Smartfit Escola de Ginástica e Dança S.A. (SMFT3) Earnings Call Transcript & Summary

Good morning and welcome to Smart Fit's Earnings Call to announce the results of the second quarter of 2025. Introducing myself to those who don't know me, I am Matheus Nascimento, Investor Relations Manager. Before starting, an important message for those who choose to listen to the conference in English. Good morning, everyone, and welcome to Smart Fit's conference call to announce the results of the second quarter of 2025. This call will be translated into English. [Operator Instructions] Today with us, we have Mr. Edgard Corona, CEO; Andre Pezeta, CFO; Diogo Corona, COO; José Luís Rizzardo, IRO and M&A Director and Treasury; Juana Melo Pimentel, our Legal and ESG Officer. [Operator Instructions] We remind everyone that the results presentation that will guide this presentation is available at the Investor Relations website of Smart Fit at CVM and in the webinar platform. Before proceeding, I would like to say that statements made during this conference call regarding the company's business prospects operational and financial projections and goals and information about the potential of the market in which it operates are beliefs and assumptions of the company's management and are based on information currently available to the company. Forward-looking statements are not guarantee of performance because they involve risks, uncertainties and assumptions. Now I would like to give the floor to our Founder and CEO, Edgard Corona, who's going to start the presentation. Mr. Corona, please.

Thank you, Matheus. Good morning, everyone. We are pleased to have you here in our call for the second quarter of 2025. I would like to start by highlighting the main points of another quarter of solid results, a reflection of the tireless work, dedication and consistent delivery of our entire team. I also take the opportunity to share some relevant strategic messages. We ended the second quarter of 2025 with a solid growth of 19% in our gym network compared to Q2 '24, totaling 1,818 units in 15 countries in Latin America. The strong pace of expansion reinforces our leadership in the region's fitness segment. We remain confident in the execution of the guidance of opening 340 to 360 gyms in 2025, and I'll talk more about that during the presentation. Now about net revenue. Our net revenue reached BRL 1.8 billion, a significant growth of 32% compared to the same period the year before. This result reflects a 16% increase in the average mentorship of Smart Fit owned gyms and the continuous advances in our revenue management agenda with the consolidation of the pricing strategy as an essential pillar to strengthen local competitiveness in our value proposition in each micro region where we operate, promote operational efficiency gains and ensure sustainable results in the various markets in which we operate. Now about gross margin. Our strong revenue growth was accompanied by a record level in gross margin -- gross cash margin, which reached 50.9% in the quarter, an expansion of 0.9 percentage points compared to 2Q '24, a 0.2 percentage points compared to Q1 '25. The mature units continue to perform outstandingly with a 52% margin a level consistent with the last 9 quarters and annualized gross cash profit per unit of BRL 2.5 million. It's also worth mentioning the performance of gyms opening in 2023, those results are already quite expressive in addition to the promising maturation curve of the units that opened in 2024. EBITDA operating cash generation of 1,430 owned gyms in our base, more than 30% have not yet reached maturity as this occurs, the investments already made in these units tend to be converted into higher levels of profitability and additional cash generation. We posted a record EBITDA of BRL 576 million in the quarter, a strong growth of 32% compared to 2Q 2024 and a margin of 32%. We continue with a high conversion of EBITDA into operating cash when 90% of the quarter's EBITDA was converted into operating cash, showing the strong generation capacity of our business model but despite the context of accelerated expansion is a final message. We are just at the beginning. We continue with great enthusiasm, folks to continue transforming the fitness industry. I would like to thank once again our customers, employees, partners and investors for their trust and partnership. I'll be waiting for you in the questions-and-answer session at the end of the presentation. Now I would like to give the floor to Diogo Corona, our COO, who is going to continue the presentation.

