LPS Brasil Consultoria de Imoveis SA

BOVESPA:LPSB3

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon, ladies and gentlemen, and thanks for waiting. Welcome to the conference call of LPS Brasil to discuss the earnings regarding the first quarter 2021. Today with us are Marcos Lopes, CEO; Francisco Lopes Neto, VP Officer; Robson Paim, CFO; Matheus Fabricio, IR Officer; and Cyro Naufel, Institutional Officer.

We would like to inform you that the speech is being recorded. [Operator Instructions] This event is also being simultaneous webcast on the company's website, ri.lopes.com.br. In there you will also find the presentation available, and you will be able to control the slides.

The event replay will be available soon after its closing. We would like to remind you that webcast participants may post their questions on the website to LPS to be answered after the end of the conference call.

Before moving on, we would like to let you know that any statements made during this conference call relative to LPS business outlook, projections, operating and financial goals are based on the beliefs and assumptions of company's management. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions since they refer to future events and, therefore, depend on circumstances that might or not occur.

Investors and analysts should understand that general conditions, industry conditions and other operating factors may affect the company's future results and lead to results that will materially differ from those in such forward-looking statements.

First, Mr. Marcos Lopes will present the operating results of the company. Then, Mr. Francisco Lopes will present the results of CrediPronto, and then Matheus Fabricio will talk about the financial results. We'll finally, we'll open for your Q&A session then.

Now, we are going to turn the call to Mr. Marcos Lopes. Please, Mr. Lopes, you may start.

[Marcos Lopes, executive]

Good afternoon, everyone. I would like to thank you for attending another conference call of the earnings of LPS Brasil, in which we are going to present the results regarding the first quarter 2021.

I will start highlighting that in the first quarter 2020, we continued to see a good momentum for the real estate market and the company. That shows a combination of recovery in the primary market, by means of its own operations, a record of transactions in franchise operations and excellent performance also in real estate credit operations with CrediPronto.

Aligned to scenario of low interest rates and new models of financing as well as the differentials in its services, the joint venture of Lopes and Itaú also presented a record volume and strong growth in its portfolio balance.

Likewise, we can say that the results of the period were solid in all business transforms of the company. I would also like to highlight that the company's digital transformation continues as a top priority. And we are showing excellent results that positively impact our revenues. And as a consequence, increase in the volume of business, we continue to consolidate Lopes platform as one of the most efficient or the most efficient in the real estate market.

Along the first quarter 2021 with our Lopes led teams, we recorded new relevant evolutions in the indicators of audience and lead generation, especially organic leads coming from our website. Reinforcing, again, the relevance of Lopes brand in the real estate market.

After these initial considerations, we are going to start to slide -- with Slide #5, highlighting what we had for the first quarter of 2021. So on Slide 5, initially, we highlight our own operations that had launches of BRL 1.2 billion in the quarter in terms of sales, of which BRL 765 million represented Lopes stake in those ventures.

It's important to say that we continue the expectation of our pipeline for the year that we are released in our guidance in the amount of BRL 7.3 million. Out of this total, we believe that our 1/3 should be launched still in the first half of the year.

The total transactions closed by the company reached BRL 2.1 billion in the quarter, a growth of 99% compared to the first quarter 2020. Growth took place in our own operations with a volume of 69% above the same period last year and franchises, which growth was 127% year-on-year.

CrediPronto, in turn, continued to show excellent results with record operating mortgage volume of BRL 1.4 billion, plus 182% year-on-year. And once again, with levels of growth that were above the market, consolidating its growth in market share in the segment.

The company's EBITDA reached BRL 18.5 million, up 212% year-on-year. Net income grew by 68%, also year-on-year, reaching BRL 49.9 million.

As I already mentioned, we cut our efforts and commitment with the company's digital transformation process, by mean of our Lopes Labs, reaching the important target of 32,000 leads originated on Lopes' portal, which is 494% above the first quarter 2020. The conversion of visitors into leads in the portal reached 1.67%, growth of 96% compared to the same period in the previous year.

We will now go to Slide #7. On this slide, we talk about the launches of the first quarter 2021. To her left, we can see that the total volume launched by the company in the first quarter 2021 was BRL 1.2 billion, with a drop of 17% compared to the first quarter of 2020.

