LPS Brasil Consultoria de Imoveis SA

BOVESPA:LPSB3

Earnings Call Analysis

Company Navigates Credit Inflection, Aims for Efficiency

The company endured an inflection in credit supply in 2023 due to high withdrawals from savings, peaking at BRL 72 billion. Despite a tighter credit environment and a year-on-year 2% dip in Q4 net revenue to BRL 48.5 million, the firm showcased resilience with a healthy portfolio. Notably, the intermediation segment rose by 32%, countering CrediPronto's 42% decline. Overall 2023 revenue fell 7%, primarily affected by CrediPronto's 23% decrease. Operational efficiency improved, with staffing reduced to 360 from 551 in 2021, and net revenue per employee hitting a historical high at BRL 506,000. EBITDA margin currently sits at 33% but the company is targeting a return to its historical 40% benchmark.

Steadfast Performance Amid Market Fluctuations

Lopes spent 2023 honing operational efficiency to sustain a resilient structure in a fluctuating market. Interest rates decreased, and the generation of new financing contracts fell as expected due to limited access to capital for real estate financing. Nevertheless, Lopes brokered BRL 11 billion in general sales values and featured in BRL 24 billion across 170 real estate launches.

Foothold in Franchising and Profitability

Lopes' national foothold grew, with 17 owned and 177 franchised stores aiding in generating BRL 11 billion in transactions (a 12% year-over-year increase) and helping franchises mediate 21% more than the prior year, totaling BRL 6.4 billion. Operational efficiency yielded a striking increase in net income and cash generation, with net income reaching BRL 24.7 million, up 136%, and operational cash generation rising 232%.

Continued Growth and Efficiency in CrediPronto

CrediPronto, key to Lopes' success, sustained 8% growth in its portfolio balance, with a market share of 5.8% among private banks. Ongoing efficiency resulted in noticeable increases in average mortgage values despite a tightened credit market and a significant reduction in financing due to diminished SBPE funds.

Financial Highlights and Efficient Resource Management

The Intermediation and Franchise segments improved net revenue, contributing 54% and 19%, respectively, of the company's total net revenue. CrediPronto's net revenue declined by 42% compared to Q4 2022, with an overall drop in the company's total net revenue by 7%. Recurring expenses shrank by 18%, and operational advancements led to the company reaching historic efficiency, with 360 employees achieving the highest productivity levels and net revenue per employee.

EBITDA Margin Improvement and Forward-Looking Prospects

EBITDA margin increased to 33%, a climb from negative margins encountered during the challenging years between 2014 to 2018. The long-term aim is achieving historical margins of around 40%. Lopes anticipates similar financing figures for CrediPronto in 2024 as seen in 2023, despite hurdles. The company's financial fortitude is underlined by its continued generation of positive cash flow, ending 2023 with a cash balance 22% higher than the previous year.

Navigating Market Trends and Strategic Franchise Growth

Real estate market dynamics altered, with a rise in sales despite a decrease in launches, reflective of Lopes' ability to navigate economic climates. Minha Casa, Minha Vida housing program recovery and a stabilizing business environment hint at a hopeful 2024. Additionally, Lopes plans to selectively expand its franchise network, focusing on quality over quantity to strengthen its market presence.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to the earnings webinar of LPS Brasil to discuss the results for the year 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, projection, 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 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 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 of the fourth quarter and of the year of 2023. Taking part in this presentation are our Vice President, Francisco Lopes Neto; our Investor Relations Officer, Matheus Fabricio; our CFO, Robson Paim and our Institutional Officer, Cyro Naufel.

In 2023, Lopes concentrated efforts to improve its operational efficiency, aiming for a resilient structure in the face of market fluctuations. We observed that interest rates, although high, began to show a declining trend throughout the year. Access to capital for real estate financing proved to be more limited compared to the previous year, which resulted in an expected decrease in the generation of new financing contracts by CrediPronto.

With the high standard of efficiency achieved through the rationalization of operating costs and expenses, Lopes maintained a robust performance in its sales operations, reflected in the positive financial results in its various areas of activity. During 2023, the company brokered BRL 11 billion in general sales values, PSV and was present in 170 real estate launches, reaching a general launch value of BRL 24 billion.

Lopes expanded its national presence being active in all the states and the federal district with 17 owned stores and 177 franchises. The expansion and careful evaluation of franchises contributed to the stability in the number of members of Lopes network.

