MRV Engenharia e Participacoes SA

BOVESPA:MRVE3

Earnings Call Analysis

MRV&CO Shows Strong Q3 Performance with Positive Guidance for 2025

MRV&CO reported a robust quarter with BRL 3.5 billion in net sales, representing a 19% year-over-year increase. The gross margin stood at 37.5%, with expectations to improve further. The company generated BRL 124 million in cash flow, anticipating BRL 6.2 billion in net revenue for Q4. Plans for next year remain optimistic, focusing on reduced operational costs and improved profitability, projecting an enhanced gross margin in 2025. Additionally, MRV expects favorable conditions in the affordable housing sector and a stronger cash generation outlook, aiming for BRL 156.5 million in cash for the fourth quarter.

Positive Operational Growth

In the third quarter of 2024, MRV&CO reported a significant increase in operational metrics, achieving BRL 3.5 billion in net sales, marking a 19% increase compared to the previous period and a remarkable 68% increase from 2022. The company also reported a gross margin of 37.5%, suggesting a positive trend in operational efficiency.

Strategic Cost Management

MRV has effectively implemented cost-control measures, notably reducing general and administrative expenses by roughly 1.6% year-to-date, achieving an expense ratio of 14.1%. This disciplined approach is contributing to improved margins and overall operational effectiveness.

Cash Generation and Financial Performance

The company generated BRL 229 million in cash during the quarter, and cumulative cash generation for the year now totals BRL 124 million, almost doubling from the same period last year. This substantial cash flow is a positive indicator for future financial health.

Forecasts for Revenue and Margins

MRV affirmatively guided for BRL 6.2 billion in net revenue for the fourth quarter, indicating confidence in market stability and operational performance continuing through year-end. The company also expects gross margins to align closely with historical averages, further solidifying its financial expectations.

Market Dynamics and Competitive Position

Reflecting on market conditions, MRV noted a significant competitive advantage due in part to the exit of a major competitor, potentially allowing for increased market share and more favorable pricing dynamics for their projects. Additionally, interest rates are projected to decrease, facilitating better capital access.

Outlook for Future Projects

Looking ahead to 2025, company executives expressed optimism about cash generation driven by an anticipated increase in sales volume and improved production margins. They aim to reduce their pro-soluto (i.e., percentage of value of sales paid upfront) further while maintaining prices above inflation rates.

Strategic Land Acquisition

MRV is strategically focused on land acquisitions during 2023-2024, purchasing at prices below historical norms. This prudent strategy is expected to yield competitive advantages in the coming years as these positioned assets become more valuable.

Resia Operations and Challenges

The company acknowledged ongoing challenges with its U.S. housing segment, particularly in the Resia division, where high interest rates have dampened property sales. However, there remains a positive outlook, contingent on forecasts of declining U.S. interest rates and improved demand characteristics in the housing market.

Expectations for 2025 Financials

Executives remain confident that the company's performance in 2025 will showcase substantial growth across key financial metrics, reflecting the culmination of strategic initiatives undertaken from 2023 onwards. They predict a reconciling of operations leading to sustained profitability.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good morning. Thank you for holding, and welcome to MRV's Third Quarter of 2024 Results Conference Call. Today with us, we have the CEOs of the company, Mr. Rafael Menin and Mr. Eduardo Fischer; and the Chief Financial and IR Officer, Ricardo Paixao. [Operator Instructions]

Now I would like to turn the floor over to the CEO, Mr. Rafael Menin. Mr. Menin, you may continue.

[Rafael Nazareth Menin Teixeira de Souza, executive]

Good morning. Once again, thank you for being with us in our earnings conference call. I would like to start talking about MRV Brazil. We've been now -- we are now in the third quarter, and we have a lot to celebrate. The main operating metrics are doing fine. Sales are going up. Sales price are going up above inflation. Costs are below inflation.

