LPS Brasil Consultoria de Imoveis SA

BOVESPA:LPSB3

Earnings Call Transcript 2020-Q1

[Operator]

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to the conference call to discuss the earnings of LPS Brasil for the first quarter of 2020.

Here with us, we have Mr. Marcos Lopes, CEO; Francisco Lopes Neto, Vice President; Beatriz Machert, Investor Relations Officer; and Robson Paim, Financial of -- CFO. I would like to inform that this event is being recorded. [Operator Instructions]

This event is also being transmitted simultaneously online via webcast and could be accessed at the address, www.lopes.com.br\ri, where the corresponding presentation is available. The slides will be selected and controlled by you. The replay of this event will be available shortly after it has ended. We remind you that the participants of the webcast may send questions to LPS via website that will be answered after the conference call is finished.

Before proceeding, we would like to clarify that any forward-looking statements that may be made during this conference call regarding the business prospects of LPS, projections, operating goals and financial goals are based on assumptions and beliefs of the company's management. Forward-looking statements are not guarantee of performance as they involve risks, uncertainties and assumptions and they refer to future events, therefore, depend on circumstances, which may or may not occur. Investors and analysts should understand that general conditions, industry conditions and other operating factors may affect the future results of the company and lead to results which differ materially from those expressed in such forward-looking statements.

First, Mr. Marcos Lopes will make the presentation of the operating results and then Francisco Lopes will present the CrediPronto results. And finally, Ms. Beatriz Machert will speak about the financial results. And then we'll open for the Q&A session.

Therefore, I would like now to turn the floor over to Mr. Marcos Lopes. Please, you may start.

[Marcos Lopes, executive]

Good afternoon, everyone. I would like to thank you again for attending one more earnings release conference call of LPS Brasil to present the results of the first quarter of 2020.

Here with us in this presentation, we have Francisco Lopes Neto, our Vice President; our Investor Relations Officer, Beatriz Lavieri; and our CFO, Robson Paim. As you all know, the pandemic of COVID-19 had a significant impact on the world economy since the beginning of this year. For us, this impact was clear with the closing of sales stands and the real estate agencies in the second quarter of March. It's worth remembering that the first quarter is marked by the seasonality of the market as real estate market. In view of the late Carnival and the launch of new projects, which was concentrated precisely on that month. And with the public policies to mitigate the spread of COVID-19, about 40% of launches scheduled for the quarter were postponed.

With the lockdown scenario, we created Contingency Committee to cautiously plan the next months, always prioritizing the health of our staff and also preparing for the financial -- to preserve cash. Without this, everybody working remotely, we made adjustments that allowed it to reduce operating costs. At the same time, we played a key role in the successful industry effort while to include our brokers in the emergency payment made by Government, allowing the associate agents to go through this period with peace of mind. Since then, we've increased our commercial efforts and launched an unheard of campaign in the market, the real estate online exhibit that allows users to buy property online, offering tools such as like 360 video and virtual tour and allow them to close a deal without leaving home, everything online. This initiative was only possible because we had a digital process -- project in progress.

In this period, the investments of the company were focused on the continuous transformation of our operations. We believe that our efforts will play that in a differentiated position once the activities are resumed after the pandemic.

Let's start the presentation on Slide 5 with the highlights of the first quarter of 2020. Slide 5. We had a PSV launched of BRL 1.5 billion with an increase of 25% when compared to the first quarter of 2019. And another 12 projects were scheduled to be launched until the end of March, but as a result of the lockdown, these launches were postponed by real estate developers. CrediPronto continued to present a growth in the first quarter of 2020 and had an increase of 56% in the finance volume.

Our net revenue totaled BRL 29.7 million, 15% higher than the first quarter of 2019, with highlights to earnings received from CrediPronto, which accounted for 35% of the net revenue in the quarter. The EBITDA of the company amounted to BRL 5.9 million with a significant improvement when compared to the BRL 2 million negative of last year, and we closed the quarter with an EBITDA margin of 20%.

With regard to the digital project, we kept our investments planned and made the first deliveries on schedule with the MVP of the new website. For the next quarters, we intend to continue with our deliveries.

On Slide 7, we'll talk about the launches for the first quarter of 2020. On the left of the screen, you may see that the volume launched in the first quarter of 2020 was BRL 1.5 billion, with 15 projects launched after Carnival, which is a 25% increase in volume when compared to the same period of last year. Analyzing the launched PSV of the region, we see that 92% of launches were concentrated in the State of São Paulo, 60% in the Capital and 31% in the interior of the State, with the highlight of the town of Mogi das Cruzes and 9% in the other regions and towns of the Metropolitan area.

