Lavvi Empreendimentos Imobiliários S.A. (LAVV3) Q2 FY2025 Earnings Call Transcript & Summary

[ Greetings, ] everyone. Welcome to Lavvi's Earnings Call to announce the results of the second quarter of 2025. The slide deck and comments on the results will be presented by Ralph Horn, CEO; Sandra Attie, CFO; and [indiscernible] Investor Relations [ at Lavvi ]. The simultaneous translation tool is available on the platform. [Operator Instructions] This conference call is being recorded and will be available in the company's Investor Relations website, www.ri.lavvi.com.br, just as the slide deck that we are going to use. [Operator Instructions] Before proceeding, we would like to take the opportunity to emphasize that forward-looking statements are based on the beliefs and assumptions of Lavvi's management and on information currently available to the company. The forward-looking statements may involve risks and uncertainties as they relate to future events and therefore depend on circumstances that may or may not occur. Investors, analysts and journalists should consider the events related to the macroeconomic environment, industry and other factors could cause results to differ materially from those expressed in such forward-looking statements. Now we are going to start the presentation by giving the floor to Mr. Ralph Horn. Please, Mr. Horn, you may start.

Good morning. I would like to thank you all for being here, it's an honor to have you with us in this conference to announce the results of the second quarter of '25 of Lavvi. We are very excited about Lavvi's performance in the second quarter. First, we launched Soleil in Chacara Klabin, which came at a pace a little below than our average. Then we launched Le Six, a total success with almost 1 billion PSV and we sold almost 50% in the quarter. We continued to grow at a very good pace. In terms of cash, we ended the quarter for the first time with a net debt position reaching BRL 49 million or -- sorry, 2.7% of the shareholders' equity. In an ex-land basis, we generated BRL 111 million cash in the second quarter. So we remain optimistic about the year of 2025 with great products for the second half of the year. But we know that the market is not easy. As I emphasize again that we will evaluate launches quarter-by-quarter with great caution to keep our operations happy. Thank you very much, all shareholders. Now I'll give the floor to Sandra to talk about the operating results.

Good morning, everyone. Can you hear me? So once again, we had a very good quarter. On Slide #5, you can see the launch of Soleil by Boca do Lobo Klabin. We have BRL 366 million TSV (sic) [ PSV ] with studios and smaller. Our customers are not in a hurry. [Operator Instructions] With 264 square meters, as the name suggests, this is going to be the first project with six-star services with concierge, messenger, personal trainer, dry wash -- car wash, everything to make the lives of our customers easy. The tower of the studio has been fully sold and then consolidated, we have 48% of the PSV before the end of the quarter. Today, we have 55% sales. With these 2 launches, we ended the quarter with BRL 1.3 billion launched or BRL 1.2 billion in Lavvi's percentage, 30% above Q2 '24, but in the quarter, we are 11% below our percentage. On the side of sales, we ended BRL 780 million sold in the quarter or BRL 610 million in terms of our [indiscernible] share, 8% above Q2 '24 despite the more challenging scenario, 55% in the last 12 months. We are seeing an increase in the number of cancellations, but we would like to highlight that half of them are related to the Minha Casa, Minha Vida project, the low-income housing project sponsored by the government of Brazil. Now we are moving to Slide #8, where you can see the speed of sales. In terms of inventory, this gives us time to sell before delivery. We continue with a low inventory of finished units, which is just 1.7% of our PSV. As we said before, we acquired 2 plots of land in the first half to high standards (sic) [ segment ] in Moema and 2 in Minha Casa, Minha Vida, the low income, into other . There is low income into other regions in Sao Paulo -- in the city of Sao Paulo. And this leaves us with BRL 9.5 billion Landbank. So this PSV is going to be allocated to the Minha Casa, Minha Vida, which has provided a great return for our operations. The land has been acquired 20% by swap and 80% in cash, and this represents 22% of the PSV. Now I would like to give the floor to [indiscernible] to share with you the financial highlights.