And when we see -- the fourth quarter has started also very strong with good metrics, which shows a continuous development. And we are very optimistic because all the work we've done in the last 2 or 3 years is now materializing, and we can see the results of it. Therefore, we're sure that in a short period of time, MRV will be able to deliver financial and economic results in the first year of the Brazilian market.

In terms of size, we have a large advantage when compared to other competitors. We are much bigger, and we continue to grow steadily. And at some point in time next year, we'll have an interesting income statement with cash generation, which is also an important cash -- important indicator. We see that it's growing and we are delivering in the operational front. This will show and boost the potential of cash generation during next year.

As for Urba and Luggo, we'll have neutral cash income statement but -- and cash flow. But as of next year, they will have a positive income statement and cash flow. I know these 2 companies are small, but they had a turnaround, and they have a good project for coming years. Looking at Resia, Resia is still a challenge. We have a market context that is more challenging, especially regarding interest rates.

When we look at operations, we still have a good rental revenue. But since interest rates in the U.S. are high, it's higher -- harder to sell the properties. And the sale is done at the price level that's lower than historical levels. Of course, we believe that these interest rates will not remain as they are now. We believe that some point in time at the end of next year, but it's -- it will go down. But it's a consensus that the U.S. market will be more agile or more active in terms of property purchases. So looking forward, we are sure that Resia's operation, not only in the area of construction, purchase and sale of properties, but sales of properties will reach a better context than we have now.

Now talking about MRV, looking forward, the company's operation, we are very optimistic because the context of MRV's market remains very favorable. We've seen regional checks with an important role in economic segment. Several states already have that check working. Other states have announced that they will contribute as well. And we are the company with a higher geographic coverage. And we are, therefore, impacted by regional checks.

Another important point is that along with the prices that are going up slightly above inflation and costs going up below inflation, we see good room for gross margin, gross margin of new sales that reached 37.5%. We see space for this margin to continue to grow, which will place MRV as the company with the best profitability in the industry at some point in time next year.

Another important point, an indicator, that we keep track of is a metric looking at 2026 and '27 is the purchase of land. We've been purchasing land by -- in swap transactions at percentages that are below historical values and less than the competition is buying. Therefore, we are sure that land purchased in 2023 and '24 will allow us to have an important competitive delta 2 to 3 years from now because listed companies disclose the metrics, and we've been able to consistently buy at better conditions.

And regarding the Urba and Luggo, as I said, will gradually improve their operations becoming positive, but they still account for a small share within MRV&CO. Resia, looking at the future in terms of what's within our control. Of course, interest rates are something outside our control, and they will improve. Today, we have a defined geographic region. We left Austin and we'll operate in the 4 cities. And we've also done work to reduce the land bank. In the next 12 months, we expect to reduce our land bank by half. So we'll remain with a land bank that is -- that has a profitability level that we find adequate to Resia. We have good land that will be sold at good prices.

Another important aspect is that we've -- in the third quarter, we did a performance. We reduced about 13% of G&A of Resia. We have a company that will become even leaner in the next quarter. So in terms of capital markets, either at the project level or at the holding level, we continue to work on that. We see more and more funds interested in the projects, sales of stable assets, we've seen improvement in margins quarter-on-quarter.

In this release, you see that we have BRL 13 billion in projects in different stages of stabilization and rental. But these are projects that are ready. They have required their capital. The debt is on the balance sheet. And in some -- in the next 6 quarters, I could say that we expect to sell all these assets. And the new assets, the new projects that we're starting, we are reducing our equity in each project so that we can be an asset-light company more and more. And this combination of leaner G&A, leaner land bank and new projects in which we have a smaller equity and interest rates in the U.S. going down, we believe that with a little delay when compared to MRV Brazil, but certainly, Resia will have much better operational quality some years from now.

