LPS Brasil Consultoria de Imoveis SA

BOVESPA:LPSB3

Earnings Call Transcript 2023-Q2

[Operator]

Good afternoon, everyone, and thank you for waiting. Welcome to the earnings webinar of LPS Brasil to discuss the results for the second quarter of 2023. This event is being recorded. [Operator Instructions]

Before proceeding, we would like to clarify that any statements that may be made during this webinar regarding business prospects of LPS, projections, operating and financial goals constitute the beliefs and assumptions of the company's management. Forward-looking statements are not a guarantee of performance and involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that 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 that differ materially from those expressed in such forward-looking statements. First, Mr. Marcos Lopes will make the introduction and present the operating results followed by Mr. Francisco Lopes, who will present the results of CrediPronto. And then Mr. Matheus Fabricio will talk about the financial results. After that, we'll start the Q&A session.

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

[Marcos Lopes, executive]

Good afternoon, everyone. I would like to thank you for participating in another LPS Brasil conference call, which will present the results for the second quarter of 2023. Taking part in this presentation are our Vice President, Francisco Lopes Neto; Investor Relations Officer, Matheus Fabricio; our CFO, Robson Paim; and our Institutional Officer, Cyro Filho.

The company had a solid performance in the second quarter of 2023, showing that it's prepared to capture good opportunities to be offered by the real estate market. Once again, generating a positive contribution margin in all its business units. Although the interest rates remained high in the first half of the year, the real estate market had a good sales performance and showed signs of a positive outlook for the next 6 months, especially taking into account the imminent downward movement in the basic interest rate. The company remained focused on optimizing costs and expenses management, obtaining a significant increase in the EBITDA margin, which went from 25% in the first half of 2022 to 33.6% in the same period of 2023.

At the operational level, both our own operations and franchises had an increase in PSV compared to the same quarter of 2022, which reinforces the execution capacity of our executives, partners and franchisees nationwide. CrediPronto presented a better origination performance than other players in the real estate -- financing market, regaining market share among private banks and contributing positively to the company's consolidated results.

After these brief initial remarks, I would like to move on to the presentation, starting on Slide 6 with the highlights of the second quarter of 2023. So on Slide 6, the launched PSV already adjusted by Lopes' stake in the projects was BRL 2.8 billion, including own operations and franchises operating in this segment, a volume 15% higher than in the second quarter of 2022. Total transactions closed reached BRL 2.9 billion in the quarter, 10% higher than the same period in 2022. Franchises intermediated BRL 1.6 billion, 12% more compared to the same quarter of 2022, while our own operations intermediated BRL 1.3 billion, 8% more than in the second quarter of 2022. The city of São Paulo is a highlight, where Lopes intermediated BRL 587 million, a volume 16% higher than the same period of the previous year. We ended the quarter with 177 franchises, 20% higher than the same period in 2022. In the franchise segment alone, the company is present in 24 states and the federal district. The average portfolio balance of CrediPronto reached BRL 15 billion, a growth of 16% compared to the second quarter of 2022.

The company's EBITDA reached BRL 16.5 million in the period, a volume 23% higher than the second quarter of 2022, with an increase of 8 percentage points in the margin, which reached 35.4%. Finally, I highlight the company's consolidated net income before the effects of IFRS which reached BRL 10.8 million, 49% higher than in the second quarter of '22, of which 7 million is attributable to controlling shareholders.

Moving on to Slide 8. Let's talk about launches of Lopes and franchises. The total volume launched by the company in the second quarter '23 was BRL 6.1 billion, 5% higher than in 2022 in the second quarter. Lopes owned operations launched BRL 3 billion, of which 85% were concentrated in the state of São Paulo. The franchises in turn, launched BRL 3.1 billion with 79% concentrated in the state of Rio de Janeiro, 17% in Goiania and 4% in Bahia.

Continuing the presentation on Slide 9, we see the results of transactions closed. The chart on the left shows the company's consolidated results that is the PSV from our own operations plus the PSV intermediated by the franchises. In the second quarter of 2023, the company remediated BRL 2.9 billion, 10% more than in the same period of the previous year. The franchises reached an intermediate PSV of BRL 1.6 billion, 12% more than in the second quarter of 2022. Our own operations, whose priority focus is the primary market launches totaled and intermediated PSV of BRL 1.3 billion in the quarter, an increase of 8% compared to the same period of 2022.