As for CrediPronto, there was an increase of 8% in the average portfolio balance, reaching BRL 15.3 billion in the end -- at the end of the year of 2023, with a volume of BRL 2.8 billion financed in 2023 corresponding to 5.8% market share among private banks, according to data from ABECIP.

Closing the year, we highlight the strengthening of Lopes' cash position, which ended 2023 with BRL 38 million in cash and cash equivalents, an increase of 40% compared to the previous year, demonstrating the effectiveness of the operational management adopted by the company.

After this brief initial remarks, I would like to move on to the presentation, starting on Slide 6 with the highlight of the fourth quarter and year of 2023.

[ The total ] transactions closed reached BRL 11 billion in 2023, 12% higher than the year of 2022. Franchises intermediated BRL 6.4 billion, 21% more compared to the year 2022, while our own operations intermediated BRL 4.6 billion. CrediPronto's average portfolio balance reached BRL 15.3 billion, an increase of 8% compared to the end of 2022, even in a scenario of funding restrictions, given the scarcity of SBPE funds.

The company's recurring expenses were 18% lower than in 2022, ending 2023 at BRL 122 million, demonstrating our commitment to efficiency. The EBITDA of the company reached BRL 60.1 million, 31% higher than the year of 2022. The EBITDA margin was 33%, 9.5 percentage points higher than last year.

Finally, I highlight the company's net income attributed to controlling shareholders before the effect of IFRS, which reached BRL 24.7 million, 136% higher than 2022. Finally, I highlight the cash generated from operations, which totaled BRL 51.7 million, 232% higher than in the year 2022.

Moving on to Slide 8, we will comment on the launches of Lopes' owned operations and franchises in the fourth quarter and in the year 2023.

The total volume launched by the company in the fourth quarter of '23 was BRL 7.9 billion, a decrease of 14% compared to the fourth quarter of 2022. In own operations, launches took place in the state of São Paulo, Fortaleza, Espírito Santo and Londrina.

Lopes' franchises participated in launches mainly in the state of Rio de Janeiro, with the company also participating in launches in Bahia, Goiânia and Maceió. The total volume launched in 2023 by Lopes considering the company's participation in its own operations and franchises, was BRL 11.5 billion, 5% lower than in 2022.

Continuing presentation. Let's go to Slide 9 where 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 fourth quarter of 2023, the company intermediated BRL 3.2 billion, 30% more than in the same period of the previous year. In the annual view, the total transactions closed reached BRL 11 billion, 12% higher than in 2022.

Franchises had an intermediated PSV of BRL 6.4 billion in 2023, a growth of 21% compared to 2022. The better contribution margin of franchises shows the consolidation and maturity of [ the ] segment. Our own operations totaled an intermediated PSV of BRL 4.6 billion in 2023, stable when compared to 2022.

On the next slide, number 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 11 billion for the first time in 6 years, of which BRL 6.4 billion came from franchises and BRL 4.6 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 in the federal district, with 194 stores in all, which are owned by Lopes and 177 are franchises.

On the upper right chart, we can see that the state of São Paulo accounted for 65% of transactions closed of own operations in the year of 2023. Londrina accounted for 14% of transactions closed, while Fortaleza and Espírito Santo accounted for the remaining 21%.

In franchises, the state of Rio de Janeiro once again led transactions in the year, accounting for 50%. The state of São Paulo, whose franchises operate mostly in the secondary market, contributed with 33% and the other states with approximately 18%.

Moving on to Slide 12, we present the company's evolution and indicators related to Lopes Labs throughout 2023. In the chart in the upper left, we can see that organic visits to Lopes portal exceeded 10.2 million in the last 12 months for the first time in history, a volume 31% higher than at the end of 2022. The leads generated by Lopes portal totaled 161,000 in the last 12 months, also a record high for the company.

In the graph at the bottom, we make a point of highlighting how the evolution of Lopes Labs has definitely contributed to improving the company's efficiency. As we can see, we achieved the company's best historical result in the cost and expenses ratio and cost and expenses per broker in Lopes platform.

At the end of 2023, the indicator reached its historic low of BRL 9,300 in the last 12 months, which shows that the company is prepared to continue growing its base of franchises and associated brokers while paying attention to operational efficiency, which is so much helped by technology.

These were my remarks regarding the operational results. And now I turn the floor over to speak about CrediPronto. And then will present the company's financial results. Thank you.