To summarize, I reaffirm that we did our homework very well in terms of expenses, costs of projects, portfolio, originated land bank, price recovery, and that is true for Brazil that already happened and as well as for Resia, where it's going on now. So I am very optimistic, and I reaffirm that MRV&CO will continue to improve and operation -- in operations, finance and overall quarter-on-quarter.

And now I turn the floor over to Kaka for the financial highlights.

[Ricardo Paixão, executive]

Good morning, everyone. Thank you, Rafa. Starting with my comments with some figures. MRV&CO has reached BRL 229 million of cash generation in the quarter with net sales of BRL 3.5 billion. When we look at corporation, we see that it's improving quarter-on-quarter. In the third quarter, we see BRL 2.8 billion in net sales, BRL 7.4 billion in sales in 9 months of '24, which is 19% higher and 68% than '22. So with a gross margin of 37.5%, we're also able to hold our pro-soluto at 2.5%, and we raised producing to 27,000 units in 9 months, which is 13% higher than the same period of '23.

This operational improvement is also accompanied by financial [indiscernible]. Our accumulated [indiscernible] is BRL 37 billion, 17% higher than the same period in '23 and 29% than the same period of '22, 31%, 3.3% above gross margin and 7 percentage points higher than the 3Q of '22. The EBITDA that measures in the BRL 857 million in 9 months of '24, almost double than the same period of '23 and 3x '22. We generated BRL 124 million in cash, BRL 154 million against BRL 327 million.

Our expense control, we reduced [ 1.6% ] to 14.1% year-to-date so far. Our adjusted net income according to the swap of debt and shares were BRL 76 million in the third quarter, BRL 206 million year-to-date against a loss of BRL 102 million in the [ 9 ].

When we look at the guidance, we have BRL 6.2 billion [indiscernible] net revenue, which is comfortable to reach the guidance in the fourth quarter. Gross margin, which is very close to the average. We will close the gap in the fourth quarter. Cash generation, BRL 156.5 million. So we'll reach the middle point of the guidance. Net debt over equity, 39.1%, so we'll reach the level. And the net income is BRL 196 million, and our operation is improving quarter-on-quarter. We expect to reach the middle of the guidance of this important indicator. With this, we reaffirm our guidance for the year.

This is what I had to say. And now let me go to the Q&A session. Thank you.

[Operator]

[Operator Instructions] The first question is from Bruno Mendonca from Bradesco BBI.

[Bruno Mendonca, analyst]

I would like to talk about the direct finance that has had an important improvement or acceleration. I know that it has a better quality than the pro-soluto portfolio that has been reduced. But I would like to understand the dynamics of the origination of direct funding. I'll ask a few questions, but all of them within the same topic.

So first, can you tell me what's the percentage of direct financing that Sensia and how much is within MCMV market? So for Sensia, has this direct financing been a direct commercial need to offset the banks that have less appetite? Or is that more related to the company's option to sustain cash generation through the sale of portfolio?

And within MCMV, in the sales of portfolio, sale of receivables, I would like to understand what's the reason for MCMV to get direct funding instead of going to Caixa. And since the rate is higher, what is -- my question is, what is the maximum income percentage that you are approving for those financing contracts?

[Ricardo Paixão, executive]

Okay. This is Kaka speaking. Our sales with direct funding, we are selling at IPCA plus 0.95% per month throughout the entire contract. So in this quarter, we once again reached a balance between how much we charge from customers and how much we receive in those papers. So we are generating these bonds and distributing it in the market. So we created a model in which individual investors are able to fund the MRVC directly. So MRV doesn't -- is not involved. So we are selling or half of the direct credit concessions are being done with SBPE and the other half with MCMV.

Now the SBPE audience, this is due to our commercial decision internally. We prefer to sell for projects that have a POC of 70%, 75% or that have been launched due to -- we prefer to sell it in direct funding, instead of SBPE where customers would pay 30% up to until keys because we get a better return on projects like that.

