MPM Corporeos SA

BOVESPA:ESPA3

Earnings Call Analysis

Espaçolaser Achieves Growth Amid Market Expansion

In the third quarter of 2024, Espaçolaser reported gross revenue of BRL 318 million, pushing year-to-date revenues past BRL 1 billion. Net revenue grew 1.4% year-over-year, benefiting from an 8% reduction in cancellations. The company opened 35 new franchises in the past year, expanding its network to 870 stores. System-wide sales increased by 4%, amounting to BRL 406 million. Notably, the average ticket rose by 16%, with a focus on higher-value services. The EBITDA margin remained healthy at 19%, solidifying the company's path to profitability amid a rapidly growing market for laser hair removal, which now more than doubled in size since 2019.

Strong Financial Performance

Espaçolaser reported robust financial results for the third quarter of 2024, achieving gross revenue of BRL 318 million, marking a total of BRL 1 billion year-to-date. The net revenue stood at BRL 238 million, representing a year-over-year growth of 1.4%. Year-to-date, the cumulative net revenue reflected a 3% increase, totaling BRL 761 million. This overall performance is largely attributed to significant reductions in customer cancellations of 8% for the quarter and 12% year-to-date, demonstrating improved operational efficiencies.

Profitability Gains

Gross profit reached BRL 80 million for the quarter, indicating a 2% growth with a gross margin of 34%. Cumulatively, gross profit year-to-date amounted to BRL 284 million, showing a solid 10% increase and a gross margin of 37%. Such improvements suggest effective efficiency projects targeting labor costs, rental expenses, and credit card commissions.

Strong Cash Flow Generation

Espaçolaser demonstrated excellent cash generation with an EBITDA of BRL 44 million for the quarter and a cumulative adjusted EBITDA of BRL 175 million year-to-date, reflecting a 3% increase and an EBITDA margin of 23%. During the quarter, the cash conversion ratio from EBITDA was exceptionally high at 131%, with free cash flow generation of BRL 25 million forecasted for 2024.

Strategic Expansion and Market Positioning

The company maintains a commitment to expansion, having opened nine franchises in Brazil during the quarter and a total of 35 over the last twelve months, resulting in 870 consolidated stores across Brazil and Latin America. The system-wide sales also increased by 4% compared to the same quarter in 2023, driven by the openings of new stores and an uptick in average ticket sales, indicating a healthy growth trajectory in a well undercapitalized market.

Market Dynamics and Competitive Advantages

The Brazilian market for laser hair removal shows promising growth; it has expanded to BRL 11.7 billion from BRL 6.4 billion just a few years earlier, doubling in size. Despite increased competition in the sector, Espaćolaser's effective management strategies, combined with a decrease in competitive pressures as some competitors scale back, have positioned the company favorably for further market share gains.

Innovations and Technology Implementations

The company is also embracing technology enhancements within customer interactions, improving the application interface for scheduling appointments, which is aimed at accelerating customer engagement and satisfaction. They are rolling out features that allow for more fluid and practical scheduling, directly responding to customer needs.

Outlook and Future Guidance

Looking forward, Espaçolaser anticipates continued strength in sales, particularly in the upcoming fourth quarter, supported by promotional campaigns and strategic pricing adjustments that have led to a 16% increase in average ticket prices since the beginning of the year. The company is focused on maintaining operational control and further improvements in efficiency, leveraging technology to optimize client experiences while keeping an eye on the competition.

Reduction of Financial Liabilities

Espaçolaser’s financial health reflects reduced leverage with net debt to EBITDA at 2x, the lowest ratio recorded in the last 10 quarters, indicating sound financial management. The total gross debt also saw a BRL 70 million decrease, equivalent to an 8% reduction compared to the third quarter of 2023, which further enhances the company’s stability.

Conclusion

In summary, Espaçolaser is showing promising financial health, operational efficiency, and strategic growth in a rapidly expanding market. With innovation in technology and solid cash management, the company is well-positioned to take advantage of market opportunities while continuing to improve on the results seen thus far in 2024.

Earnings Call Transcript 2024-Q3

[Beatriz Silva, executive]

Good morning, everyone. Thank you for waiting. I'm Beatriz Silva, Manager of Investor Relations for Espaçolaser. Today, we are here to present the results of the third quarter of 2024, which were released yesterday to the market. The ITR release is available in the CVM and in our sight of RI.