[Francisco Neto, executive]

Thank you, Marcos. It's a pleasure to be here with you once again in the earnings conference call for the fourth quarter of 2023 and the full year 2023. CrediPronto is very important for the company. Indeed, we can see the resilience that we've built during this year in this operation that is highly efficient in terms of issuing contracts, and it has become more and more significant in the market.

We've been through an inflection point in terms of the supply of credit in 2023 because the withdrawals from savings accounts were very high, as the market is aware of.

And just to give you some figures, we had a negative balance between deposits and withdrawals in 2023 of BRL 72 billion. That's still reflected in January and February, according to ABECIP figures that are public, and they show a decrease in such withdrawals, although BRL [ 16 ] billion were withdrawn in January, but that went down to BRL 3 billion in February.

So with these -- the funds available to fund the SBPE that will lead people to get a mortgage for their -- to buy a home, since those funds were reduced, it allows -- that causes banks to be stricter in their credit analysis, which is healthy because the less funding you get, you have a credit that will bring better results. But -- however, the number of loans decreases. So this is a decrease but that is part of the time that we noticed that funding was dropping.

Just to give you a longer perspective on that, if we look at 2019 before the pandemic, CrediPronto used to fund contracts amounting BRL 1.6 billion. And this year 2023, it's BRL 2.8 billion. So it may be that in 2024, we will -- we can be above 2.4, 2.6. That's no guidance, it's a possibility. And if that happens, that 60% higher than we used to be in 2019.

So that shows that 2020, '21 and '22, we were at very low cash within a high number of financing 6% rate for 30 years fixed term, no penalty for payments. So these abundance of funds was something typical of this period, and the savings accounts balances went up very much, and this explains why this reduction in financing.

And I close this initial remarks talking about the amount of savings. We've ended 2019 at BRL 657 billion in savings accounts. Now, it's BRL 735 billion in February. So after this period in which many financings were made, [ lot of ] credit was granted and now that's become more normal in 2023 and beginning of 2024, even going through this inflection period, we will be it at a level much higher than what we had in 2019.

So the real estate credit, it's a very healthy segment, low default rates, with a proven efficiency system in terms of collaterals and gaining for closing on mortgages if needed. And it's a very secure system with the banks and the credit levels. And the interest rates are very healthy, considering current market. So we are in a safe market, both for banks and for those who have a mortgage.

So we can see the growth in the average mortgage value and balance. There was a drop in credits granted, going up a bit here. And we see this composition between revenue and banking correspondents.

Something that's interesting is the company's resilience, and our profit is quite good. And talking about that, we can move on to the next slide, where you can see on the right side, the -- broken down by what's reported as income in the fourth quarter of 2023. In December, we reported the results of the month of December, and it shows the level of BRL 4 million.

And if you look at the chart on the left, BRL 33 million in profit in '23 against BRL 34 million in 2022, despite the drop in fundings, so -- which shows that we have a healthy portfolio.

Moving on to the next slide, we close this part of presentation on CrediPronto and then we'll open for the Q&A session.

Now I turn the floor over to our Investor Relations Officer, Matheus Fabricio. Thank you very much, and have a good day.

[Matheus de Souza Fabricio, executive]

Thank you, Francisco, and good afternoon. We begin the analysis of the financial results on Slide 17, where we present the breakdown of net revenue by segment of the company with a total of recurring costs and expenses.

The company's total net revenue reached BRL 48.5 million in the fourth quarter of '23, down 2% compared to the same period of '22. Intermediation segment had a net revenue of BRL 26 million, 32% higher than 4Q '22, accounting for 54% of the company's total net revenue.

Franchise segment had a net revenue of BRL 9.3 million, 34% higher than 4Q '22, accounting for 19% of the company's total net revenue. Finally, CrediPronto had a net revenue of BRL 13.1 million, 42% lower than the fourth quarter of '22, accounting for the company's total net revenue.

In the annual view, the company's total net revenue reached BRL 182.2 million in '23, a drop of 7% compared to '22, obviously concentrated in CrediPronto. The intermediation segment had a net revenue of BRL 95 million, 2% higher than 2022, accounting for 54% of the company's total net revenue.

Franchise segment had a net revenue of BRL 27.8 million, 8% higher than '22, accounting for 15% of the total. And CrediPronto had a net revenue of BRL 56.4 million, 23% lower than 2022, accounted for 31% of the company's total net revenue.