When the other half of sales on the Minha Casa Minha Vida, MCMV, we have customers with a higher income than the cap. So these customers have a much higher profile -- income profile. The average profile for direct purchase is above BRL 15,000 per month. So they are not included in the MCMV program. So they prefer the direct funding.

[Bruno Mendonca, analyst]

So is this an investor? Those customers that have a higher income, are they investors or dwellers?

[Ricardo Paixão, executive]

They are investors mostly. Or they purchase and someone else is in the family is going to live there, some relative.

[Operator]

Our next question comes from Aline Caldeira from Bank of America.

[Aline Caldeira, analyst]

First is about the gross margin from new sales. It's been stable in the first quarter at a reasonable level. Do you believe this is the new stabilization level? Was there still room to grow this margin of new sales? And also if this has any impact of higher inflation rates. How do you see the dynamics of -- cost dynamics there?

And the second question is a bit more technical. It's about the impact of swaps, especially IPCA that you closed in this quarter. I would like to understand the rationale behind those transactions, if this has gone through income statement?

[Rafael Nazareth Menin Teixeira de Souza, executive]

Thank you, Aline. I'll answer your question about the margin, and then Kaka will talk about the swaps. As for the margin, it's been -- the gross margin from new sales is stable because we consider that for next year, inflation will be at 6%. I don't think this will be our inflation, but this is what we included in the mathematical model, an inflation of 6%. What we see on a daily basis in the basket of products is that our inflation is below INCC. And our sales price is above INCC inflation rate.

So the margin of the projects of September was better than July. It was -- we just did not report a higher margin because we made a forecast for future inflation that is higher than that we expected for the second quarter. But we continue to raise prices above inflation and our costs remain below inflation. That provides us an expectation of continued growth for gross margins for new sales. We are at 37.5% now, and our mission is to reach a higher margin. And some point in time next year, we believe it's possible we'll have the best gross margin in the industry. Now, Kaka?

[Ricardo Paixão, executive]

Aline, the swap, what was the rationale? We issued debt securities of BRL 1.9 million according to IPCA indexation. And when -- in 2021, our trade receivables linked to IPCA was much lower than that. So as a hedging, we did the swap IPCA. We did this in 2021, and we made money year-to-date about in entire period, BRL 100 million in '21 and '20 -- or we lost in '21 and '22, but we made a lot in 2022. We lost a bit in '23 and '24. Since now, our non-granted portfolio is [ 2.800 ] not linked to IPCA, we decided to support that transaction. We decided to -- there was a loss of BRL 105 million in the settlement of swaps, but it's mark-to-market of debentures BRL 79 million. So the match was BRL 79 million in losses. The main economic objective, it doesn't make sense anymore to maintain those swaps. And also, the adjusted and the actual result will be much closer to each other from now on.

[Aline Caldeira, analyst]

Okay. Perfect. That's very clear. If I could just ask a follow-up question about pro-soluto. The pro-soluto that you see in the end is stable on quarter-on-quarter. Are you comfortable with that level? Or do you believe there's still room to reduce that?

[Rafael Nazareth Menin Teixeira de Souza, executive]

We believe there is room to reduce it. And there are some cities that they have these housing checks to be contributed, and that will reduce pro-soluto in the percentage of the property.

[Operator]

Our next question comes from Kiepher Kennedy from Citi.

[Kiepher Kennedy, analyst]

One is about the guidance of cash generation. You've mentioned in the beginning that it seems to be more distant. What are the drivers that you see in the third and fourth quarter to deliver this cash generation in the guidance? And what's the risk of not reaching that?

And the second is about Resia. Do you see the recent election of Trump as positive? Or should anything change based on that?

[Ricardo Paixão, executive]

Kiepher, this is Ricardo speaking. In terms of cash generation guidance, the cash generation throughout the year has evolved. We've had BRL 124 million cash generation in the third quarter of this year. And since we project growing sales volume in the fourth quarter, also transfers growing and a gross margin that is higher, it's natural to expect this cash generation to grow when compared to this quarter. This is where our guidance -- confidence in the guidance. The only metric that could be lower sales and transfers, but that's not true. The fourth quarter is doing fine.