I'd like to inform everyone that this is also being transmitted via Internet in the site ri.espacolaser.com.br, where the presentation will also be available for download. During the session of Q&A, the questions can be made by the "raise hand question" button. If your question has been answered, you can also leave the line clicking again on the same button. The question can also be made by clicking on the Q&A button at the bottom of the screen. If your question was not answered during the teleconference due to time, we will send an answer through e-mails.

Before continuing, I would like to clarify that any declarations that may be done during this teleconference relative to the perspectives of business of the company, projections or operational goals and financial goals are based on beliefs and premises of the directors of Espaçolaser as well as information currently available to the company. Future considerations are not guarantees of performance. They involve risks, uncertainties and premises because they refer to future events and therefore, depend on circumstances that may or may not happen. The economic conditions of the industry as well as other operational factors may affect the future operations of the company and lead to results that are materially different than those mentioned here.

We have participating in the teleconference, Magali Leite and Fabio Itikawa, CFO and Director of Investor Relations. I'm going to pass it over to Magali now to start the presentation. Please Magali, please go ahead.

[Magali de Moura Leite, executive]

Thank you, [ Beav ]. Thank you, everyone. And I thank you for your presence in our results call with reference to the third quarter of '24. Today, we're going to initiate the presentation speaking about the principal highlights of the period.

We closed the first 9 months of the year, maintaining the consistency of our principal indicators, operational indicators and financial indicators of Espaçolaser, a period that was marked by important realizations and strategic advances in diverse fronts of our business.

Going to Slide 4. Given the commitment to our strategy of expansion, we have opened 9 franchises in Brazil in the third quarter, in the 12-month period ending this month. We just have already opened 35 franchises, closing the period with 242 franchises. In the consolidated numbers, we closed the quarter with a total of 870 stores in the group being 804 stores in Brazil and 66 in Latin America, evolving even more in terms of capillarity, which follows being one of our competitive differentials. It's worth mentioning that in the last 12 months, we have already opened 54 stores among all the countries in which we operate, being 51 in the franchise model, reinforcing our commitment in assuming guidance for 2024.

Going to Slide 5. You can see that the system-wide sales totaled BRL 406 million in the quarter with a growth of 4% in comparison to the third quarter of '23. And then accumulated our sales reached BRL 1.2 billion, gain of 2% pushed by the opening of stores in the period and by the increase of the average sale in the company-owned stores, which reflects an average ticket with an optimization of mix in the body parts with higher value. And indicator of same-store sales showed a gain of 1.1% in relation to the third quarter of '23, as we brought in our release. This difference is attributed to the fact that many of our units inaugurated in the last quarters are still in the process of maturation, considering -- which impacts the performance of the same-store sales, especially the franchisees, while the systemwide stores benefit from the growth of the network.

Going to the next slide. Slide 6, we continue to be the reference brand in terms of quality and satisfaction of the client. We closed the third quarter of '24 with a total of 85 in our NPS and a score of 8.4 in the Reclame Aqui site being the highest among the principal players in the segment and maintaining our certification of RA1000, which gives the objective of those companies who have excellent indexes, the rates of service on the platform.

Beyond that, when we look at Slide 7, we are proud to mention that we recognized for the fifth time in a row as a Great Place To Work, also pointing out in the ranking of the health area of GPTW. We also received the award of the FINCON from MZ, which is dedicated to those who are excellent in their communication of publicly held companies in the market. We also received the Equalweb's seal as the company which promotes impact and a friend of digital inclusion, according to our sensitivity. We're also recognized by the FIA Business School with the award of Great Places to Work. And our first participation went into the ranking of companies with the best people management practices.

At the end of Slide 8. As we mentioned in our recent calls, we followed with our journey of improving our governance. In July, we announced the election of Fabio Itikawa, who is with me in the Head of Investor Relations and Financial Director. We also hired a director to lead the entire front of franchisees with the objective of pushing growth and strengthening our operational model. And finally, we announced in October, the election of Ana Zamper as our Independent Board member to talk about her experience in the digital area where she has already operated for more than 30 years as an executive.

These were the operational highlights of the third quarter. I'd like to pass it over now for the financial analysis, which will be presented by Fabio Itikawa, our CFO.

