Even Construtora e Incorporadora SA

BOVESPA:EVEN3

Earnings Call Analysis

Even's Q3 2024 Shows Strong Growth and Future Confidence

In Q3 2024, Even reported impressive growth with net sales reaching BRL 1 billion, reflecting a 47% increase from the prior year. Net revenue rose 38% to BRL 1.7 billion, while gross profit surged 62% to BRL 459 million, resulting in an adjusted gross margin of 30.7%. The company announced a strong cash position of BRL 823 million and paid BRL 230 million in dividends. Looking ahead, Even projects BRL 2 billion in launches for 2025 and 2026 and anticipates continued profitability, buoyed by successful high-end projects like the recent Jardins partnership.

Strong Performance in Q3 2024

In the third quarter of 2024, Even reported significant growth metrics that paint a promising picture for potential investors. The company achieved net sales of BRL 1 billion, an impressive 47% increase year-over-year, while net revenue rose by 38% to BRL 1.7 billion. Gross profit surged to BRL 459 million, representing a 62% increase compared to the previous year. Furthermore, the adjusted gross margin improved by 5.4 percentage points to reach 30.7%, primarily due to enhanced sales margins and successful launches over the past two years.

Impact of Melnick Sale

A notable highlight was the conclusion of the sale of Melnick's shares, enhancing shareholder flexibility and generating substantial cash for Even. The CFO, Marcelo Dzik, mentioned that this strategic move allows the company to focus solely on its São Paulo operations, which have a proven track record of consistent results and favorable prospects.

Improved Profitability and Cash Generation

For the first nine months of 2024, Even reported a net income of BRL 164 million from its São Paulo operations—a 21% year-on-year increase. The company's operating cash generation stood at BRL 212 million, accompanied by BRL 230 million in dividends paid out throughout 2024. This instills investor confidence, as the company demonstrates not only profitability but also a robust commitment to returning value to shareholders.

Upcoming Launches and Revenue Guidance

Looking ahead, Even is optimistic about future projects. They have initiated a joint venture with RFM, launching a high-end project valued at BRL 168 million in São Paulo. The company anticipates a significant cycle of deliveries amounting to BRL 2.5 billion over the next 12 months, with a substantial portion already sold. Investors can expect around BRL 2 billion worth of new project launches throughout 2025, with most approvals either secured or in the final stages.

Healthy Inventory and Land Bank Position

The current inventory, primarily focused on middle to high-end projects, is valued at BRL 1.9 billion, representing approximately 16 months of net sales. It's noteworthy that only 10% of this inventory consists of finished units, indicating strong demand for upcoming properties. Furthermore, the land bank is robust, with Even investing in prime neighborhoods and maintaining a total potential sales value of BRL 5.9 billion across 25 lots.

Solid Financial Foundation and Market Resilience

Even closed the quarter with a gross debt of BRL 1.3 billion and a healthy cash position of BRL 823 million, resulting in a net debt-to-equity ratio of 22%. The company's debt is primarily linked to production financing, maintaining a quality structure in challenging economic times. CEO Marcio Moraes expressed confidence in the company’s ability to leverage real estate investment opportunities and maintain profitable operations within São Paulo's growing market.

Monitoring Cost and Margin Challenges

Although materials costs and labor have shown inflationary tendencies, the management expects to maintain margins stable with ongoing oversight. The forecast for recurring cash generation at the end of next year is estimated at around BRL 200 million, with dividends anticipated to represent roughly 50% of net income. This balanced approach indicates a cautious yet optimistic outlook amid fluctuating market conditions.

Earnings Call Transcript 2024-Q3

[Operator]

Welcome to Even's earnings call concerning the results of the third quarter of 2024. I would like to point out that for those who need simultaneous translation, the tool is available on the platform. To use it, you have to click on the button, interpretation, the globe icon at the bottom of the screen and choose your preferred language, Portuguese or English. For those who will listen to this teleconference in English, there is an option available to mute the original audio in Portuguese by clicking on the mute original audio button. We'd like to inform you that this event is being recorded and will be made available on the company's investor relations website, where the complete material concerning this earnings call will be available. [Operator Instructions]

We would like to clarify that any statements that might be made during this teleconference regarding Even's business prospects as well as its operating and financial projections and goals are based on the beliefs and assumptions held by the company's management and on information currently available. Forward-looking considerations are not a guarantee of performance and involve risks, uncertainties and assumptions since they refer to future events and therefore, depend on circumstances that may or may not. Investors should understand that general economic conditions, industry conditions and other operating factors may affect Even's future outcomes and may lead to results that materially differ from those expressed in these future considerations.