[Rafael Nazareth Menin Teixeira de Souza, executive]

Kiepher, this is Rafael speaking. As for Resia, it's very hard to make any estimate. It's a new administration. We don't know what the policy or the fiscal policy will be. Something has been said about a higher efficiency of the government. On the other hand, lower taxation. So it's really hard to predict what will happen in terms of interest rates. But the consensus around that topic is that the interest rate tends to be reduced, but nobody knows for sure. So -- but the direction is towards lower interest rates, which favors the funding of projects and sales of projects as well.

[Operator]

The next question comes from Ygor Altero from XP.

[Ygor Altero, analyst]

I have 2 questions. First, I would like to understand what were the lessons learned from the latest higher inflation cycle? What would MRV do differently if inflation goes up again? And the other is about the cash generation dynamics for next year. If you expect it to improve, what would be the sales of current receivables base?

[Rafael Nazareth Menin Teixeira de Souza, executive]

Well, Ygor, first, regarding inflation, any crisis, especially the crisis we've been through, there was a major one. I've talked to some -- many of you who -- that those have probably been the last 3 worst years of MRV's recent history, 2020, '21 and '22. Now the company is much -- has learned a lot and is much more prepared for the future. But after things are in the past, it becomes more obvious. I mean nobody expected in '21 and '22 for the industry to be hit by a 40% inflation rate. In '20 and '21, that were the 2 best years in terms of volume in the history of MRV, 53,000 sales and 45,000 in 2021. 2021 started with some signs of inflation in construction materials. And it took us a long time to make decisions. And I was like engineer of built constructions, as we say in Portuguese. It's easy to say after things are in the past. But if we look at the fourth quarter of 2019 up to the third quarter of 2024 in those -- in that time interval, our sales price in MCMV, we adjusted prices above inflation in the period.

Our cost -- despite the fact that concrete and steel prices increased a lot in '22, our cost is below inflation in the period. So we did our homework regarding efficiency. But of course, we learned, we could have been more aggressive in terms of price increases. I think life goes on. Let's look forward and celebrate this year. This has been a very good year in terms of operations. We are growing in prices, quantity, pro-soluto is going down. Our production has delivered more efficient projects. So we are going below official inflation rates.

So a lot is going on in the operational front. We also are buying land on average that are cheaper than we purchased in the last 5 or 6 years. So in '23 and '24, we performed very well in terms of land purchases, well located with swap agreements. This will allow us to be even more competitive in the future. And when compared to our main competitors, we are purchasing better land and cheaper. It's also important to remember that we have land capillarity that's much higher than others. So we face a more balanced competition than our competitors. So we are confident that the company is well prepared, mature.

And it's important to remember that since the IPO between 2007 and 2024, MRV is the company that did the right thing more often. I'm absolutely sure about that. I'm also sure that from now on, we'll deliver results that comply with our history of success. We have a team that's highly prepared, highly motivated. We'll continue to grow with quality, delivering projects with good profitability, strong cash generation. And I reaffirm that the next years of the company will be brilliant in all aspects, financial and operational.

[Ricardo Paixão, executive]

Okay. In terms of cash generation for 2025, this is Kaka speaking, we expect cash from operations to be stronger, excluding trade receivables, that are due to increase in sales, increase in production, the execution of a harvest with a better margin. In terms of trade receivables, those from direct financing, we've been able to have it without any financial loss. Any credit we transferred, we continue to transfer. And the pro-soluto, since we have given less credit in that in pro-soluto, first, we have less contracts to assign and/or to transfer, and we can see liabilities going down.

[Operator]

Our next question is from Gustavo Cambauva from BTG.

