LPS Brasil Consultoria de Imoveis SA

BOVESPA:LPSB3

Earnings Call Analysis

LPS Brasil Reports Solid Q3 Performance

In Q3 2023, LPS Brasil delivered robust performance despite a challenging macroeconomic environment. The company's transaction volume increased by 4% to BRL 2.7 billion, while franchises' volume grew by 22%. Despite a 25% drop in new launches, its focus on operational efficiency led to a 25% expense reduction from the previous year. LPS Brasil achieved a 38.1% EBITDA margin—one of its highest since 2014—and a 108% jump in net income to BRL 10.6 million. CrediPronto's portfolio balance also saw a 13% increase to BRL 15.3 billion. Now operating nationwide, LPS Brasil shows positive signs of sustainable future growth.

Challenging Market Conditions and Steady Performance

Despite persistent challenges in the macroeconomic environment and the real estate sector, the Brazilian company LPS Brasil held a steady course in the third quarter of 2023. The company proudly maintained a solid performance, as evidenced by its ability to deliver strong results across all business units, each contributing positively to the margins. This resilience came amidst a backdrop of high basic interest rates which have yet to significantly influence home loan rates, translating into reduced origination volumes. Nevertheless, LPS Brasil reported Property Sales Value (PSV) that was higher than the previous year’s corresponding period. This is particularly notable for its CrediPronto segment, which, despite sector-wide contraction in originations, showcased significant financial success and a portfolio balance growth exceeding BRL 15.3 billion.

Cost Management and Profitability

In a testament to its operational prowess, the company implemented rigorous cost control measures culminating in a 25% year-over-year reduction in operating expenses. This discipline has skyrocketed LPS Brasil to an impressive EBITDA margin of 38.1%—one of the top three highest quarterly margins since 2014. The company’s consolidated net income, before the effects of International Financial Reporting Standards (IFRS), reached BRL 10.6 million in the quarter, up by a notable 108% compared to the same period in 2022. Their continued expansion has seen them break new ground with a presence in all 26 Brazilian states and the federal district, consolidating their national presence.

Operational Highlights and Franchising Success

Transaction volume reached new heights with transactions closed at BRL 2.7 billion in the quarter, and franchise operations closing BRL 1.6 billion, a 22% increase from the third quarter of 2022. Although own operations closed at BRL 1 billion, down by 16%, this was offset by the company's successful franchising strategy and consistent enhancements in its portal and blog, which combined, generated a historical high of over 54,000 leads. The substantial reach of 195 stores—178 franchised and 17 owned—illustrates the company's scalable business model and strategic expansion.

CrediPronto’s Adaptation to Market Dynamics

CrediPronto navigated stringent credit conditions posed by the banking sector, facing a 36% drop in originations for the quarter compared to the third quarter of 2022. Despite the credit squeeze, CrediPronto still managed growth with a year-on-year increase of more than BRL 1 billion in the portfolio. The results were bolstered by deliberate cost reductions exceeding BRL 3 million, showcasing operational efficiencies that hint at future potential.

Financial Results and Efficiency Milestones

LPS Brasil’s financial figures reflect a mix of contraction and performance enhancement. Net revenue was down 5% year-over-year to BRL 44.8 million. The intermediation, franchise, and CrediPronto segments saw declines in net revenue, but this was paralleled by a noteworthy 25% drop in total recurring costs and expenses. The efficiency achieved is remarkable—LPS Brasil now operates with a workforce nearly a fourth of its 2012 size, yet it is transacting BRL 37 million per employee, the highest efficiency point in its history.

Strategic Transformation and Progress

Over a 15-year trajectory viewed through the EBITDA margin, LPS Brasil has rebounded from the negative margins experienced during the 2014-18 real estate market crisis. This recovery stems from a strategic pivot towards an asset-light business model focusing on franchising and the growth of CrediPronto. They have stabilized EBITDA margins between 27% and 35% post-2019, edging closer to historic levels with the latest quarter reaching a 38% EBITDA margin.

Segment Performance and Outlook

Breaking down the financials by segment, the intermediation reported an 8.1% margin, franchise a robust 48%, and CrediPronto a high 44.9%. The total gross revenue was BRL 49.6 million, producing a net income before IFRS effects of BRL 12.2 million. After adjustments for minority interests, controlling shareholders enjoyed a net income of BRL 10.6 million. Additionally, the quarter concluded with a healthy cash balance of BRL 56.1 million, an 11% increase over the previous quarter.

Reflections and Investor Q&A Insights

In the Q&A session, the executive team addressed concerns about CrediPronto's market share loss, confirming that their partner Itau's conservative credit risk approach impacted originations, yet this aligned with a vision for a stable long-term customer portfolio. Reduced intermediation volumes outside Sao Paulo were rationalized by diminished launch activities. A partnership lauded as operationally beneficial was reported not to have significant immediate financial impact but is valued for bolstering franchisee opportunities. As the call closed, executives summarized the quarter as one of the best in terms of EBITDA since the strategic transformation began after the 2014 downturn, highlighting the accomplishments amid difficult market conditions.