Though 12 projects were -- have been postponed, it's important to highlight that based on our pipeline and distribution of projects in the first quarter, we start to observe an upturn in the market in other regions in addition to the city of São Paulo.

Now Slide #8. You can see in detail the results from transactions closed in the first quarter 2020. On the chart of the left, we see the consolidated figures of the company, that is the total transactions closed of our own operations added to the PSV of franchises. Comparing the first quarter of 2020, we had a decrease of 27%, totaling BRL 1.1 billion in the period. Our own operations, mainly in the primary market, were impacted by the effects of COVID-19, both in launches that were postponed as well as in sales stands that were closed. Therefore, the variation in the quarter was 39%, closing the period with BRL 508 million of PSV of transactions closed.

In franchises, the decrease was 10% in the volume of transactions closed in the period impacted by the lockdown in March. Since franchises are more exposed to the secondary market, the impact of seasonality in this area is smaller.

On Slide #9, we see the results of transactions closed segmented by region. Notice that the State of São Paulo continues to be the main market, both in our own operations as well as in franchises, with a reduction in the share of this market in our own operations for the reasons I have mentioned.

Sales in the South Region, especially in Londrina, had a growth and closed the quarter with a 27% of total transactions, explaining the increase of the share of this region. On the right, we see the distribution of transactions closed by franchises. São Paulo continues to account for the largest part with 66% of the total, and then comes Rio de Janeiro market that remained as the second most relevant, 24% of PSV of transactions and 8% on stores, which is explained by the high exposure to the primary market of the region.

On the left, we see the geographic distribution. We currently operate in 10 states in Federal Districts, 102 stores. 18 of them are owned stores and 84 franchises.

Now let's move on to Slide #10, where we see the results of sales over supply and sales over launches. Starting the analysis by the indicators of the Capital of São Paulo, we see a reduction in both indicators, especially in the Capital, we could observe the impacts of the social distancing since we had an increase in the supply of new projects launched after Carnival, but with little working days to sell them. Therefore, we closed the quarter with 5.6% of sales over supply and 12% of sales over launches.

In the chart to the right, we see the analysis of consolidated figures. We see a smaller impact on consolidated indicators since the effect of the Capital of São Paulo is diluted amongst other operations. In addition, the result's better than that of São Paulo is due to the good performance of the few projects launched in other regions, which, in turn, had a reduced launch volume in recent years, which contribute to a better absorption of the products launched in these locations. Still here, we can see the distribution of transactions closed by Lopes amongst the projects recently launched and products in inventory. As usual, the concentration of transactions closed remained in products launched in the last 6 months.

These were my comments about the operating results of the company. And now I turn the floor over to Francisco, who will speak about CrediPronto. And then Beatriz will present the financial results of the company. Thank you.

[Francisco Neto, executive]

Thank you, Marcos. Good morning, everyone. I'm pleased to make some comments here about CrediPronto. Actually, the operations have a very good performance, which translates the results. We're really proud of the operation that's doing so well.

Highlighting on Slide #12, I would like to talk about the growth of CrediPronto, seen its good performance March against March. This is a month where we already had the pandemic starting in Brazil. And our performance was BRL 164 million in March. And March against March, we had a growth of 41%. We have also noticed that an important trend is the portfolio repository. And the average balance is growing, and we have the differentiation between prepayment and vouchers added in terms of new mortgages every month. And on the right side, you can see a growth in the first -- the fourth quarter -- for the -- from the first quarter to the fourth quarter -- to the first of 2020, 20% growth. And it used to be, on average, a 2% growth between prepayments and new mortgages. So these were the average, quarter-against-quarter, of this repository. And in this first quarter 2020, we -- this growth almost doubled when compared to the average, so it's 3.5% positive.

Customers continue to prepay. But since we've had a growth in originations, we've made the average balance grow. Comparing the first quarter 2020 to 2019, we see a growth of 56%, which is higher than more than 180x the average of private banks, which has grown 20% in the same period. And it means that we've gained market share. And the market share growth that we -- or the market share we calculate is of 5.2%. And finally, on the upper right of the slide, we can see the profit sharing recognition in this quarter, totaling BRL 11.5 million. And as a note to the slide, we see the March of 2020, a profit sharing of BRL 3.6 million that will be recognized in the second quarter of 2020 due to the contract rule that it should take place more than 40 days afterwards. So it also shows the profit sharing in this -- the last 3 months around BRL 3 million.