[Fabio Itikawa, executive]

Thank you, Magali. Going to Slide 11, we delivered BRL 318 million of gross revenue and we reached BRL 1 billion already accumulated for the year, year-to-date. In the quarter, the reduction of cancellations, which has been one of our principal focuses. This initiative resulted in a relevant reduction with a fall of 8% in the quarter and 12% in the year-to-date, also reflecting our gains in efficiency in this area.

At the beginning of the quarter, we realized a restructuring in the area of payments, involving people, leadership and process improvements. The team now operates MICE intensive with clients who are late in payments with the objective of reinforcing even more of the reduction of our cancellations.

On Slide 12, net revenue totaled BRL 238 million in the quarter, with a growth of 1.4% in relation to third quarter '23, benefited by the significant reduction in cancellations. And accumulated year-to-date, the gains were 3%, reaching BRL 761 million. On the graph on the right, the growth profit reached BRL 80 million in the quarter with a gain of 2% and a gross margin of 34%. And year-to-date, the gross profit reached BRL 284 million, with growth of 10% and a gross margin of 37%. The improvement in profitability reflects the positive results of the projects of efficiency gains in operational efficiency implemented in the recent periods especially in the lines of personnel, rentals and credit card commissions.

Important to mention again that as we mentioned in our results release, since the first quarter of '24, we have reclassified our DRE in our financial reports following the best practices in the market.

Going to Slide 13, we see that the EBITDA reached BRL 44 million in the quarter with an EBITDA margin of approximately 19%. And year-to-date, the adjusted EBITDA reached BRL 175 million, growth of 3% and adjusted EBITDA margin of 23%. The principal impact came from the performance of Argentina, which is reflected in the line of equivalents.

On the right-hand graph, we showed that we are focused on the strategy of cash generation with the closing of BRL 58 million, representing once again, a robust conversion of EBITDA to cash of 131% in the quarter. The accumulated generation of operating cash totaled BRL 164 million with cash conversion of 94% in the period.

Going to Slide 14, we can observe a solid cash generation in the period with the reduction of CapEx due to our prioritization of the expansion of franchisees and a reduction in our financing costs and interest expenses, making us generate cash of BRL 25 million free cash in the year 2024.

Going to Slide 15, and speaking a little bit about our capital structure. Again, we reduced our indicator of leverage and reached 2x net debt to EBITDA being the lowest level of leverage in the last 10 quarters. Beyond that, we have also had a reduction in the gross debt in the period of approximately BRL 70 million, an improvement of 8% in relation to the third quarter of '23. In October, we talked about the mission of a CCB of BRL 30 million taken by our integral subsidiary with a longer period, with a 1 year of grace for the principal and interest of CDI plus 2.9%, significantly lower than the previous interest rate.

I'm going to pass it back over to Magali, who will present a short update on the market studies and other initiatives within the company.

[Magali de Moura Leite, executive]

Thank you, Fabio. First of all, we're going to speak quickly about the improvement in the market studies, which we released with our details of our results. On Slide 17, we brought the results of this update related to the size of the market penetration, competition and other profiles of our consumers. To give you a little context, our IPO in 2021, we realized the study of the market of laser hair removal in partnership with a well-known consultancy, which gave us a base for the strategic decision. At that time, the research showed a low penetration of the technology in Brazil of only 5%, well below the 20% in the U.S. or 50% in Spain. In 2024, we updated the study with new results [indiscernible] there's a significant advance.

As you can see on the left-hand side, the penetration more than doubled, reaching approximately 15%. This growth reflects the increase in adoption of this technology and the concretization of the benefits as efficiency and durability as well as offering great opportunities for future growth and shows us that there has been a market well underpenetrated.

Looking at the right-hand side, if you look at the growth of the penetration of this technology, the size of the marketing value also expanded. In 2019, the market of laser hair removal in Brazil was estimated at BRL 6.4 billion. Today, this has gone up to BRL 11.7 billion, practically doubling. This growth reinforces the global tendencies of health and health care, which has caused consumers to invest more in aesthetic procedures and quality of life.

The graph on the left on Slide 18, we see that to accommodate this expansion, the principal players in the market have increased quickly the number of stores. Nonetheless, recently, some of these players have started a phase of rationalization, closing units and adjusting their capacity of service, which indicates a spirit of natural selection and consolidation of the market.