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon, ladies and gentlemen, and thank you for holding. Welcome to the earnings webinar of LPS Brasil to discuss the results for the third 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 the business prospects of LPS, projections, operating and financial goals constitute 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 will turn the floor to Mr. Marcos Lopes. You may begin.

[Marcos Lopes, executive]

Good afternoon, everyone. I would like to thank you for participating in another LPS Brasil conference call in which we'll present the results for the third quarter of 2023. Taking part in this presentation are Vice President Robson Paim, Cyro Naufel and Matheus Fabricio.

The company maintained its solid performance in the third quarter of 2023 despite the still challenging macroeconomic and sector scenario. Once again, all of our business units showed a positive contribution margin, reinforcing the company's ability to deliver good results. Despite the beginning of the movement to reduce the basic interest rate, that's still high, and that is a constant challenge for the real estate market. In the context of real estate financing, this movement has not yet been reflected in the home loans interest rates. Therefore, the market continues to show a reduction in origination volume, which also directly impacts the performance of the Brazilian secondary market.

Even with this challenge, the company maintained solid intermediation results presenting PSV that's higher than the same period last year. CrediPronto in turn, even with the sectoral scenario of few originations presented excellent financial results in addition to continuing to increase the average portfolio balance, which today exceeds BRL 15.3 billion, and it's a very important asset for the company. This important asset is worth highlighting that Lopes holds 50% of it. The other 50% are owned by Itaú.

Another highlight that I would like to mention is the company's cost and expense management. The work and insistent search for efficiency -- the work in search for efficiency allowed the company to operate in the third quarter of 2023, with the volume of expenses 25% lower than the same period of previous year, a determining factor to increase Lopes' profitability even in this challenging scenario. This quarter, we achieved an EBITDA margin of 38.1%, which is 1 of the 3 highest margins in a quarter since 2014. This only proves that the company has been successful in its revenue -- to diversify revenue within intermediation, franchise growth and real estate financing in addition to the national expansion and development of solutions that bring greater potential of business and operational efficiency through Lopes Labs.

In this presentation, we'll bring some operational indicators from a long-term perspective so that we can be clear in showing to the market how important this transformation of Lopes has been important for a solid and sustainable future for the company and its shareholders.

After these brief financial remarks, I would like to move on to the presentation.

Starting on Slide 6 with the highlights of the third quarter of 2023. The transactions closed reached BRL 2.7 billion in the quarter, 4% higher than the same period in '22. Franchises closed BRL 1.6 billion, 22% more compared to the same quarter of 2022. While our own operations closed BRL 1 billion, 16% less compared to the third quarter of 2022, especially due to a reduction in the volume of launches in our own operations, operating outside the state of Sao Paulo. We ended the quarter with 178 franchises and 17 company-owned stores. And for the first time in the company's history, we are officially present in 26 states and the federal district, that means the entire country.

The average portfolio balance of CrediPronto reached BRL 15.3 billion, a growth of 13% compared to the third quarter of 2022. That's a very important asset that Lopes has in the company. The company's EBITDA reached 38.1%, 8.3 percentage points higher than the same period last year. It is worth mentioning that this is the company's third highest EBITDA margin since 2014. Finally, I highlight the company's net income attributable to the controlling shareholders before the effects of IFRS, which reached BRL 10.6 million, 108% higher than in the third quarter of '22. In the first 9 months of 2023, the company's consolidated net income before IFRS reached BRL 22.5 million, also representing a growth of 108% compared to the same period in 2022.

Let's move on to Slide 8. Here, we comment on the launches of Lopes' own operations and franchises in the third quarter of 2023. The total volume launched by the company in the third quarter '23 was BRL 5.4 billion, 25% lower than the third quarter of 2022. Lopes own operations launched BRL 3.5 billion, of which 83% were concentrated in the state of Sao Paulo. Franchises in turn, launched BRL 1.9 billion with 92% concentrated in the state of Rio de Janeiro.

Continuing with the presentation on Slide 9, we see the result of transactions closed. The chart on the left shows the company's consolidated result that is the PSV from our own operations plus the PSV intermediated by the franchisees. In the third quarter of 2023, the company intermediated BRL 2.7 billion, 4% more than in the same period of the previous year. Franchises reached an intermediate PSV of BRL 1.6 billion, 22% more than in the third quarter of '22.

Our own operations, which operate mainly in the primary market launches totaled an intermediate PSV of BRL 1 billion in the quarter, a reduction of 16% compared to the same period in '22, once again, impacted by the lower volume of launches in markets outside the state of Sao Paulo.