Of the total, 61% was concentrated in the state of São Paulo, 20% in Fortaleza and 19% in the remainder set. Within São Paulo, the capital of the state represented 76% of launches, the Metropolitan Region, 21%; and São Paulo inland 3%.

To your right, we can see that despite the drop in the total volume launch, Lopes share in those kinds of transactions was in line with the first quarter 2020, reaching BRL 765 million or 62% of the total, an increase of 10 percentage points if we compare those periods year-on-year.

Moving on with the presentation, I would like to turn to Slide #8. Here, we can see the results of the transactions closed. To your left, we have the company's consolidated results. There is our own operations together with our franchises. In an annual comparison we had growth of 99% with a total of BRL 2.1 billion in the period.

Franchises that mostly work on the secondary market had an operational record in the first quarter 2020, with total transactions of BRL 1.2 billion, increase of 127% year-on-year and 4% compared to the previous operation targets that were released.

In own operations that basically where in the primary markets, the total was BRL 859 million, growth of 69% compared to the first quarter 2020 and 15% above the previous operational results that were released.

Now we are going to build to Slide #9, where we show the results of transactions closed by region and our geographic footprint. We closed the quarter in 10 states and the federal district with 108 stores altogether. In that 18 our own stores and 90 are franchises with a number of 14% above that of the previous quarter, which proves the strengthening of our network and more efficiency and aggressiveness in our expansion process.

The state of São Paulo represented 60% of the total transactions closed in our operations in the first quarter 2021 continuing to be the market with the greatest representativeness in the company. The South Region 20%, Fortaleza, EspÃrito Santo 20% and Rio de Janeiro with 2% respectively.

In franchises also the State of São Paulo land transactions were 46% in the quarter, Rio de Janeiro was the second most relevant market with 32% of the total transactions and the other regions, 22%.

Now we are going to go to Slide #10, where we show the results of sales speed over supply and sales speeds over launches. We are going to start with the São Paulo Capital to your left. And you can see that speed of over supply increased in the first quarter 2020 compared -- reaching 9.5% in the period.

Speed over launches in turn was basically stable with a retraction of 0.4 percentage points compared to the first quarter 2020.

If you take a look to your right, so we can see the consolidated numbers. Basically, speed over supply had a growth of 3.6 percentage points, so acceleration in the demand for properties also outside the State of São Paulo close in the quarter at 8%. The speed over launches had a reduction of 8.8 percentage points year-on-year, reaching 8.8%, clearly impacted by the closing of sales due in the month of March.

Still on the slide, you can see the breakdown of transactions between recent launched products and products with more than 6 months. In the City of São Paulo, the launch up to 6 months, accounted for 40% of the total transacted in the quarter. Altogether in Brazil, the situation was similar with 39%.

Moving on, we are going to go to Slide #11. And here, you can see the evolution of our company in important indicators related to our Lopes Labs and digital transportation (sic) [ transformation ] that I talked about along the portal.

To your left, you can see that the number of visits to the portal and Lopes Labs grew 192% year-on-year and 32% compared to the previous quarter, with more than 2.5 million visits.

On the chart below, you can see the evolution of 96% in the conversion of visits into leads, when we compared to the first quarter of 2020, with a level of 1.67% conversion reached. As a consequence of a higher number of visits and a better conversion rate, we can see a long the quarter that there was an important evolution in the volume of leads originated by Lopes portal, with more than 32,000 leads in the quarter.

This number tells us growth of 494% when we compare the same period last year and 76% when you compare to the fourth quarter 2020. This evolution is important to say shows our capacity to use our data intelligence to generate more business tri-match that is meeting buyers, brokers and sellers. So this is what we want is to put together the 3 targets to generate more businesses.

It's important that we want to transform Lopes in an increasingly digital company. And the constant evolution of our indicators help us to choose the better path to follow. The strengthening of Lopes Labs is paramount for us to continue to spread this vision throughout the company -- create value, scale and efficiency in the whole Lopes' ecosystem, always focusing on increasing revenues and company profitability.

Well, these were my remarks about the operational results of Lopes. And now I'm going to turn to Francisco that will talk about CrediPronto and then Matheus will present the company's financial results. Thank you very much.

[Francisco Neto, executive]

Good morning, everyone. Thanks for the opportunity once more of being able to be here with you. Very proud to give you the results of CrediPronto. It was a very positive result.