Here with us today are the Chief Executives of the company; Mr. Marcio Moraes, CEO; Mr. Marcelo Dzik, CFO; and Mr. Tiago Krall, Strategic Planning and Investor Relations Director.

I will now give the floor to Mr. Marcelo Dzik, Even's CFO.

[Marcelo Dzik, executive]

Good morning, everyone. It is my pleasure to present Even's results concerning the third quarter as well as accumulated results in the first 9 months of the year. In this quarter, we concluded the sale of the totality of Melnick's shares with the goal of giving our shareholders greater flexibility in their choice of investing in Even or in Melnick in addition to a significant cash generation for the company. Starting at the next quarter, company's figures will come exclusively from Sao Paulo's operation, where we have a relevant history and consistent results with excellent prospects.

I would like to begin with the highlights of the first 9 months of 2024. Our net sales amounted to BRL 1 billion. Our inventory sales amounted to BRL 841 million, which is a 40% -- 47% growth when compared with the previous year. Net revenue totaled BRL 1.7 billion, 38% growth. We reported a gross profit of BRL 459 million, 62% higher than in the same period of last year. Accumulated in the year, the adjusted gross margin was 30.7%, representing an increase of 5.4 percentage points, which results mainly from higher margins in sales and the positive contributions of launches in the past 2 years. Quarter-over-quarter, we have reinforced this trend of reconstituting our margins, which can be observed in inventory margins and in the margins of our next launches. We delivered BRL 164 million of net income in Sao Paulo's operation, an increase of 21% when compared with the first 9 months of 2023 and an annualized ROE of 11.7%.

Another highlight was accumulated cash generation to the amount of BRL 212 million as well as BRL 230 million in dividends paid out in 2024. When we consider the announced amount that we paid in October.

The next graph, we show the consolidated composition of results in the quarter. Even's recurring profit, excluding Melnick was BRL 38 million, as pointed out in the previous quarter, the BRL 42 million concerning the minority share that had been allocated as financial obligations and deferred proportion to sales in the second quarter, which positively affected the result were reclassified and recognized in this quarter, negatively affecting the result by the same amount. When the 2 quarters are considered together, the effect of this reclassification is neutral. Selling Melnick at market price and therefore, below its equity value negatively affected profit by BRL 106 million, resulting in a consolidated loss of BRL 110 million.

In the next slide, we present the net income history of Sao Paulo's operation in the last 7 quarters. We can observe the consistent delivery of profit quarter-over-quarter and the increase in the level of profitability based especially on the gradual recovery of margins and efficiency gains. In the third quarter of 2024, we launched the first project from the joint venture between Even and RFM. The high-end launch is Edifício Jardim located on Alameda Tietê in Jardins neighborhood with a PSV of BRL 168 million where Even's share is BRL 42 million. We are confident in this partnership, and we expect good results from future projects.

In the next slide, we can see some images of this product.

We are now presenting our sales performance. The volume of net sales in the quarter was BRL 247 million with a consolidated SoS of 12%. The sales of inventory remained consistent, adding BRL 841 million. Regarding cancellations, we closed the quarter with BRL 36 million, which is a stable level when compared with the previous year. It is worth noting we continue to have one of the lowest historic percentages of default in our portfolio.

Moving on to the next slide. We delivered three projects in the quarter that represented BRL 260 million in PSV and 480 units. We are at the beginning of significant cycle of deliveries, estimated to be around BRL 2.5 billion in the next 12 months.

These are some photos that attest to the company's high quality of execution. We ended the quarter with a total inventory worth BRL 1.9 billion in Sao Paulo, ranging mainly from the middle income to high-end projects and which represents 16 months' worth of net sales.

We finished -- the finished inventory ended the year at the quarter at BRL 196 million, representing only 10% of total inventory.

Moving on to land bank. We purchased a lot in Jardins for BRL 49 million in share and updated another 2, which had an increase in their potential and represent BRL 272 million in share. Our land consists of 25 lots are totaling a PSV of BRL 5.9 billion, located mostly in prime neighborhoods in the south and west side of Sao Paulo City.