In the next slide, #10, we present the total transaction curves in the last 12 months since 2018, including our own operations and franchises. As we can see, the PSV intermediated by the company in the last 12 months exceeded BRL 10.2 billion, of which BRL 5.89 billion came from franchises and BRL 4.39 billion from its own operations.

On Slide #11, we present the transactions closed broken down by region as well as our geographic presence. Considering our own stores and franchises, we ended the year present in 26 states and the federal district with 195 stores in all, 17 of which are owned by Lopes and 178 are franchises. With our prejudice to our continuity in the network expansion strategy, we will be increasingly careful in evaluating the franchises that present a positive contribution margin for the company.

According to the chart at the bottom of the slide, when we compare the third quarter of 2022 with the third quarter of 2023, we see an 8% increase in the number of stores from 165 to 177 stores. On the upper part of the slide, we see that the state of Sao Paulo accounted for 68% of transactions closed of our own operations in the third quarter. Londrina accounted for 13%, while Fortaleza and Espírito Santo accounted for the remaining 19% of transactions closed.

In franchises, the state of Rio de Janeiro once again led transactions in the period, accounting for 53%. The state of Sao Paulo, whose franchises operate mostly in the secondary market, contributed with 31% and the other states with approximately 17%.

Moving on, on Slide 12, we present the company's evolution and indicators related to Lopes Labs throughout the quarter. In the chart in the upper left, we can see that the organic visits to Lopes Portal and Lopes [ blog ] reached 9.6 million in the last 12 months 7% higher than the last quarter. It's important to highlight the evolution of almost 1,500% since our follow-on in 2019. The leads generated by Portal Lopes totaled 143,000 in the last 12 months' view. And in the third quarter of 2023, we reached the company's historical record, surpassing 54,000 leads in the period.

In the graph at the bottom, we make a point of highlighting how the evolution of Lopes Labs has contributed to definitely improve the company's efficiency. As we can see, we achieved the company's best historical results in the cost and expenses ratio per Lopes associated broker. That's the indicator we saw in this chart. In 2015, Lopes needed to spend BRL 19,500 per year for each broker associated with the company. This indicator at the end of the third quarter '23 reached 9,600 in the last 12 months' view and BRL 6,500 in the accumulated view of 9 months of 2023.

Those were my remarks regarding the operating results. I now turn the floor over to Matheus Fabricio who will speak about CrediPronto and then the company's financial results.

[Matheus de Souza Fabricio, executive]

Thank you, Marcos.

Now speaking about CrediPronto. In the first slide, we see the results of the third quarter. As Marcos said, the market is in a challenging scenario for real estate funding, this BRL 668 million of originations in the quarter, which is 36% lower than the third quarter of '22. In terms of contracts, it was higher -- 59% less. We have more credit restriction on the side of banks. The medium LTV was 63% and the average rate 11.2%. Profit sharing reached BRL 11.2 million in a significant amount. And as we can see at the bottom of the slide, private banks dropped by 28% according to ABECIP data in the year-on-year comparison, and whereas we dropped by 36%.

It's worth mentioning, despite the challenging scenario of the real estate funding, we've been able to increase the portfolio of CrediPronto sustainably, which increased by more than BRL 1 billion when compared to the end of 2022, remembering that this portfolio belongs 50% to Lopes.

Now talking about the virtual P&L that shows for clearly the calculation of profit sharing for the period. It's worth highlighting in the operating expenses of CrediPronto that were reduced by BRL 3 million -- more than BRL 3 million when compared to the third quarter of '22, which shows that operational efficiency and cost adjustment made by the company in the latest years is also reflected on CrediPronto because we see that there is a potential to leverage results here.

Now moving on to Slide 17. We talk about the company's financial results. The total net revenue of the company reached BRL 44.8 million in the third quarter of 2023, down 5% compared to the same period of 2022. The intermediation segment had a net revenue of BRL 22 million, 18% lower than the third quarter of '22, accounting for 49% of the company's total net revenue. Franchise had net revenue of BRL 6.4 million, 8% lower, accounting for 14% of the company's total net revenue. And CrediPronto had a net revenue of BRL 16.3 million, 12% lower than the third quarter of '22, accounting for 37% of the company's total net revenue. In the chart on the right-hand side of the slide, we see a 25% drop in the company's total recurring costs and expenses compared to the same period of last year, totaling BRL 27.7 million.

On Slide 18, we highlight a series of indicators that illustrate the tangible growth in the company's operational efficiency in response to recent strategic changes. Our continued dedication to the principle of doing a lot more with less has been fundamental. As seen at the top of the slide, we currently operate with a team of 366 employees compared to 1,500 in 2012. When we analyze the value of transactions carried out by the company in relation to its workforce, we see that we have reached a significant milestone. Currently, Lopes transacts BRL 37 million for each employee over a 12-month period, representing the highest point in efficiency in the company's history.