As we have talked about in the preview of our results, we were expecting to have more than BRL 1.4 billion this quarter and we get to -- we went up to BRL 1.430 billion. And it's important to say that in the year of 2020, the originated volume was about BRL 3 million and now on BRL 1.430 billion is almost 50% of the mortgage volume we had in the total of the year of 2020. So we are very proud about this number.

Well, most of the business has been enabled us to improve our portfolio. As you can see on Slide 13 to your right, our portfolio is growing consistently. And we have the prepay of mortgage, so duration -- although you're talking about a financing of 30 years, an average turn of 327 months, the duration is much lower than that.

So replacing these contracts is very important for the portfolio to continue to grow. And this has been another successful driver for CrediPronto. We have 4,300 hundred new contracts in this quarter, 430 settled contract, which gives us a replacement of more than 10 new contracts for each contract that is settled. So that's why the portfolio is growing consistently, as you can see on the chart.

And if you take a look at Slide #14. We have our profit indicators. Basically, we can see the months of March of 2021 with BRL 6.5 million. However, what is accounted for the purposes of the first quarter are the months of December, January and February.

And so these are the numbers that you see in this quarter, but we are already seeing positive results in the profit of March 2021. For the considerations of CrediPronto, I think the initial remark is the increase of mortgage volumes compared to the market. It's important to say that the market grew 116% and CrediPronto grew by more than 180%, so we are very pleased with our results and the potential of this business line.

Well, without any further ado, I'm going to turn to Matheus, our Investor Relations Officer, to present the financial results. Thank you very much, and I wish you all a very good day.

[Matheus de Souza Fabricio, executive]

Thanks, Francisco. Good afternoon, everyone. We are going to start the analysis of our financial results on Slide 16, where we show gross revenue reconciliation for the company in first Q '21.

We had transactions closed at BRL 859 million and net commission 1.97%. It's important to say that the net commission fee in São Paulo was 2.04%, but because of the fees of other regions, especially with lower end, we got to 1.97%. When we make the multiples of total transactions, you're going to see that we have a total amount of BRL 17 million.

To this revenues, we have to add the other segments are ROIC franchises and CrediPronto, especially profit sharing and commission on new markets. With that, we have BRL 36.8 million. And gross revenue of BRL 54.4 million. You have also to talk about the deferred of CrediPronto without a tax effect.

On the next slide, we have net revenue and expenses in the period. Net revenue reached BRL 49.9 million in first Q '21 or 68% higher the same period last year. The bar chart shows the contribution of each segment to our net revenue.

CrediPronto is 54%, 4 percentage points above the first Q '20; franchise, 8%, 2% above the same period last year; And finally, brokerage with 38%, 6% below the first quarter 2020.

To your right, we see the company's costs and expenses before IFRS. We see an increase in 32.1% in cost and expenses in the quarter, which is basically explained by the increase of commission fees when the mortgage is originated, because of more competitiveness among banks and also personnel with a provision of variable compensation because of the higher profitability of the company in the period.

Also, telecommunications and advertising increased basically because of our digital efforts that have already been approached by Marcos.

Going to Slide #18, we have comparisons between EBITDA and the net margin attributable to controlling shareholders. Here, we have on the first chart, 18.5% in EBITDA with margin of 37%, 212% growing in first quarter '20. And net income and net margin attributable to controlling shareholders with BRL 10.1 million, 923% above that of first Q '20 with a margin of 20%.

The considerable improve that we see in this indicator has to do with CrediPronto and franchise, as we are going to see on the next slide, Slide #19.

On this slide, we see our results per segment in the quarter without IFRS effect. So we see franchise and CrediPronto with a positive contribution, about BRL '19 million in EBITDA. The EBITDA margin franchise was 56.4%, and in CrediPronto 61.5%. Basically, we had a negative contribution in the margin of our transactions, but after depreciation, amortization, we get to a net profit of 13.6%, with 26.7%. And after the net income attributed to controlling shareholders at 10.1%.

Going to Slide #20. We have the impact of IFRS in our results. The main being depreciation and amortization, noncash effect of call and put options and also some deferred income tax amortization of intangible assets. It's important to see our numbers without the cash impact for you to better understand the company.

On Slide 21, we have the cash flow generated and cash equivalents. Here, we have, to your left, the cash flow generated by operating activities that is positive in 6 quarters in a row, positively impacted by CrediPronto profit sharing and our operations and franchises.