[Gustavo Cambauva, analyst]

I have 2 questions. First, could you comment on Resia? You've opened the pipeline for rentals of projects. I would like to understand more about the yield on cost dynamics on these projects since that there are 6 of them that are more advanced in terms of rentals, so that we can understand what the margin will be as they're going to be sold?

The second question is, how do you see this balance between prices, sales over supply and pro-soluto in new sales because you've had a nice growth in sales over supply, prices are going up and pro-soluto is smaller in new sales. So looking at these 3 items, where are you focusing more now? Is it on reducing origination of pro-soluto? Or do you want to have more margin and working with a higher pro-soluto? What is the ideal balance for new sales looking at those items?

[Rafael Nazareth Menin Teixeira de Souza, executive]

Cambauva, I will talk about Resia, and then he'll answer your question about MRV. [ Hutto ], Dallas West and Rayzor Ranch have a lower yield on cost because they are the older projects, Hutto, Dallas West and Rayzor Ranch. First, because of inflation, the U.S. market was unbalanced. In terms of input supply was imbalanced during '22 and -- '21 and '22. So these first 3 projects have a worse cost than budgeted. Also because they were the first 3 projects in each new city, Huttu in Austin, Dallas West in Dallas and Rayzor Ranch in Dallas as well. In Tributary, it was the first project we had in Atlanta, a bit better. Ten Oaks already have good indicators and Memorial has good indicators.

So what we see there in terms of project efficiency, we are improving. And inflation of inputs or raw materials has reached almost 15% a year-to-date scenario is totally different. So at every project cycle, the yield on cost will improve. And on sales interest, the cap rate, since it's too early to sell the project, the first project will be sold is Hutto. It will have a cap rate that is lower with the worse yield on cost. So it would have a lower profitability. As we advance to the most recent projects, the yield on cost will be better, and we'll certainly have a better cap rate on when it's time to sell it.

So the profitability of each project -- if you look at the Resia pipeline on Slide 7, the projects on the left will have a lower yield on cost and a higher cap rate. Those more recent will have a better yield on cost and lower cap rates. So the profitability of next sales is bad. And the most recent projects, Ten Oaks and Memorial will have a much better profitability rate. Now Fischer will talk about the other question.

[Eduardo de Souza, executive]

How are you? In terms of sales over supply and pro-soluto prices also. We believe that sales over supply is at a healthy level today. It has grown as a whole, and it's a level that sustains us very well. And there is a dynamic between price and pro-soluto. We are trying to improve both under the assumption that pro-soluto has to go down still, as Kaka mentioned. When we transfer our cash generation to the future, we always try to find this balance, bearing in mind that we want pro-soluto to be reduced. Some important tools there. The housing checks from states that are important. And as these funds come in, we are using that to reduce pro-soluto and less on margins. And on the places where the checks are not present, which focus on reducing pro-soluto, always trying to grow margins above inflation, as Rafael mentioned. So we are doing a mix of both based on the assumption that our sales over supply is on a healthy level.

Looking forward, the hedge against inflation we have is our inventory. So in addition to inflation that's already embedded in the margin of 6%, our inventory is the protection we have for the future. So we believe that sales over supply is at the right level where it should be, and we make a mix between price and pro-soluto varying product by product, but with a strategy of trying to make pro-soluto to go down. Okay. Did I answer your question?

[Gustavo Cambauva, analyst]

Yes, very good. So the check in the cities where it's available will go more towards pro soluto than to price. So the margin of new sales, we should imagine that it will be at the current level, either on this quarter or last quarter. And the percentage of pro-soluto will go even down more.

[Eduardo de Souza, executive]

Yes, Gustavo, it's a balance because we want price to continue to go above inflation. That's an important assumption. So we try to stretch prices so that it will be above the projected inflation and have pro-soluto to go down, but provided that margins are not affected. So that's adjusted product by product, okay? But that's something you can take into account. We want to focus on the reduction of pro-soluto provided that prices go up above projected inflation rates.