Additionally, when examining the graph below, we present a similar analysis, but from the perspective of the net revenue. When we divide net revenue by the number of employees in each period, it is clear that Lopes reached its historical peak with BRL 0.5 million net revenue per employee over a 12-month period.

Moving on to Slide 19, that support the points discussed previously by highlighting the evolution of the EBITDA margin over the last 15 years. History views that before 2014 crisis, the company operating exclusively with its own operations had an EBITDA margin between 35% and 44%. During the period of crisis faced by the real estate market between 2014 and '18, the company faced challenges with negative margins, while beginning its strategic transformation to establish an asset-light business model based on franchises and stronger focus on CrediPronto. The analysis reveals that since 2019, therefore, over the last 4 years, the company has achieved a stabilization of EBITDA margin between 27% and 35%. We have not yet reached the previous historic levels, but there has been a solid progress towards recovering these margins.

In the quarterly view at the bottom of the slide -- on the right of the slide, the EBITDA margin has reached 38%, considerably approaching the 40% pursued by the company.

On Slide 20, we present the results by segment. In the intermediation segment presented a gross revenue of BRL 24.4 million and net income of BRL 1.8 million before IFRS with a margin of 8.1%. Franchise segment posted a gross revenue of BRL 6.7 million and net income before IFRS of BRL 3 million with a margin of 48%. And finally, CrediPronto had a gross revenue of BRL 18.4 million and net income before IFRS of BRL 7.3 million with a margin of 44.9%. After discounting depreciation, financial results and taxes from all segments, we reached total gross revenue of BRL 49.6 million and net income before IFRS effects of BRL 12.2 million in the quarter with a margin of 27.2%. After payments to minority shareholders, we reached a net income of BRL 10.6 million for controlling shareholders with a margin of 23.6%.

Slide 21, we see the impacts of IFRS on results. The main impact are related to depreciation and amortization of intangible assets, noncash impacts of 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 7.2 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 operational results.

On Slide 22, we have a cash variation in the period and the company's state of cash at the end of the third quarter of '23. They are positive. On the chart, we show cash generated from operations, which remained positive. This amounted to BRL 14.4 million in the quarter. The cash balance at the end of the quarter, considering financial investments was BRL 56.1 million, 11% higher than compared to the last quarter. The company also has approximately 10.3 million treasury stock.

And these were my remarks on the financial results. We thank you again for your participation, and we will now open for questions.

[Operator]

[Operator Instructions]

[Unknown Executive]

We have collected some questions and consolidated main topics. There is a question about the loss of market share of CrediPronto in this quarter. Actually, on the snapshot of the quarter, we see that the origination was lower than the drop by ABECIP. And the explanation for that is that Itau, that's our partner, that's a very diligent country -- bank, I'm sorry, in terms of credit. It's been more strict in its credit analysis, which has an impact in origination. But they aim to maintain a solid long-term portfolio of customers. And that's why they're doing that. And their own credit portfolio has had the same effect in Itau. So nothing related to the company that continues well.

We had questions about the volume of intermediation of our own operations that were reduced in the second quarter of 2023. That's explained by the drop in the sales volume in our own operations outside Sao Paulo, specifically Espírito Santo, Londrina and a bit in Fortaleza. In Sao Paulo, our own operations performed better than in the second -- the previous quarter. So we are anchored in.

We were asked about the partnership with [indiscernible] . The partnership continues well from the operational point of view. We made several deals with [indiscernible] and are partners, which is a good sign. But it's worth mentioning that from the financial point of view for the company, the impacts are not yet so significant, but it's been a very good partnership because it generates an additional value for franchisees. They see value in that partnership because it increases the value of transactions and potential deals in their real estate offices, which contributes to the entire ecosystem.

So these were the questions. If there are no further questions, we can turn over to Marcos for his final remarks.

[Marcos Lopes, executive]

Thank you all very much for attending the earnings conference call for the third quarter of 2023.

And I would like to close by saying that we are very happy to present the third best quarter in EBITDA margin since 2014 when there was a crisis in the real estate market. And since then, with the transformation of the company, seeking efficiency, increasing the revenue basis, franchisees. Now we are reaping the fruit of that effort with much higher efficiency. And today's scenario is still challenging, but we're certainly prepared to leverage on our revenues and improve results. As soon as the interest rates fall and the market gets better, the company is well prepared, diversified and reaching all states in Brazil plus the federal district. So we have a coverage, geographic coverage that is large, but still has room to improve. Several services added through the transformation that was made in this period and mainly with focus on efficiency, and this is something we will maintain.

Thank you very much and have a good afternoon.

[Operator]

The webinar for the results for LPS Brasil has ended. We thank you all for attending. Have a good afternoon.

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