As for activities and investments, we had cash consumption of about BRL 2.3 million, again for digital operations and in financing activities we have BRL 9.9 million. Basically, the cash position in the end of the period was BRL 137.2 million. And additionally, the company has an account receivable of BRL 22.1 million. And therefore, we have the final results in cash availabilities in the period.

Well, these were my considerations of the company's financial results. Once again, we thank you very much for your attendance, and we are going to open for your questions.

[Operator]

[Operator Instructions] We have 2 questions on our side. Is that right? Yes, we have questions from the webcast. Can I repeat the question? Certainly. Well, the first question comes from [indiscernible]. First is the pipeline of launches for the second quarter '21. Do you see a risk of concentration in this projects, taking into consideration what developers are announcing? Could you give us a bit of color in terms of total transactions expected? And also, could you talk about the behavior of results, considering the increase of the average fee of the portfolio and also the impact of the increase in interest rates. Are you expecting any spread this quarter?

[Robson Paim, executive]

Okay. I'll answer that. This is Paim. Thanks, [ Andre ], for the questions. Well, in fact, the company is quite comfortable with the pipeline that we have for the second quarter. Obviously, it's important to say that the end of a launch will depend on the approvals of regulatory agencies, registration and notaries and then the final decision is always on the developer side. But the pipeline that we are showing is very well monitored. There are lots of things that are already out in the streets already in pre-sale, and we are very comfortable with future results.

And why is that? Because we have the pipeline coming at the right time. We have solid demand. We have in the City of São Paulo a very comfortable position. And not only the City of São Paulo with a higher pipeline, but also in other places in Brazil, Santa Maria, Rio de Janeiro, Porto Alegre, [indiscernible] all that helps us with the pipeline to have a national presence.

São Paulo represents the largest group, but we are very comfortable to put our product out in the street, especially because of the good momentum that the real estate market is enjoying. Francisco, would you like to say something about CrediPronto in terms of spread? Francisco are you there?

I think that Francisco's line has shopped.

[Francisco Neto, executive]

This is not. I'm sorry, I was on mute. I'm sorry, everyone. I was talking, but I was on mute. Matheus, this is a very good question, and this is an opportunity that we have to talk about that the recomposition that we believe that is going to happen with the spread. When we see the curve inversion, first went down and now it's going up, we think this is natural because, [ first thing ] with [ SPP ] resources is impacted by Selic. You have a 70% of Selic plus transfer price. So we naturally have also an impact.

So this in compression. But we've seen similar moments in history like this. And we see a recomposition for the future, because there is this higher costs, but then little by little, this is transferred back to the buyer. But there is an interim moment that you can see some compression, but we believe that, that's what it is. It is an interim moment and what has been very positive is those amount of that has been very positive. So we believe you know the volume of the -- mortgage volume in a way offsets any compression that we can have from spread.

Another important information is to talk about [ SPP ] resources per se. Last year, the net balance in the savings was count of more than BRL 175 billion. The first month, as you know, that there are more withdrawals than deposits because of seasonality, but the month of April is already positive.

There is more deposits than withdrawals. So the total portfolio and the balance of the savings system is about BRL 800 billion -- which you compared to 2019, we see a favorable credit environment. And we think that any mortgage values would offset increases in spreads.

And I would like to add to this answer, saying that the demand for mortgage continues high. And we do expect Selic -- the interest rate to go up, but that will decrease prepays. And so if we have a decrease with less prepays, you are talking also about the larger portfolio, which is a very important data for us to have in mind.

[Operator]

We have a question from Elvis Credendio from BTG Pactual.

[Unknown Analyst]

Matheus, Francisco, this is [ Matias Cero ] I have 2 questions on my end. The first about franchise. If you could please give us a bit more color about how real estate brokers that come to Lopes have improved their businesses and how you see new brokers wanting to be a franchisee of Lopes, because of the advantages that you bring to these players?

And also, I would like to understand about your digital movements. Why you are having an increase in lead generation, what you're working on now and what the next steps are going to be. And in digital, I would really like to explore the leads. You are talking about the leads conversion that is people getting in contact with brokers. And do you do have any numbers of how much convert -- leads turn into business.

[Marcos Lopes, executive]

Well, I'm going to -- Matheus, can you start and then a complete?