In the next slide is a relevant part of our strategy, we present our solid capital structure. We closed the quarter with a gross debt of BRL 1.3 billion, mostly dedicated to financing production, and we closed the quarter with a relevant cash position of BRL 823 million which represents a net debt to equity of 22%. We highlight the amortization schedule of corporate debt with a very extended periods and consistent with our payment cycle. In this quarter, we generated BRL 186 million in operating cash and the sale of Melnick's stock contributed BRL 134 million to this result in the period. We paid out until October BRL 230 million in dividends to our shareholders, collaborating our strategy of focusing on profitability and value generation.

I will now give the floor to Marcio Moraes, Even's CEO.

[Marcio Moraes, executive]

Good morning, everyone. I'd like to begin by thanking all investors, analysts, everyone else for attending Even's earnings call for the third quarter of 2024. We have had excellent volumes of sales this year, exceeding our expectations, especially when it comes to finished inventory or inventory that's close to delivery date, attesting to the quality and acceptance of our products. Our inventory is at a very healthy level, concentrated in the middle, upper and high-end segments with only 10% of finished units.

In this quarter, we launched the first project in partnership with RFM in Jardins neighborhood. Besides, we have over BRL 900 million worth of land bank Even's share for launches in future quarters as a result of this partnership. Due to the interruption of municipal approvals this year, we had a few postponed launches that should be out in the market soon. We have a robust pipeline of launches for future quarters with projects that have been approved or are in the final stages of approval and with relevant PSVs, which strengthened our strategic position in the middle income and high-end segments. We have been able to obtain great business opportunities with an active land purchasing strategy in the most desired neighborhoods of.

According to the strategy, we have achieved growth and profitability and have paid out substantial dividends. These results are sustained by increase of margins, solid capital structure, efficiency in cash allocation and optimized operating structure. We will continue taking advantage of real estate investment opportunities, totally focusing on Sao Paulo, and we remain confident in the continuous growth of our results in the future. Thank you all. We may now proceed to Q&A.

[Operator]

Our first question comes from Herman Lee, Bradesco.

[Herman J. Lee, analyst]

We have two questions here. First, I would like to understand what's the selling front of Faena, which is a premium product and maybe the sales will be more elongated. And how the sales will evolve in future quarters?

And the second quarter -- second question refers to the gross margin. And this was the accounting effect of last quarter. I would like to understand the impact of this effect in the margin, how it contributed to these margins and how this will converge in the next 12 months.

[Marcelo Dzik, executive]

Herman, Dzik, here. Thank you for your question. We had a good launch at Faena, with 20% of the first tower that we opened for sale. So it's a very high-end project. So in a very long period of construction. So the result has been very good. In the last quarter, we did not have sale because it was not concluded. So the process of negotiations is very long. We're talking about a contract, a branding contract. So it's a little more complex to negotiate this deal. But in the fourth quarter, we have had more than BRL 80 million of PSV in sold units. So we have been talking a lot about this. It's a long-term project, and we have been working with the customers the best way so we can add value to this project. So we are happy with how it's moving along. The construction work will begin next year. So we have a long period of time to work with the clients.

Yes, it's a more complex negotiation. Last quarter, June was, it's a seasonal period. Negotiations are slower. So we have been dealing with sales to add value to this project. Regarding gross margin, we had some seasonal effects.

And to make it more clear, we had a margin in this quarter that suffered the effect of the adjusts. So this represents 9 percentage points in the quarter due to the adjustments, but this is around 31% in this quarter, but this would represent 4 points in last quarter.

So when we normalize this effect, we have basically a 30% margin in the 3 quarters, which is in line with our projections and the recovery of margins we have been working on. And we will work to continue recovering these margins, especially with the future launches. We report an adjusted margin of 30%, 26% and 40% with a 9% adjustment, but the 26% would also be 30-and-some percent. When we consider normalized margin in the 9 months, it's around 30%.

[Operator]

Our next question comes from Elvis Credendio, BTG.

[Elvis Credendio, analyst]

I have two questions. The first one is concerning Faena. I would like you to talk a little bit about it from the point of view of competition. So there's a lot of competition that will be launched around the Faena product. If you think there is a direct competition between Faena and this other project? And if you think that this may change -- eventually change your strategy if there is some risk of this happening that you have to change your strategy?

The second question concerns deliveries. In your presentation, you said BRL 2.5 billion of PSV in the next 12 months. I'd like to understand how much of these deliveries is already sold? And how do you see cash generation in the future?