On the right, the lighter shade, is the origination revenue based on commissioning so it's not exactly part of the profit that comes from Itaú portfolio and CrediPronto.

So we thank you for the opportunity to be able to explain the details about CrediPronto performance. And now I turn the floor over to Beatriz, our Investor Relations Officer, because she will present the financial highlights.

Thank you very much, and have a good afternoon.

[Beatriz Lavieri, executive]

Thank you, Francisco. Good afternoon, everyone. We now move on to the financial results, as you can see on Slide #14. This slide, we see the reconciliation of the gross revenue of the company.

Looking at the table on the left, we see transactions closed of BRL 508 million, multiplied by net commissions of 2.04%. We have revenues from transactions of BRL 10.3 million. To this revenue, we sum the revenue from other segments, franchise royalties, BRL 1.8 million, profit sharing commissions of 1% received from CrediPronto in addition to other revenues. To total the gross revenue in the period, you must add also BRL 3.6 million deferred revenue from upfront of CrediPronto that doesn't have a cash effect for the company.

On the right table, we have the distribution of commissions by region. We noticed that the City of São Paulo has higher commission than the other regions, given its combination of products. When compared to the first quarter of 2019, there was a slight increase in net commissions due to the reduction of the exposure of products of the economic segment, which had a lower commission on average.

The next -- as we see on the information below that it -- which is publishes the one that has fulfilled all the requirements.

On Slide 15, we see the net revenue and the costs and expenses in the quarter. In the revenue analysis, we see a growth of 15%, totaling BRL 29.7 million in the period. The increase in net revenues was boosted mainly by CrediPronto, which contributed to 50% of the results, 35% came from revenues or earnings from the operation and the other 15% from commissioning by origination. The transactions closed and franchises have reduced their share in the quarter due to impacts of invoiced intermediations as commented by Marcos.

On the left (sic) [ right ], we see the total vision of cost and expenses totaling BRL 23.7 million, with a reduction of 14%. In addition to specific reductions such as infrastructure, we had a reduction in provisions for contingencies in the quarter. The total of legal expenditures plus contingencies were reduced by BRL 2.9 million.

In the next slide, #16, we see the comparison of EBITDA and the net income of controlling shareholders in the quarter. On the left, we see EBITDA and EBITDA margin. At the end of the first quarter, we had BRL 5.9 million of positive result, an improvement of almost BRL 8 million. And we ended the quarter with a margin of 20%. Of course, this improvement in EBITDA is due to the contribution of CrediPronto.

Likewise, on the right, you see the net income of controlling shareholders, and there has been also significant improvement of almost BRL 8 million in the results and reducing losses, so we closed the period with BRL 1.2 million of losses.

On Slide #17, we see the results of the quarter by segment. The transactions closed segment had a negative contribution margin with a loss in the quarter of BRL 9.2 million, strongly impacted by the reduction in sales. Franchises, although impacted as well, had a margin of -- contribution margin that was positive, given our business model extremely asset-light. CrediPronto, in turn, had a -- played a higher share in the results of the company by receiving JV profits and commissionings over origination. Therefore, we closed this quarter with BRL 5.9 million EBITDA.

And on the next slide, we see the effects of IFRS in our earnings. Generally, we had variations in calls and puts records, which justify the variation of the line -- the financial results. The total impact coming from this reassessments added up to BRL 7 million approximately, without any cash effect as shown on this slide. Again, we recommend the analysis of our figures without this impact for a better understanding of the company's results.

And finally, on Slide 19, we see the cash variation in the period and the total cash available of the company at the end of the quarter. On the left, we see the cash generated from operating activities, which was positive at BRL 7.4 million and significantly better than that observed in the same period of 2019, which amounted to BRL 1 million.

On the right, we see a sum of all activities of investment and finances. There was a cash burn of 5.4%. Our activities of investments are related to the digital project that, as mentioned by Marcos, remained a priority. Therefore, we closed the quarter with BRL 119.7 million in cash and financial investments of BRL 30 million, which give us a total balance of BRL 150 million of cash in banks.

These were the financial results, and now we can move on to the Q&A session. Thank you.

[Operator]

[Operator Instructions] Our first question comes from [ Prado Reginaldo ], Bradesco BB (sic) [ Bradesco BBI ] .