[Matheus de Souza Fabricio, executive]

Yes, sir. Okay, thanks for the question. I'm going to talk about franchise, and then Marcos is going to talk about digital leads. Well, first, thanks for your question. It's very important to say -- sometimes we don't talk much about [ betting ] costs. If you look at the year 2020, which was a very tough year in terms of uncertainty and the pandemic and everything when you real estate brokers closed down and sales boozed, we decided to reduce the franchise expansion team, which was the right thing to do because of safety and also because people could not travel.

But because results continue to be consistent even with the pandemic, as of the second half of last year, we saw an increase in interest for Lopes franchisee. The brand was more spread in the market, even based on the digital initiatives, good results for the existing brokers. So we saw the demand. So we put together again our team in the first quarter this year. And as you can see in the results represented, we see a considerable increase in the number of stores. And the trend for 2021 is to keep growing in number of franchisees.

We know that the real estate market is very scattered. You have 40,000 real estate brokers in the market. So there is much room to consolidate. But we want to have the best partners. Our main focus is not just the number of stores. We want good partners that will make a difference in our bottom line results.

And just before Marcos go on, I think what we see in terms of the franchises that come to Lopes is the interest in our digital operations. As you mentioned, the leads of the properties on our platform, we have sharing of properties that really accelerate response from customers to brokers. They talk to one Lopes broker. They don't have to talk to all franchisee. The talk to Lopes broker. Lopes broker take a look at the inventory of all franchisees and with that, the experience of the consumer is better. And we can evolve our businesses above the market average. So we are very optimistic in terms of expansion. And now Marcos can talk about digital per se.

[Marcos Lopes, executive]

Well, as you know, our gross with the portal is a consequence of an initiative that we started some years ago. Soon after our follow on, we started to focus on these Lopes Labs initiatives to really have a digital transformation in the company. And the main input that the company has, which is an entry barrier to other players is its amount of data. It's a playground for data analysts to work with. So we have a database of 9 million buyers. And then we have an inventory of properties with 250,000 units in our base and 12,000 brokers.

So if you have 3 universe, 3 buckets. And our challenge is to increase the 3 -- the tri-match amongst this players. You think that intelligence to really capitalize the process and meet our mission of having people, helping people find their home and the initiatives that we had before helped us create algorithms to make our process even more efficient. So the audience that we had on our portal and the increase of visits that we had in 2020, we had about 870,000, and then we went up to 2.5 million.

Today, we are celebrating 1 million a month on our portal. And that was the fruit of the technical work that we had to improve and enhance our portal, enhance interface with Google and also the growth of leads that come not only from market investments, but also the efficiency of really presenting Lopes in Google and the digital media so that we can have much greater visibility.

Lopes shows on the first pages of Google on most searches for real estate. So that's the technical work that is being developed by a Lopes Labs with a very broad catalog of initiatives that is just growing along time. We have been investing a lot in terms of money in the process, but also inputs and intelligence that is not easy to replicate, which is our database.

And based on that intelligence, we have been able to have better conversion of leads of this audience into leads, because if you go and such for a property on Lopes' website, 3 rooms, any district in São Paulo, you have 5, 6 alternatives in the bottom line, which is fruit of an algorithm that is learning with similar properties to your search and that increased comparison. This is one example.

We also have the potential buy calculator, which is unique in the real estate market with 3-part questions. You already have answers that even surprise people in terms of their capacity of purchase together with the financing ability and calculations we will enable them to buy from the launch market or the secondary market. So all that reinforces conversion from audience into leads.

And then from leads into sales, we are also improving those indicators. We are working on all these metrics to present to the market. But what we have been doing is really to have the right client with the right broker with the right type of property. And therefore, we are having conversions way about what we have in the best.

[Operator]

[Operator Instructions] We are now closing the Q&A session. We are going to turn the call back to the company's CEO, Mr. Marcos Lopes for his final remarks.

[Marcos Lopes, executive]

Well, thank you all very much. I think that we had very good results in the first quarter '21. We are meeting the operational guidance that we had for the first quarter, confirming our expectations to meet the guidance established in our pipeline. Considering that it's possible to perhaps meet 1/3 of this challenge still in the first half of the year.

And we are very optimistic about the future of the company with the initiatives such as the digital transformation, Lopes Labs and knowing that the initial results that we are presenting are already quite relevant, but just the beginning of a new pathway to follow, full of success and achievements. Thank you very much, and have a good day.

[Operator]

LPS Brasil's conference call is now closed. We thank you very much for your attendance and wish you a good afternoon.

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