On the other hand, Espaçolaser has maintained a trajectory of strategic expansion opening 35 new franchises only in Brazil in the last 12 months. When we include Latin America, this number goes to 54 stores. [indiscernible] tendency in our analysis is the growth of the adhesion of the masculine public to these methods of hair removal. The number of men using these techniques has more than quintupled from 0.4 million to 3.1 million users, an increase of approximately 8x. This change reflects a cultural significant cultural evolution indicating new opportunities in the market.

In our client base, the penetration of the masculine public increased from approximately 5% in 2017 to approximately 13% in the current numbers.

In summary, the updated data shows this trajectory of growth of the sector of laser hair removal move in Brazil, driven by low penetration and a new profile of consumers.

Now looking at Slide 20, I would like to show you a new subject, which is a subject of coolers, which we are implementing in the company. We are introducing a new method of skin cooling in the stores, substituting a material that we used historically. By September '24, we already had 35 operators working with these new coolers. This machine is a Brazilian machine, has a low investment with a payback between 11 and 12 months. Beyond that, the project offers a relevant potential of economy and costs since it utilizes air as the cold conductor eliminating the necessity for other thermal fluids.

On Slide 21, we're going to talk about the initiatives in technology, which we are implementing in our client journey, addressing a demand related to the scheduling sessions beyond the improvement in the layout, we made several changes in the interface of the application, including a new screen of scheduling, and more adequate for the use of the client. Beyond that, the client is able to choose between 5 days according to his preference. We also implemented a screen of recommendations and locations and times, if they might be unavailable for what they want, making the process of scheduling much more fluid and practical.

On Slide 22, we presented a new section of the app developed with the help of our clients to regularize those who are with late payments. And as we usually mention, each nonpayment gives us a type of churn because the client is no longer able to do sessions while they do not have these unpaid bills. Item 2, we implemented a new filter, which permits the stores operating laser and YAG, especially directed to those with darker skins offering greater access and personalization for the attendance of our clients.

At the end of Slide 23, we presented a new [indiscernible] integrated in the app, eliminating the necessity of redirecting to the site, implementing a new format of visualization of the schedule, and we installed a Push for confirmation of this during the app, automating the process and diminishing the need of interaction with the consultants, which is guarantee of more agility and convenience in services. All of these initiatives have it's objective to proportion a client journey, which is more digital and automated, to facilitate the day-to-day of our clients as well as giving them an experience that is more practical, agile and convenient in all of their points of contact.

I would now like to close our presentation, and we'll go to our session of Q&A which will be headed by Beatriz Silva, Head of RI.

[Beatriz Silva, executive]

Thank you, Magali. We're now initiating the start of the questions and answers for analysts. If you would like to make a question, please use the raise hand button. If your question has been answered, you can leave the line clicking again on the same button. Our first question comes from Kelvin from Itau BBA.

[Unknown Analyst]

We have a couple of questions on our side. First, I want to understand if your initiative of pushing these sales to the front, what's your -- and how are the sales have been at the beginning of this quarter, which tends to be a strong period for you. And again, if you can give us an update on how the initiative to pricing these payment means and reducing the payment term -- the time period of payments?

[Magali de Moura Leite, executive]

Kelvin, this is Magali. Thank you for your questions. We're having a fourth quarter even though it's just 1 month into it, which is being very important to us in terms of sales. As you know, we've the principal promotional campaigns concentrated between now and October and November, we prepared greatly for these last few months of the year, and we're focused on the opportunities of Black Friday, well prepared with a field team, which is very involved. So we're working very strongly to have a solid return. We're going to continue working in this continuous search for efficiency in all of these fronts.

As far as your question, payment means, yes, we have a series of initiatives. We can't give guidance regarding them. But I would say that these -- it's a process in the development with several projects tied to it, where we believe that there will be opportunities to capture certain efficiencies and certain new things, which we'll be able to use. We plan to continue evolving in this direction.

[Beatriz Silva, executive]

Thank you Magali. Our next question is from Eduardo [ de Lapin ], Alice Investment.