[Marcio Moraes, executive]

Elvis, Marcio here. Thank you for your question. Regarding the competition, Faena's competition, yes, we see this competition, but it's across the river in Jardim Guedala. I think it's a launch that's good for the market. But there's a very important difference from our project. Our project has a hotel connected to it, which allows for a higher occupation. We are moving with our -- moving ahead with our plan, as Dzik mentioned. It's a long-term race and our product has been well accepted. And we are going to use the end of the year to divulge, not to advertise this product, and we're going to begin construction work in May next year. So we'll be able to think about this project. We always follow the competition, but we always see it as a healthy thing.

Concerning your second question, Dzik will answer.

[Marcelo Dzik, executive]

We're talking about the deliveries and inventory. We have a very healthy level. We have been working on this level of 10%. It's a very young inventory. We have some projects to be delivered this year, around 70-some percent sold. And we have seen a very important effect in our last deliveries. We have invested a lot in the product, in the project, and the acceptance has been very good from clients. Our SoS has been very quick from the moment we deliver the project.

So of course, this is important for sales during the construction work phase. Sales happen with restriction of access. You cannot effectively show the product, but we can see a very strong acceleration of sales. So this is around 10% and this deliveries happening this year. I'm sure that next year with more than 70% of this sold will be good, and it's a normal cycle. We have had good surprises. Levels of acceptance, we are using the leisure area, the common areas with customers. We are in line with our expectations of selling these products.

[Operator]

Our next question comes from Matheus Meloni, Santander.

[Matheus de Carvalho Meloni, analyst]

The first one is a follow-up of your last question regarding deliveries. How do you see this issue of the transfers? We have seen some news that Caixa Economica has been holding up out on this -- some of these transfers. How do you see the situation? Do you see it as normal? You see some bottlenecks?

And I'd like to understand how -- where your head is at in terms of launches. here.

[Marcelo Dzik, executive]

Matheus, Dzik here. We are talking about transfers taking a step back. We have seen some higher interest rates and all the impact it has in the economy and some banks signaling some changes in level, Caixa Economica sending some signals. Directly at our end, we haven't seen the impact of this yet. Everything is going on normal. We have very little dealings with Caixa Economica.

Of course, it's important. But for us, for now, we haven't seen any news, any impact. We have been working with the same levels of previous years. Of course, we are more protected because we're in the very high end. The percentage in which these clients need financing changes. These people have more access to finance to credit lines. So we are kind of shielded from the higher interest rates. So this is not good for the market, of course. But for now, it hasn't impacted us directly.

Marcio will answer about launches.

[Marcio Moraes, executive]

Our projections for next year, we have around BRL 2 billion worth of projects to launch next year. So the first quarter and the second quarter. We do not think we'll have any changes, significant changes. We may speed it up. We have some projects at the final stages of approval that could enter this pipeline, but it will depend on how the market reacts. And also, we are working on this partnership with RFM, which will produce more results next year. So for 2025 and 2026, we have many launches in the pipeline, and we believe the market will remain resilient for the high-end segment.

[Operator]

Our next question comes from Ygor from XP.

[Ygor Altero, analyst]

The first is a follow-up of the previous question regarding RFM. You announced the first launch of this partnership. I would like to understand how you see in terms of timing of launches for the next projects. I think you have some important projects on Alameda Franca and Jardins. I would like you to talk about the timing and also your prospects for -- in terms of participation in these projects looking ahead 2025, 2026?

My second question is about the reconstitution of the land bank. When we compare 2024 against 2023, you had some growth in land bank, but more and more, some projects are concentrated in terms of PSV that demand a larger area that the acquisition is more complicated. How calm -- how tranquilo we are -- you are with the land bank? And if you have had some improvement in the pace of approvals because that's part of the problem we saw in the first half of the year.

[Marcio Moraes, executive]

Thank you for your question. Let's just start by the first one, RFM. We had a launch in this quarter, Tietê project. In the fourth quarter, we're going to have an BRL 800 million PSV project, Alameda Franca. Even's participation on average is 50%. It could be a little more in some projects. For example, Alameda Franca even is 60%. And next year, we have a pipeline of projects in which events participation will be around BRL 500 million. So BRL 1 billion total for next year. Basically in Jardins, Jardim Paulista, Itaim, maybe. These are the projects that have already been approved. We do not see projects for other periods because we still have a land bank for 2026, for the second half of 2026 and beginning of 2027.

Regarding land banking approvals, yes, this year, we had a stoppage in this because of the zoning law changes, and they were just finished wrapped up in the middle of the year. So this delayed some approvals in the first half of the year. Some projects by Even have already been postponed until next year because of this, but the speed is already normalized. We have had the reelection of the mayor and the staff in this department is, I think, normalizing. Now it will be normal from now on.

