- from the franchisees who are already in our base and want to open more stores.

[Beatriz Silva, executive]

We have a question here via chat from Jose. [Operator Instructions]. I'm an investor in Espaçolaser. First of all, I want to congratulate you for your results. The following number of cancellation was incredible, and it shows that your strategy has been successful. My doubt is about the masculine, the male public, which occupies 13% of Espaçolaser clients. What have you done to attract this type of public? Women, in fact, are the more evident public. What are you doing to attack this on this front?

[Magali de Moura Leite, executive]

Thank you, Jose. It's nice to be speaking to an individual investor today. If you see that we have some pieces that are dedicated to the feminine public in our social networks and it is a strategy of Espaçolaser to continue growing not only in the masculine public, but also -- and a younger public as well who today are beginning to have a demand for laser and also a series of initiatives directed at each one of these publics. We have an important marketing team, which is doing -- which we're doing on top of that. And remember that the masculine public is -- was half what it is today. So we have evolved greatly in that area. However, we're still not satisfied.

In general, we would like to -- that the market is still underpenetrated in the Brazilian public and in the masculine and young public. Certainly, these publics are an objective of our studies and our focus and an intensive investment in our initiatives in marketing.

[Beatriz Silva, executive]

Our next question comes from Kelvin from Itau BBA.

[Unknown Analyst]

Can you hear me now? I'm sorry for the technical issue earlier. I have two from my side here. First is in relation to the system-wide sales. Looking at the third quarter, I know that it will be a little bit more difficult. How do you see this dynamic in the short term? And what's your perspective for the rest of the year? And the second question is about your expenses. The second semester was difficult, but in the third quarter, if you can give us a little color about how the expenses have behaved or behaving going forward?

[Magali de Moura Leite, executive]

Thank you, Kelvin. Yes, we really did have one demand once again outside of our call and we're going to take advantage of all these other system-wide sales. What we're seeing now is that in the second quarter of '24, we had a growth of 2.2% compared to the period -- same period last how the system-wide sales grew 4.4%. Among these effects, we had a falloff in same-store sales of franchisees, which wound up being reflected in the consolidated numbers since we have more stores in the base compared to last year.

24 net stores, system-wide sales wound up growing more due to that. We've had an effect of maturing of these new franchisees and considering that we have a maturing curve of approximately 2 years, we have 40% of our franchisees are still in that 2-year period. So even though we've had a deceleration due to these reductions that we've had in the average in the recurring model. In any event, the growth in the same-store sales is a positive sign. We have attending our clients of our client, which is a result of an increase in traffic in our stores. In the third quarter, we only have 1 month. We can -- what we are following very closely, and we're very satisfied with the results up until now. It's evolving in a positive direction.

In relation to G&A, on the second quarter of last year, we had the benefit of a tax contingency due to a judicial decision. So we had a return of approximately BRL 2 million in the contingencies, which went up improving the results in the second quarter. However, it hurt us in 2024. So we also had expenses of the convention, which we did this year with our franchisees, which was very successful. However, we did not have this convention in the previous year. So we wound up having an additional expense. We also had extraordinary expenses for the issuance of this new debenture, which we released in the end of February.

We started valuing in March. We had the obligation doing a list of Corpóreos, which is the principal company of the Group and where our operation is. So obviously, to make this listing, we've had additional expenses as well as other things such as the sales, anticipation of sales and also of consultancies and audits. And due to this reduction in expenses, the sequential expenses. In relation to the third quarter, we had a reduction of expenses in any event, which are nonrecurring of last year, which were quite important.

So wound up being a little bit difficult to compare one quarter to the other.

[Beatriz Silva, executive]

Irma from Goldman Sachs raised her hand again.

[Irma Sgarz, analyst]

A follow-up on the price increases, which is being implemented in July, June, July and September. I want to know how much would this average price increase be?

And the other question is in relation to the direct calls. It's not the biggest line on your P&L. However, it did increase. It grew by 9%. And in the release, you even explained that this expense increased due to some legal expenses and several costs related to with the locations and the facilities. So I just wanted to get a little bit more color about that. What happened there? And if there's anything in that line that would be continuing in the next few quarters?

[Magali de Moura Leite, executive]

Thank you, Irma. Thank you for your questions. Yes, we did have an increase of direct costs. We had an additional cost of facilities with material for maintenance and building maintenance. But what was the biggest item was the judicial agreements which we did, which we already knew we had a significant risk of losing. So we made an agreement. Obviously, the cost comes in all at once, but we will have -- we will no longer have this provision on our books, and we will have an indemnization for having made an agreement as soon as possible, having certainty that sooner or later, we were going to have to pay. So we had an impact on taxes and fees, partly due to the revision that we had last year. But we had here also an impact supplier from last year. There was a reflection for maintenance parts, both in 2024, which wind up bringing us this effect.

And it's not that we're not so focused on this on this direct cost. These are things which we work out here. In relation to the correction of our price list, we have been able to pass through two prices. We had an average ticket increase of approximately 9% in the quarter. We're doing this correction in the table for June through September. We just don't open the percentages due to a strategic relationship with our base. This question of price list is done focused on the areas of the body with the biggest added value to make up the and privilege these average tickets. It's not in -- it's in certain specific services, this increase.

The average ticket is 9%. The increase is not linear for every part of the body. Okay.

[Beatriz Silva, executive]

[Operator Instructions] Since we have no further questions, we're going to go over to the final comments.

[Magali de Moura Leite, executive]

So, thank you all very much for participating in our call. I wanted to take advantage of this moment to thank you all. We know that it was an important delivery, a quarter that was -- it was a good quarter for us. We're very satisfied with the results. And we know that we had a work to overcome of our whole Group. So we want to thank our people and thank everyone who is accompanying Espaçolaser and being part of our team. We continue focused on this thesis on the national and delivering the best results for our stakeholders. And I wanted to wish a happy Father's Day to all of you who are participating with us today. Thank you all very much.

[Filipe Souza, executive]

The teleconference of Espaçolaser is now closed. We thank you all for your participation. Have a great day.