In the chart on the right hand of the slide, we see an 18% drop in the company's total recurring costs and expenses. As Marcos mentioned in the beginning, we are always looking for efficiency, and this is the good news for the company, totaling BRL 122 million in 2023.

On Slide 18, we emphasize several indicators that highlight the notable advance in the company's operational efficiency. Continuous practice, as Marcos mentioned, of optimizing resources and maximizing results has been crucial.

As highlighted in the beginning of the slide, the company now has 360 employees, a significant reduction compared to 551 in 2021, for example. When we look at the ratio between the number of transactions every year, and the total number of employees, we see a significant improvement. Currently, Lopes has 38 transactions per employee over the course of the year, marking the peak of efficiency in the company's history.

Furthermore, an additional analysis is presented in the subsequent graph focusing net revenue. When divide the net revenue by the current number of employees, we see always that we reached the highest value in history in terms of productivity, which -- with approximately BRL 506,000 in net revenue per employee in 2023.

On Slide 19, we enforce the topics already covered, highlighting the progress in the EBITDA margin over the last 14 years.

As we can see in a different -- differently from the crisis before 2014, when we had own operations and the market had not undergone the crisis, and the company was working with EBITDA margins around 40%. In 20 -- from 2014 to '18, we had a very difficult year in the market, and the company experienced negative EBITDA margins.

And starting in '18-'19, we went back to working with higher results and higher margin. And now, we are around 33% of EBITDA margin, and we want to go back to the historical marks of 40% as soon as possible.

On Slide 20, we show the performance by segment for the fourth quarter 2023. Intermediation segment had a gross revenue of BRL 28.9 million and a loss of BRL 1.5 million before IFRS, resulting in negative margin of 5.9%. On the other hand, franchise segment posted gross revenue of BRL 9.9 million, net income before IFRS of BRL 4.2 million, positive margin of 44.7%.

CrediPronto gross revenue of BRL 14.8 million, net income before IFRS of BRL 3.2 million, margin of 24.1%. So the consolidated gross revenue was BRL 53.5 million and the financial results for net income before IFRS of BRL 5.8 million, 12% margin. After adjustment for minority interest, net income attributed to controlling shareholders was BRL 2.2 million, a margin of 4.6%.

On Slide 21, we present the analysis by segment from an annual perspective. Intermediation segment achieved gross revenue of BRL 108.4 million, net income of BRL 4.9 million, margin of 5%. Franchise is BRL 29.5 million; net income, BRL 12.6 million; margin of BRL 45.4 million. CrediPronto, BRL 62.9 million gross revenue, net income before IFRS of BRL 19 million, margin of 33.7%.

The total for the company is BRL 200 million gross revenue and net income before IFRS of BRL 36.5 million, equivalent to 20% margin. After minority interest, we have a BRL 24.7 million net income for controlling shareholders, a margin of 13.6%.

On Slide 22, we see the effects of IFRS influencing our financial results. We know that the largest part of them are associated to depreciation and amortization of intangible assets, noncash effects of call and put options in subsidiaries and deferred income tax related to intangible [ spend ] LPS Brasil calls and put options.

They do not affect cash and reached BRL 1.2 million in 2023. Therefore, we suggest the valuation of our results excluding this impact for a clear understanding of the company's performance.

On Slide 23, we have the cash variation in the period and the total cash at the end of '23. The chart on the left shows the cash generated from operations which remained positive, reaching almost BRL 20 million in the quarter.

And the cash balance at the end of 2023, considering financial investments, was BRL 67.9 million, 22% higher when compared to the end of '22. The company also has 10.3 million treasury stocks.

These were my remarks on the company's financial results. We thank you again for your participation. Now let's open for questions.

[Operator]

[Operator Instructions]

[Matheus de Souza Fabricio, executive]

We've concentrated some questions in major topics, and I'll answer some of them, and then I'll turn the floor to Cyro because there are a lot of questions about the current prospects and the real estate market.

Many questions about CrediPronto, questions about the drop in the number of credits granted compared to other private banks. I believe Francisco shed a lot of light on CrediPronto's operations, but it's important to highlight that the reduction in transactions, higher than the market, it has a lot to do with our partner, Itaú Bank, that has its own credit policy, which impacts our portfolio.

As for the forecast of funding or financing for 2024, we don't give guidance, but CrediPronto will try to reach a similar figure of that in 2023. We still face a challenging scenario, given the funding available and also the savings accounts balance.