[Unknown Analyst]

First, congratulations on the results, Magali and team with the generation of cash and the increase in profitability. My question is, first of all, thank you for the details, which you mentioned in relation to the competition and the market, we have seen that you have continued to expand the number of stores while the competition is actually pulling back. So certainly, there will be a gain of share in the period. I just wanted to ask you if you have started to see this dynamic of less competition as you continue to expand in the capacity in terms of price, have you seen any effect in terms of price?

[Magali de Moura Leite, executive]

Thank you for the question, Eduardo. Yes, it is a fact that this movement on the contrary of our competition is very clear. And I see this not only in Brazil, we also see it in the other operations that we have around Latin America, Argentina, Chile growing above that which we had foreseen. In relation to price, we have been able to pass through -- we had an average ticket increase of approximately 16% when we compared it to the beginning of the year. We have done a process of phased price increases since June, focused on body parts with higher added value. And we also have a strategic operation, very important, which we developed in the field, which is to privilege those areas that bring a bigger return for the business along with our installed capacity of attending with excellence, these clients and our team is very aligned with this plan.

And we are today, when we look at the growth of gross profit of 10% year-to-date, we see that we're on the right road. So all of this work, which is being done include, in fact, in sustaining the EBITDA year-to-date of approximately 23% reflects really this work, which we've been developing together with the team and our solidity in the market.

[Unknown Analyst]

If I can make one more quick question. We see that there is still space in the company for an optimization in the tax situation. Are there any initiatives that you can share with us to improve a bit -- the question of expenses, income tax and the fiscal optimization of the group as a whole?

[Magali de Moura Leite, executive]

Thank you for your questions. In fact, the basis for us to implement this process of improvements and fiscal efficiency, we've already taken big steps, which is Corpóreos, which is our operational subsidiary listed. With that, we have been able to have greater efficiency in terms of tax and debt, and there is some work still to be done to migrate part of what is today in the holding in the operational -- to the operational part as well as other initiatives that we're seeing as far as efficiency and to look at credits, crystal credit, tax credits that we can take with our consumables and several other operations that we have here eventually to have a distribution of interest to investors from the operational and nonoperational. And so yes, there are several initiatives to be done to reduce or have a greater efficiency in the income tax rate.

[Beatriz Silva, executive]

Reminding you to make a question, please click on the raise hand button. I have 1 more question from [ Juliano Galiano ] from Santander.

[Unknown Analyst]

I wanted to understand a little bit better where the reduction of sales expenses is coming from. You can see that this has had a strong impact this year. And if there is space to diminish this further or if this should increase in the next periods?

[Magali de Moura Leite, executive]

Juliano, thank you for your question. Regarding sales expenses in general, we had the impact related to the renegotiation with the platforms of Meta, which is basically Google and Facebook and also the marketing was due to the finalization of a contract which we had with a company that did the management of our payments because we have now internalized this function and be able to do this in a more efficient way internally. And we were able to bring this function inside the company [indiscernible] with that a significant savings. Perhaps at some point in time, we may go back to these 2 lines of marketing which will be presented separately because the impact was for the team, the service team. The field team, we finalized it, but it didn't, perhaps it doesn't make more sense to have this as it was previously structured.

[Beatriz Silva, executive]

Thank you, Magali. Thank you very much. We have no more questions, so we're going to close our question-and-session. I'd like to pass the microphone over to Magali Leite for his final comments.

[Magali de Moura Leite, executive]

Thank you all very much for participating in our conference. The company reaffirms its management, a very robust management in terms of structure, capital with cash conversion, very strong efforts in the line of cancellations, which we have reduced by a large percent compared to the previous quarter. And we have 10 quarters in a row consecutively reducing our leverage. We have just made a new debt where the cost much more aligned with what the company has presented in terms of results. This debt has a longer period of longer term and a longer grace period. So our capital cost continues to reduced even though -- in spite of the increase in interest rates, Selic rates and the accumulated results.

And so that's it. We've done a very strong efforts in terms of deleveraging and increasing the profitability of the company. And the results, which is very much aligned with what we've been developing in terms of strategy, and what we've been doing, which is at a very high level of adherence from our team. We're very cohesive and very excited. In fact, with the closing of the year because we see a repetition of all of these actions and all our plans being effectively executed with the significant results being presented. Thank you very much.

[Beatriz Silva, executive]

Teleconference of Espaçolaser is now closed. We thank you for your participation, and please have a good day.