On the next slide, #10, we presented 30 transaction curves in the last 12 months since 2018, including own operations and franchises. As we can see, the PSV intermediated by the company in the last 12 months remained stable above BRL 10 billion.

On the next slide, #11, we'll present the transactions closed, broken down by region as well as our geographic presence. Considering our own stores and franchises we ended the quarter present in 25 states and the Federal District with 194 stores in all, 17 of which are owned by Lopes and 177 franchises. With our prejudice, our continuity in the network expansion strategy, we will be increasingly careful in evaluating the franchises that present a positive contribution margin to the company.

According to the chart at the bottom of the slide, when we compare the second quarter of 2022 to -- with the second quarter of 2023, we see a 20% increase in the number of stores from 147 to 177 stores. On the upper part of the slide, we can see that the state of São Paulo accounted for 63% of transactions closed of our own operations in the second quarter. Londrina accounted for 12% of transactions closed, while Fortaleza and Espírito Santo accounted for the remaining 24%. In franchises, the state of Rio de Janeiro once again led transactions in the period, accounting for 51%. The state of São Paulo, whose franchises operate mostly in the secondary market, contributed with 32% and the other states with 17%.

Moving on, on Slide 12, we present the company's evolution and indicators related to Lopes Labs throughout the quarter. In the chart on the left, we can see that visits to Lopes portal and Lopes blog reached 3.6 million, 28% higher than the second quarter of 2022 and 5% higher than the last quarter.

In the chart immediately below, we see that there was a 9% drop in the conversion of these visitors into leads compared to the same period in 2022, reaching a level of 1.67%. Leads generated by Lopes portal grew by 20% compared to the second quarter of 2022, totaling approximately 55,000 in the quarter, a record high for the company.

Finally, on the lower right of the slide, we can see that the strategy to boost organic visits to the Lopes portal is maintained. The number of keywords where Lopes appears in the top 10 of Google's search results ended the quarter at [ 66.6000, ] 47% higher than the same period of last year.

Those were my remarks regarding the operating results. I now turn the floor over to Francisco, who will speak about CrediPronto; and then to Matheus, who will present the company's financial results. Thank you.

Just a minute, please. Francisco is joining the meeting to talk about financial results of CrediPronto.

[Francisco Neto, executive]

Good morning, everyone. Thank you for the opportunity to once again talk about the results of CrediPronto. This is a quarter where we saw a growth -- a significant growth in our portfolio, especially when compared to the last 12 months period, we see an upward trend in creating a solid portfolio with low default rates in -- from June '22 to June 23, we see an increase of BRL 2.2 billion in the composition of the portfolio. This is illustrated on the lower part of Slide 14 by new agreements for every agreement that's settled. The origination when compared to settled agreements is what causes to -- the portfolio to grow.

In the current scenario, it is known that funding has decreased. And therefore, all banks have been stricter in their credit analysis, which can be seen on Slide 14 on the lower left, a decrease in the origination figure, but we have been trying to maintain the portfolio growing. And if we look at the quarters of '22 and '23, origination has dropped by 27%.

On Slide 15, we can see that this origination, although at a level that is lower to what we had last year, if we compare to what used to be the business environment before the pandemic in 2019, we -- looking at the last 12 months, [indiscernible] [ 780 ], which is at the end of the first half of '22 is for the last 12 months. If we compare this to the business environment before the pandemic, we will see that this is twice the amount that was originated back then.

So in the first quarter of '20 BRL 1.8 billion, and now we have almost BRL 3.8 billion. So this shows the strength of the market. So real estate credit is a very important for the entire segment, for the entire industry. Of course, some properties are paid cash, but it's more and more important to have real estate financing. This is an important leverage for the industry and will become stronger and stronger. And we feel that the demand for credit continues high.

Moving on to the next slide. We report the results, the net income from CrediPronto with the recognition of results on a quarterly basis. And there's a mismatch because we received 45 days into the next month. So we are now taking into account March, April and May and showing the results of June of BRL 3.1 million, which is close to June 2022. So we are very excited with CrediPronto's performance. It's an important business that the company is developing. And despite the current challenging environment with higher interest rates and withdraws from savings accounts. But their basic results showing that there has been -- the volume of withdrawals and deposits into savings accounts has become more steady or it's back to regular levels, not what they used to be in '21 and '22, but there has been some stabilization between withdrawals and deposits.

These were my comments. And now I would like to turn the floor over to Matheus Fabricio, our Director, who will present -- our officer, who will present the financial results.