It's important to highlight that interest rate is not the main [ offender ]. The main issue is approval. The credit approval is more restricted by Itau and by other private banks. It's not an interest rate that is not allowing customers to close and sign a credit facility for real estate.

Of course, we believe that the reduction of interest rate that will continue, will have a positive impact at some point in time because it also helps to increase the balance of savings accounts. It was an important withdrawal in 2023.

And we know that the Brasil savings is very solid when compared to 2019. If we consider the years of 2021 and '22, there was an increase in savings. But now, we've come back to regular levels. And as that is maintained, the real estate financing will also improve.

There was a question about the reduction in the EBITDA margin regarding the last quarter of 2023, which is explained by one-off event in a reduction that profit and loss we had in the fourth quarter. The company is reducing expenses constantly, increasing efficiency and sales are resilient. So there's no reason to worry about margins from now on.

Questions were asked about whether there is a definition on what to do about treasury stock, and any plans to [ revise ] to buy back shares in the future? No, we don't have any buyback program defined or planned, and we don't -- we haven't yet defined what to do with treasury stock. These were the main questions.

And now I turn the floor over to Cyro, who will talk about the real estate market.

[Cyro Filho, executive]

Thank you, Matheus. Thank you all for attending the call. To talk about the real estate market scenario, it's worth remembering that we've started the year 2024 in a business environment that was much more predictable and stable, especially when compared to the beginning of 2023, in which we -- the new administration started and back then coming from a transition with -- that was very polarized, a lot of questions by the private initiative regarding the new economic order, any risk of increasing public spending that could increase inflation and in delay the drop in rates.

So in the past, that imposed some limitations to the real estate market, especially for developers. So during 2023 in general, not only in São Paulo but in the whole country, there was a drop in the volume of launches.

However, since the demand remained high, despite this, we had a higher sales level. And the figures of Lopes reflect the behavior of the market that applies to São Paulo as well as to the whole country of Brazil.

There was a reduction due to this economic environment last year and also because of the resumption of Minha Casa, Minha Vida housing Program. And after the provisional measure was approved, the second half of the year was much better, but the first half where the market was pretty much -- had come to a halt, so interest rates, income.

And since these things were decided, then the market came back strongly. And for the city, we had the discussion of the new master plan. So many developers put on hold new business and development of new launches, given the fact that they were waiting for the new rules that might be defined by the master plan.

In 2024, the scenario is more predicted in terms of inflation. Inflation remains under control. We had 6 drops of interest rates in a row. So this predictability and stability is a better business environment. The master plan has been defined, Minha Casa, Minha Vida housing plan will gain traction again in 2024. So the overall scenario and environment is very positive.

Of course, we have to pay attention to the supply level in some areas of São Paulo City. But overall, there is a much better environment for real estate activity in São Paulo and in Brazil as a whole this year.

[Unknown Executive]

Thank you, Cyro. I end up forgotten to talk about the growth plan for franchises. I'm sorry, I forgot to answer those questions. So basically, for this year, we do expect to resume the increase in the number of stores after the 3 quarters being stable.

It's important to highlight that this growth plan has never stopped. We have always worked on that. So the company is increasingly careful in maintaining franchises that have a positive contribution margin.

So we -- as the contracts finish, we make an option either to renew such contracts with the franchisees or not. So it's not only increasing the number of stores by itself, but looking for franchises that can have a positive contribution margin and potential sales.

We made adjustments in-house. So 2024, we start the year with a clean solid base of franchises. And the idea is to continue to grow, going to unexplored areas of the Brazilian market, but also increasing the number of quality stores in which we are already present, in areas where we are present.

We have franchises working in the primary market in some areas, which is a source of growth for us. They started, in the beginning, focusing on the secondary market, but we see that our products are well accepted by real estate owners and brokers. And so therefore, we expect the number of stores to increase in 2024.

We don't give guidance because we're not so much worried about the number of stores but the quality of them. But the company is totally focused on that, and we'll continue to invest strongly in increasing franchises because that's where we see that we can grow inorganically.

Basically, that's it. I think we've addressed all the topics that were raised. The company remains available to answer any other questions you may have with -- by accessing our Investor Relations team.

I would like to thank you all for attending this call. And to close formally the earnings conference call for the fourth quarter and year 2023, we hope we have very good news and lots of information for you in 2024. Thank you. Have a good day.

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