[Operator]

Our next question comes from Tainan Costa from UBS.

[Tainan Costa, analyst]

I would like to look at the macroeconomic scenario of Brazil and the guidance for '25. If you go back to March, the last time you reviewed the guidance for '25 and from now -- from that time on, the scenario changed considerably. There were increases in costs and there was a worsening of the interest rate curve. I would like to understand if you have more visibility for the numbers of 2025. Should we expect the ranges of revenue, margin and profit to be delivered? In other words, are you comfortable with the guidance provided for 2025?

[Rafael Nazareth Menin Teixeira de Souza, executive]

Tainan, this is Rafael speaking. Well, in terms of macroeconomic figures for Brazil, you're right, the fiscal side is not well cared for. Interest rates are going up. And that's a given, it's not under our control. On the other hand, our low-income sector is more protected because there is a funding from FGTS with a predetermined interest rates, the government has been very protective of this program. It's done several changes. Important changes have been made to prioritize the purchase of new properties in the MCMV program. So my MCMV continues in a super special moment. The rules of the program are currently very good. In addition to those rules that were changed, we said that these state programs have played an important role for Minha Casa Minha Vida housing projects. And we see a growing number of states that come to the same conclusion.

And our feeling, Tainan, is that more and more affordable housing will become a state policy, not only a federal policy. An affordable housing is good for Brazil as a whole. As for the guidance of 2025, I'm not going to review it now. But like I said sometimes during this call, our operation is doing better actually than we expected in the beginning of the year. So if the operation is doing well, sales at a good level, prices at a good level, pro-soluto going down, costs going up lower than inflation in the industry and land purchased -- in the recent years purchased at very good conditions. This makes us very comfortable regarding financial indicators for 2025.

So at the right time, we'll have an MRV Day, probably in the middle of February next year, right? And then we'll show that the guidance of 2024 has been completed and that the year of 2025 will certainly be a very good year regarding financial indicators because it relates to what was done in 2023 and '24. What we'll do next year will have an impact on the indicators of 2025, but everything leads to believe that we'll have a very good operational year in 2025. So we are very comfortable with the guidance that was announced in the beginning of the year for '24, '25 and '26. What we see currently in terms of market sales volume, gains of efficiency, reduction of pro-soluto makes us very comfortable regarding future years. Have I answered your question, Tainan?

[Tainan Costa, analyst]

No, everything covered and clear.

[Operator]

Our next question comes from Antonio Castrucci from Santander.

[Antonio Castrucci, analyst]

I have 2 questions. First about Resia, I would like to understand, after the opening of the treasures, has there been any deterioration on demand and on the things you expected to sell this year? And the second question is about the MCMV cities. Are there any relevant regions that you expect this to be implemented soon?

[Eduardo de Souza, executive]

This is Fischer speaking. I'll start with the second question. Yes, MCMV has gained relevance. We learned this week that the State of Santa Catarina will announce their plan in the beginning of December. Some cities start to make their plans regardless of the states, Maringa, for example. So this is becoming more and more important because if you look at the dynamics of states, it's a lot of money for the return. So for us, it's very relevant not only to keep a good sales over supply, but more importantly, to continue to raise prices above inflation and reducing pro-soluto.

So this -- I don't see a deceleration of this dynamic. No. On the opposite, it's growing. There's more and more interest. The State of Sao Paulo will announce the renewal of the plan in November. So I've seen a very intense movement in the political agenda around that topic, that it's becoming more and more important. Looking at 2025 and '26, I don't see why this would lose strength because it makes sense economically. And it's -- it doesn't account for a lot of the state budget with a big political benefit. So I believe this could be an important tailwind. And I see that becoming more and more important in MRV's portfolio, sales portfolio. Is that clear?

[Antonio Castrucci, analyst]

Yes, clear.