[Unknown Analyst]

I have a question about CrediPronto. In the first quarter, you presented a very significant growth in the mortgage volume and you mentioned about this increase in market share above the average growth of the market. So I have a broader question. How do you see the potential growth of CrediPronto in terms of mortgage volume? And how much relevant will it be in the future results of Lopes? And considering the scenario of a reduction of interest rates as well as a potential decrease in amount charged for loans of financial or real estate loans by banks in terms of interest rate, how do you see the scenario for the coming months?

[Francisco Neto, executive]

Thank you for the question. This is Francisco speaking. It's interesting, this subject that you raised because CrediPronto -- when we realized that the scenario may not be very favorable. But how can we achieve such results that are positive and an important portion of March despite COVID-19. It has grown 40% when compared to March '19, nonetheless. So I think part of the answer is capacity to provide services quickly. CrediPronto was able to meet an important portion of our customers by closing the deals. We had to be quick and efficient. And we are as competitive as the other loan facilities offered by major banks in terms of rates, and we were able to close the transactions quickly.

And we have most of our systems digitized. So that was very helpful to achieve results in the beginning, already in March, beginning of the pandemic. So I don't like to make forward-looking statements about results and playing -- trying to see the future here, but I believe that we've seen good results in terms of mortgages now, and I believe that the further reduction of interest rates making credit facilities cheaper will also have an impact in our segment because the Selic interest rate has dropped and will continue to drop. And that has a positive impact. So the drop of the -- the reduction of the Selic interest rates benefits our profit. This is not something from this month that's originated by a certain -- in the past, it's being benefited now. Selic has a cost of entire -- cost of capital in the entire portfolio. So the challenge is we'll have lower rates in the future. That's a trend for real estate credit lines. However, we have the benefit of Selic being reduced, and that has a positive impact on the profit. So I believe that credit lines will continue to be a good business. And the average term was 330 months of financing. That's a long period for buyers, and there has been a pressure to reduce interest rates on the tables, on the closing of transactions. So I believe that this scenario for CrediPronto looking forward is a positive one, undoubtedly.

[Operator]

Next question is from Alex Ferraz, Itaú BBA.

[Alex Ferraz, analyst]

I have 2 questions. First, could you give us some color about the behavior of the operation in these last 3 months? We are ending the second quarter. So what has been -- I believe the transactions has been most impacted since the brokerage houses have been locked down, but we had a positive feedback from companies, from stabilizing sales in May, especially June. So how was your operations' behavior in the last 3 months, mainly May and June? And we've noticed also that some players are already testing the market for July. Do you see any pipeline of new launches for the next quarter or the second half of the year? Or are you discussing projects for the end of the year?

[Marcos Lopes, executive]

This is Marcos Lopes speaking. The month of April was highly impacted by the pandemic. So a new reality was imposed by the closing of the sales stands and also by the brokerage houses in São Paulo. So we had to adapt in the state to this new reality, but sales did not stop completely. But there was a major impact. In May, after certain adaptations, people got adapted to this new reality much better than in April. And so, May was better than April. And we see that people are adapting to these new times.

And in terms of the challenges of working that way, we were forced to anticipate some actions that were scheduled to happen in the future, such as to improve communication with our real estate agents. And it was quite healthy because that advances the way we plan to operate, and that was quite a healthy decision. And we see some movements in terms of other market players to trying to test the market with some initiatives for July and August. We start to see some launches being scheduled for that period. So slowly, things are going back to the normal reality. And interest rates are very low. And that's a scenario of real estate financing, having even lower rates added to the solid results from CrediPronto, which shows the strength of the real estate market with a very good reaction from the side of the demand.

We see a good prospect for the second half of the year that somehow offsets the reduction of the salaries and wages earned by people. There was -- because now we have interest rates that allowed 3 million more families to apply for credit facilities, which is very beneficial to our industry.

[Operator]

[Operator Instructions] This ends the Q&A session. I will now turn the floor over to the CEO of the company, Marcos Lopes, for his final considerations.

[Marcos Lopes, executive]

Thank you very much, everyone, for attending this conference call to talk about the earnings of the first quarter 2020. This shows that the company was prepared. We have this philosophy of always being ready for unexpected events because they do happen. We had wonderful growth prospects, and we were caught by this pandemic, but we had very high cash and bank levels. We had the help of our teams and the producers, the sales team, they are -- they keep united, and we maintain a market share. And ready for the market to start growing after the pandemic. Thank you very much.

[Operator]

The conference call for Lopes Brasil has now ended. We thank you all for attending, and have a good afternoon.

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