Thank you, Sandra. Good morning, everyone. I'll start on Slide 12 with the financial highlights of the second quarter. The net revenue is up 63% year-on-year, driven by the launch of listings. In the half, we grew 41% year-on-year. The adjusted gross margin 36.3% in the quarter and 37.5% year-to-date, up by 4.5 and 31 percentage points year-on-year, respectively. So with that, the net income reached BRL 119 million in the second quarter and BRL 205 million in the first half of the year. ROE is 28%. Our backlog revenue grew 38% compared to the same period in the previous year. Cash burn in the period was BRL 31 million. Year-to-date, we burned BRL 78 million in cash, and we would have generated BRL 246 million cash generation excellence that finally ended the quarter with a net debt of BRL 49 million. In addition to these results on Slide 13, on the right-hand side, you can see the financial results. Despite variations when we break down the revenue in expenses year-on-year, the financial result is flat because of a more robust gross cash coming from the quarter and from sales with shorter times. So on the bottom of the slide, starting in G&A as a share of the revenue, there has been reduction in the quarter. Likewise, sales expenses also went down in terms of share of the revenue. Year-on-year, this reflects the launches in the quarter. On Slide #14, you can see a consistent growth of the revenue and net profit if we see the whole year with margins above 20% since our IPO. On Slide 15, the ROE is 28%, demonstrating great resilience. On Slide #16, you can see backlog revenues totaling BRL 2.5 billion as a result of sales that will be booked into our results over the next few years. So the 36.4% margin means approximately BRL 800 million of gross profit to come. Now on Slide #17, you can see the period for the first time since the IPO with a net debt of BRL 49 million with a net debt over PL (sic) [ shareholder's equity ] up 2.7%. So the company burned BRL 31 million cash, especially because of the purchase of the lands that Sandra mentioned. Looking in excellent vision, we would have generated BRL 111 million or BRL 246 million in the first half of the year. And in closing, this is our last slide. Last Tuesday, the dividends were approved amounting to a total of BRL 282 million (sic) [ BRL 28.8 million ], which is the minimum mandatory for the quarter, and it will be paid out to our shareholders still this month on the 25th. So to finalize, we have BRL 754 million in value generated for Lavvi's shareholders. Thank you very much for your attendance, and now we are open for questions.

[Operator Instructions] The first question comes from Gustavo Cambauva from BTG Pactual.

I have 2 questions to ask you. The first one is about the launch pipeline that you see ahead of you, how do you see the macro scenario? And do you have any expectation in terms of the volume of launches? And also, if you could explain a little bit about the projects and what you're expecting. And the second question is about acquisitions for your Landbank. So can you give us an overview? So we have the Minha Casa, Minha Vida, the projects and also the high income, what do you see in terms of land? Where is there less competition, more opportunities? Are you placing greater focus on low income or medium and high income? In terms of land, what seems to be the most appealing to you right now?

Gustavo, in the second half, we have almost closed our partnership with a builder in the city of [indiscernible], we are going to launch a project there with a PSV of BRL 600 million. It's almost done. We will be launching it very shortly. We have 2 Minha Casa, Minha Vida. One has already been approved. We have started launching, and the other one is in approval phase. Also, we are going to join Cyrela in a major project on land with BRL 600 million PSV and we have 50%. There was another launch this year, whose approval delayed. We had some problems, thank God they're passed, they're behind us. That might make it impossible. Now it's normal going through the regular flow of approval. And hopefully, we will be launching it in March 26. As to the Landbank, we are always looking for land. As we are not desperate to buy Minha Casa, Minha Vida, we are trying to identify good opportunities. It's not too difficult. Medium and high, even though there is much less competition. But as we like large plots of land, the difficult thing is to find new large plots of land. But we are working hard as it takes a while. We are always looking, and there are a few things on the pipeline for us to close, and we hope we will close. So not too much competition, what really gets in our way is always Cyrela because they are much more active in the market.

Our next question comes from Mr. Herman Lee from Bradesco BBI.

We just have one question. [indiscernible] and we have seen a negative impact in access to credit. So how does Lavvi assess the credit -- the access to credit by your customers?

Herman, well, about individuals and companies, yes, we have had access to corporate rates but it's good for us. We can contract, we always contract. One good thing in this, we have a very high SoS. So this line is kind of on standby because I can't pay the construction with the revenue from customers. So the faster we sell in a reduced flow, more customers are buying with shorter time spend, so we can access less this line that is expensive today. So I can contract loans, but thank God if we sell well right from the beginning as we've been seeing, we don't need to use it. On the side of companies, now this rate is very high, but as we usually say, our portfolio is very healthy. On average, we have 37%. So when we get to the case, those customers just with 37%, despite high interest rates, they can transfer and they can still pay the installment. So we are not having much problem with that. So this year, we launched Soleil and Le Six, and we are always monitoring LTV to as to see how it goes. So it's 34% of the LTV, so we are okay with that.

Our next question comes from Ana Julia Zerkowski from UBS.

I have a question about the beginning of this -- the beginning of the second half of the -- how was your performance in July? What is your operational performance? Do you see a slowdown that might be reflected in a lower speed of sales? And also, the sales performance of Le Six and Soleil. And the second question about gross margin, what level should we consider as normal for Lavvi from now on? Should we expect more project for Novvo? What is it going to be like?