[Marcelo Dzik, executive]

Complementing Marcio's answer, yes, we do invest in bigger projects, which the approval process is more complicated, more complex. It may bring some seasonality into it. So it makes it a little less predictable. We're talking about quarter line. So some quarters, we launch a little more. Some quarters will launch less. And we have this seasonality, especially on a quarterly basis. It's part of our strategy.

As Marcio said, we have a very good-sized land bank. Approvals for next year are advanced. And I think this will be a more market-oriented approach than really approval issue -- approval-related issues.

[Ygor Altero, analyst]

If you could give me a follow-up regarding this BRL 2 billion of PSV, how much of this you believe is already approved?

[Unknown Executive]

Basically, 100% of it, we are already approved or in final stages of approval, a little bit more than that, but the dynamics of volume, we do not give you any guidance, but the remaining inventory, if it remains healthy. But right now, we can launch approved projects that are over BRL 2 billion of PSV for next year.

[Operator]

Our next question is from Carla Graca, Bank of America.

[Carla Graca, analyst]

Congratulations on your results. I would like you to give an update regarding costs here in Sao Paulo regarding materials cost, which is becoming a little more relevant and also labor costs, which is putting pressure on the margins. And if you see a delay?

And my second question is regarding the margin generation for 2025. If you see you will keep the same level of dividends for next year?

[Marcio Moraes, executive]

Carla, Marcio here. I'll start by the first question. Concerning the costs, yes, we have been seeing some, some reflects, especially because of the exchange rate and power, energy, it's affecting our materials cost. It's a concern for the market, but in the long term, we do not see a scarcity of labor. It went up considerably in 2022 and '23, we recomposed these margins.

So this year, we will not feel this so much. But materials inflation, yes, we are monitoring this, and we are looking at it month by month to see how this is affecting our costs. The delay of INCC, we see at 1%. So it's 1% above the INCC variation. It's under control. But of course, we are paying close attention to this cost variation. I don't believe we will have any big surprises, but regarding margins, Dzik will answer that.

[Marcelo Dzik, executive]

Thank you for your question. Talking about cash generation, our expectations, of course, it all depends on business opportunities, how we allocate, but our expectations for the end of next year is around BRL 200 million in cash generation. And the guideline as recurring dividends, of course, this may change depending on market conditions, but something around 50% of our net income is what we are forecasting for next year. Of course, in 2024, we had a nonrecurring effect from the sale of Melnick stock, but most of this we transferred to our shareholders.

[Carla Graca, analyst]

Congratulations again on your results.

[Operator]

Our next question is from Rafael Rehder from Safra.

[Rafael Rehder, analyst]

I would like to approach the issue of clients, how you see. In the recent past, we have -- you have been selling for people outside of Sao Paulo. I'd like to see how you see this dynamic going on now. And I would like to approach the funding issue, but concerning the companies, if you have been able to obtain funding from banks or if you have other sources of funds of raising funds.

[Marcio Moraes, executive]

Rafael, Marcio here. The first part of your question regarding customers, we have external clients, but 70% of our customers are from Sao Paulo and 30% like in our experience at Fasano, it was 30% and the same thing is happening with Faena.

So Sao Paulo customer asked this question a lot, what kind of customers is buying. But the offer of the high-end projects with a more support, more leisure infrastructure, and this has been the biggest change. So this volume of sales is very good in the high end. But it's basically 70% customers from Sao Paulo and 30% from outside of Sao Paulo.

This may end a little bit more depending on how the agribusiness performs, but we have seen this change. Sao Paulo is becoming a leisure entertainment city, and we have seen this increase in people coming here with this mindset.

And, Dzik, will answer the second question.

[Marcelo Dzik, executive]

We'd like to highlight here the quality of our debt. Our main debt is for financing our production and 100% of our financing is linked to TR savings. We know the market is very scarce. Many companies can -- very few companies can say that. And we see that for smaller companies, we have seen more difficulty in raising funds. this question of interest rates and credit. Nowadays, our position is very comfortable and we can raise capital, we can fund 100% of these projects on TR plus inflation.

[Operator]

[Operator Instructions] Thank you. The Q&A session is now closed. We would like now to give the floor back to the company for their final remarks.

[Unknown Executive]

I would like to thank you all for attending this call.

[Operator]

Even's earnings call concerning the results of the third quarter of 2024 is now concluded. The Investor Relations department is at your disposal for any further questions. Thank you all, and have a good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]