[Rafael Nazareth Menin Teixeira de Souza, executive]

I'll answer the Resia question, Antonio. We see that the market is improving. The curve opens and closes. It goes up on week, then goes down. So we cannot look at the very short term. As a trend, it is a consensus that U.S. interest rates will go down. We've seen important transactions happening. We've seen very large funds going back to that market to benefit from this opportunistic gains. These large funds see a window of opportunity that will close. So once again, our opinion or our vision is that the credit market, the U.S. interest rates and the volume of transactions and cap rate will evolve positively along coming months.

[Antonio Castrucci, analyst]

Perfect. Just a follow-up. Do you believe that Hutto and Dallas will be sold?

[Ricardo Paixão, executive]

Well, they're both in diligence. Hutto will likely to be sold this year. It may be that Dallas will slip into next year.

[Operator]

Our next question is from Rafael Rehder from Safra. Our next question is from Marcelo Garaldi Motta from J.P. Morgan.

[Marcelo Motta, analyst]

It's a follow-up on the land question. If you could give more color about the swap levels when compared to historical levels and the PSV? And to understand your competitive advantage on the -- in terms of land bank, is that given because of your geographic diversification? How do you get this benefit of paying a better price than competitors in terms of land purchases?

[Eduardo de Souza, executive]

This is Fischer speaking. First, discipline. Rafael mentioned about lessons learned in this difficult time we went through in the 2 or 3 previous years. We started making better deals. Geographic diversification helps. What happened in this explosion of inflation is that many of our small- and medium-sized competitors did not survive in many of those towns. So today, there is a lower demand, which makes our strategy easier. And even in the larger towns, our price went up a lot. And that enabled us on a swap level to make levels -- to make deals at absolute values that meet the needs of the land buyer or landowner and there is a lock at level. So this dynamic has favored us. And we see on a recurring notice note that, that we used to sell at 10%. Now -- we were closing at 10%, now we're closing at 8% or 9%. So as this becomes part of our pipeline and is being captured in income or in revenue, this is an additional driver to see our margin grow. Have I been clear?

[Marcelo Motta, analyst]

Yes, very clear.

[Operator]

Our next question comes from Rafael Rehder from Safra. This ends the Q&A session. For the final remarks, I would like to turn the floor over to Eduardo Fischer. Mr. Fischer, you may continue.

[Eduardo de Souza, executive]

Thank you. Just to wrap up, Rafael said well and a lot about how our operation continues to improve. The year 2024 has been a very -- a year of a strong recovery for us. Of course, we see that we still have the challenge of causing that to be included in our earnings and results, and that will be much stronger in 2025. But what I can see is important developments to be considered. In the last 60 days, we no longer have an important competitor. We talked about the rebalance of used properties. Now they use an important competitor that's no longer with us, and that's very helpful. So checks are becoming more and more important. Inflation that is the main concern looking forward. What I could say is that we -- among our metrics, we've considered higher inflations for the future. And we want to adjust our inventory very well, which is our protection against inflation.

So looking forward, we see a very favorable wind in the scenario we've never seen before, competition that has decreased, especially when you consider the market of used properties that's being reduced. And in the inflation front, we see a comfortable behavior and projections looking forward so that what we are originating today to be even better in the future. So I confirm that we are at a very good operational moment. The demand is very strong, and now it's being converted intensively in terms of volume of sales and reduction of pro-soluto.

So looking forward at 2025, I'm confident and optimistic that everything we've worked for in these last 2 or 3 years will flow into 2025. So MRV will be an even bigger company in terms of revenue with important dilutions that we haven't mentioned here that will continue to happen, delivering cash generation margins that are strong in 2025. So I'm very confident and optimistic about what we are building, and that will be seen most likely in 2025. We'll have the largest MRV we've ever had with high quality in operations, as Rafael mentioned. These are my final remarks. Thank you, and see you in the next quarter.

[Operator]

The conference call of MRV has now ended. We thank you all for attending, and have a good day.

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