[Matheus de Souza Fabricio, executive]

Thank you, Francisco, and good afternoon, everyone. We begin the analysis of our financial results on Slide 18, where we present the breakdown of net revenue by segment of the company and a total of recurring costs and expenses.

The total company net revenue reached BRL 46.6 million in the second quarter of '23, down 5% compared to the same period of '22. The intermediation segment had a net revenue of BRL 28.5 million, 10% higher than the second quarter of '22, accounting for 61% of the company's total net revenue. The franchise segment had a net revenue of BRL 6.7 million, 2% lower than the second quarter of '22, accounting for 14% of the company's total net revenue. Finally, CrediPronto had a net revenue of BRL 11.4 million, 31% lower than the second quarter of '22, accounting for 24% of the company's total net revenue. In the chart on the right hand side of the slide, we see a 16% drop in the company's total recurring costs and expenses compared to the same period of last year, totaling $30.1 million.

On the next slide, #19, we present the results by segment. The intermediation segment presented a gross revenue of BRL 31.4 million and net income of BRL 3.7 million before IFRS with a margin of 13%. The franchise segment posted gross revenue of BRL 7.1 million and net income before IFRS of BRL 3.5 million with a margin of 51.6%. Finally, CrediPronto had gross revenue of BRL 12.6 million and net income before IFRS of BRL 3.7 million with a margin of 32%.

After discounting depreciation, financial results and taxes from our segments, we reached the total gross revenue of BRL 51.2 million and net income before IFRS effects of BRL 10.8 million in the quarter with a margin of 23.2%. After payments to minority shareholders, we reached net income of BRL 7 million for controlling shareholders with a margin of 15%.

On Slide 20, we see the impact of the IFRS effects on our results. The main impacts are related to depreciation and amortization of intangible assets, noncash impacts and call and put options of subsidiaries and deferred income tax on intangible assets, calls and puts of LPS Brasil. The total impact amounted to BRL 2.3 million in the quarter, but without any cash effect. Therefore, we recommend analyzing our numbers without this impact for a better understanding of the company's results.

Finally, on Slide 21, we have the cash variation in the period and the company's total cash at the end of the second quarter '23. The chart on the left shows the cash generated from operations, which remained positive and amounted to BRL 9.8 million in the quarter. The cash balance at the end of the quarter, considering financial investments, was BRL 50.4 million, 8% lower than the last published quarter, impacted by the distribution of profits and dividends to shareholders. The company also has approximately 10.3 million treasury stock.

These were my remarks on the company's financial results. Once again, we thank you all for your participation. We will now open for questions.

[Marcos Lopes, executive]

I'll try to concentrate. We had some similar questions for some specific items. First, a question about the growth of the number of franchises since it was the first time we had a slight reduction in the number of stores when compared to the last quarter.

Here, there is no change in the strategy of the company, quite opposite. We continue to seek to improve the number of stores with -- we want to be present in all states of Brazil. But at the end of 5 years, there is the end of the agreement with the franchise. And we're being careful and whether or not to renew the franchise agreements if the contribution margin has not been positive. So in this second quarter, many agreements ended and we were more careful in terms of renewal criteria. But there has been no strategic change, and it was not concentrated in any specific region.

Another question about the partnership with King Tanda.

Overall, we can say that finally, there is an interesting volume of properties shared between both companies, 20,000 properties either way. So properties from King Tanda that are posted on our portal and vice versa, that adds up to almost 20,000 properties in the 4 cities, most of them in São Paulo Capital. The volume of transactions in this partnership has also increased every week. And it's been very advantageous for the franchisees of Lopes, who adopted the partnership.

A question about the specific region of the Midwest of Brazil, if there is any focus on expansion there?

Yes, but not because it's specific. We're looking at all regions. We are present in all the states of the Midwest area. But we believe that this is a region that has potential for more stores, especially in cities and towns that have had a positive impact from agri business. So we have to look more carefully into those towns.

Let me check if there are any further questions. We'll be right back.

[Operator]

This ends the Q&A session. I would now like to turn the floor -- return the floor to Mr. Marcos Lopes for his final remarks.

[Marcos Lopes, executive]

Good morning, again. Thank you for participating in the earnings conference call of LPS Brasil for the second quarter 2023. The increase -- significant increase of EBITDA margin from 25% to 33.6% reflects the operational efficiency that the company focused on, and we intend to keep this focus in the second half of the year.

Thank you all, and have a good day.

[Operator]

The LPS Brasil earnings webinar has ended. Thank you for attending this webinar. Have a good afternoon.

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