July was a very good month for us, we sold BRL 150 million overall. Half of that was between Le Six and Soleil. In Soleil, I think that we are at 30%. We sold 2 in June and 2 in July. We sold 1 in August. Now it's kind of a slowdown. So as this is a very good product, we are not so worried about it because we are the only one with 2 units per floor. It's a high building. So we are selling it again. It did very well, it's reaching about 14 units. And about -- you asked July Le Six, Soleil in margin. Sandra is going to answer.

About margin, we hope to follow as we did last year, slightly above. It's going to depend on the product mix that we sell. Our launches are coming with a margin that is above our [ REF ] but somewhere below. I would say that I believe that it's going to be slightly above last year's margin. So it's more upwards than downwards.

Our next question comes from Mr. Ruan Argenton from XP.

My question is more related to labor. So what is the availability of labor, cost of labor that you have? We know that this is structural in the city of Sao Paulo. So have you seen any change in the dynamics in the last few months? And the second question is more about dividend. There is a little bit of the vision that you are really accelerating in terms of Landbank and using the opportunity to buy these other plots of land. What about dividends? What's your expectation in terms of extraordinary payment of dividends?

As to labor, in fact, we are having a shortage of labor in the market. This is a serious problem. And we don't think this is going to be solved so quickly, and we are delaying the new launches because of that. So constructions that would be ready in 48 months, now we're thinking in terms of 50, 52 months because this causes delays. For those that are going on, we are going as fast as possible. There is just one that we are going to be at 6 months. The other one, 2, 3 months. The delay is not so bad, but we're really worrying about that matter in the future. For the future ones, we are doing what we need to do. For Minha Casa, Minha Vida, it takes up a lot of labor and will continue to do so. So we have a structure of concrete wells that takes less labor, and we try to find solutions. So the main solution that we've been -- that we are using now is to delay deliveries, launches and deliveries.

About dividends, so we continue every quarter at the minimum but now we are assessing. But we don't know about date, volume or anything, this is very initial. To pay out dividends to avoid taxing, if it happens next year, so this is something that we are talking about but it's still very much in the beginning, and we don't have much more information to give you.

Our next question comes from Mariangela Castro from Itau BBA.

I have 2 questions. First, about the sales of studios. You said that Le Six had a studio tower that was consolidated. So you said in the past that this is not always the best decision for the company, how are you dealing with this in this project? And what is your LTV without considering studios? So I think that you are considering the funds that pay upfront, so what is your portfolio like without considering sales? And the second question, why not a range 4 of Minha Casa, Minha Vida? You were in range 3, but there is range 4.

On studio sales, we remain very careful. Although we had 2 major successes in Beneficencia Portuguesa and Le Six because they are just next to the hospital. It's impossible not to sell it, it's very liquid. Everyone wants to buy something right adjacent to the hospital. So in Beneficencia Portuguesa, between studios and small units, more than 600 units. So if it's close to the hospital, we are not so afraid. So if we buy a plot of land just for studios at a location, that it is not to attract it. We don't buy land just to buy it. So the easiest way for us to make money is to build a studio tower because there is no underground. You don't need to build the garage, both Le Six where the PSV was 11.5% of the PSV, whereas it represented 20% in the other one. We think that the risk is low. Even if it weren't close to the hospital, sometimes we lower prices. So range 4, about your second question, the range 4. We are keeping an eye on it. We are talking to companies. We're seeing how they are using that. And of course, we are going to make the most that we can from range 4 with interest rates slightly higher. Now 'm going to give the floor to Sandra.

I said 37% LTV in our portfolio. So taking out studio towers that we sold entirely to the fund, this number goes down to 30%. There is one project, for example, this is about 67% LTV. And when we take out, it goes down to 5%. It's atypical, it's a project that we saw too many Chinese and they advance payments a lot and we only have 5% but the average is 30% taking out these studio towers that I mentioned to you.

Very clear. Just a quick follow up. Why did you sell everything to a fund in Le Six instead of selling each unit individually?

Our Le Six [indiscernible] was not to a fund, it was pulverized. Precisely what you said. Well, you know it all, Mariangela.

[Operator Instructions] Our question-and-answer session have now ended. We are going to give the floor to Mr. Ralph Horn for his closing remarks.

Well, thank you very much for being with us. We remain very motivated. Everything is going very well. We are always worried about Selic, and we feel that our customers needs to think, call the manager if they want to buy. Well, you know the story. So we are going to do our best to try and make products that bank managers cannot block our sales. Thank you all very much, and we will hopefully continue to grow.

So the conference call has now ended. Thank you very much for your participation, and have a good afternoon. Thank you.