Thank you very much, Edgard. In fact, we had a very positive quarter. And now I would like to talk a little bit about our expansion and important part of the company's future. Our ambitions are anchored on solid fundamentals that have been proving right every quarter. The performance of mature units remains consistent with high profitability and proven by several consecutive quarters. We have also reaped concrete results from our expansion strategy with new units demonstrating a solid ramp-up of membership and margin. It's worth remembering that the units have gone through a rigorous process of selection, negotiation, implementation, which ensures their quality and long-term delivery potential. In addition, we continue with a robust financial management, which allows us to maintain a fast pace of growth with careful capital allocation. And finally, we act as leaders in regions that continue to have a strong potential for growth. In all major markets where we operate the white space is still wide, which gives us a lot of confidence and visibility to continue growing. As a reminder, in our last conference call, we shared a detailed study developed with support of predictive models and artificial intelligence that estimated the potential of more than 1,500 new gyms in the countries we are operating. In other words, we have clear visibility of growth beyond 2025, supported by consistent demand from an expanding market and is still relevant under-penetration of the category in our region. And this year, we remain very excited and confident in delivering the guidance release with the opening of approximately 350 gyms. This delivery would represent a growth of about 15% versus the growth of 2024. And once again, a growth of the gym base of more than 20% when compared to the previous year. Our current pipeline further reinforces this confidence. We ended July with 87 new units and 145 under construction. In addition, we have 138 contracts signed with openings scheduled for 2025 or 2026. With this level of preparation, discipline and market opportunity, we are sure we will be able to deliver these units once again delivering a record expansion with solid profitability. Moving on to the next slide, I would like to talk a little bit more about our presence in the region. Smart Fit continues to consolidate its position as the largest chain of gyms in Latin America and one of the largest in the world with a highly scalable model that is flexible and adaptable to various region or realities, delivering proven results over time. In recent years, we have been seeing a solid trajectory of growth in the main geographies. From 2019 to 2024, we added more than 1,100 new gyms to our network. In 2024 alone, there were 301 new units, the largest expansion in our history to be surpassed in 2025. Another highlight is diversification of revenue per region. As a company that was born in Brazil in 2019, Brazil is still accounted for 54% of the net revenue of Smart Fit units, whereas Mexico and other countries accounted for 46%. In 2025, this relationship has practically been revised. Today, only 38% of the revenue comes from Brazil. This shows the success of our strategy of turning Smart Fit into a multinational company with good operational performance and a widely recognized brand in multiple markets. This geographic diversification certainly increases our competitive advantage and growth potential as it reduces our risks by increasing our resilience to local economic cycles and expands the field of growth opportunities both in regions already consolidated in markets with great potential, which yet to be explored. According to the scenario of each region, we can quickly adapt our expansion and operation strategies. Today, we have a well-defined competitive position, which combines to our capital allocation discipline to generate sustainable long-term results as can be seen in the last presentation, when we showed how mature units sustain a strong ROIC over the years. We continue constantly evolving with decision increasingly more based on robust data and analysis. In addition, to assure the best choices for the company, so in this manner, we remain confident that we have the best model to continue leading the fitness industry in Latin America with sustainable growth and long-term value creation. Now I would like to talk a little bit about Mexico, our second main geography. Over the year, Smart Fit has created an incredible story in Mexico, more than 1 million members and a brand with high penetration in the country. We are proud to be able to say that we can do all of this by combining excellence, profitability and leadership. Certainly, our history in the region is a long feature film with more than 14 years, and there are still many more chapters to come. But talking a little bit more about the last few years, our growth in the region is remarkable. Since 2021, we have doubled the number of units going from 201 to 403 units. This advance is a reflection of a clear strategy of national presence, which has evolved from concentration in Mexico City to a presence with practically all states in the country. On the revenue management front, we are very strategic in the pricing agenda, and we took a relevant step in 2023 with the introduction of the fit plan repricing of the Black plan. We have also advanced significantly in cost efficiency. We reviewed contracts, negotiated with suppliers and applied more sustainable and smart solutions for energy consumption. All of this has contributed to our margin and scalability in the country. In Q2 '25, our gross cash margin reached 46%, which is higher than that delivered in 2023 and just 1 point lower than the result of 2024. The mature units continue to deliver good profitability, while the new vintages are in a consistent maturation process. It's worth noting that the membership in the quarter presented a different growth dynamics from previous years for two main reasons. We had a lower number of openings in the first half compared to last year. There were 7 new units in 2025 versus 30 new units in 2024. Moreover, in the first quarter of '25, Mexico showed a stronger membership growth than the historical average, demonstrating the strength of the beginning of the year in the country. This effect was partially offset in the second quarter. But in the half year, our mature units showed a base gain as well as in 2024. In addition to operational performance, other strategic fronts have been strengthening our operations in Mexico. We improved our management structure, gained more agility and proximity to the operation. We have evolved the marketing and sales with more data-driven decisions and a focus on long-term customer value. We also had an improvement in capital efficiency with more productive projects and investments that improve member experience. We are attentive to the unique features of Mexico due to its size and potential, and we are applying all our experience and know-how to obtain even better results in the region. Now moving to Slide 7. Let's talk about the evolution of our physical presence, showing an update in the recent growth of our chain of gyms. In the last 12 months, we added 289 new units, totaling 1,818 units at the end of the second quarter. This quarter alone, there were 59 openings, which reaffirms the consistent pace in our expansion plan. It is also worth highlighting the geographic footprint of this growth. Today, Brazil accounts for 47% of our members' total base, while Mexico and other countries already totaled 53%. If Smart Fit only is observed, Brazil accounts for 41% of the base. In addition, another relevant point is the maintenance of our growth base. Currently, 67% of our own units are mature units, which corresponds to 954 units. In other words, we still have 1/3 of the units that have not yet reached maturity. And as this occurs, this will translate into higher levels of profitability and additional generation of operating cash. We continue focused on a disciplined, efficient and sustainable expansion with an operation that combines scale with operational intelligence. All these deliveries resulted in solid financial results, which will be presented by our Investor Relations Director, José Luís Rizzardo. Thank you all very much, and see you in the Q&A session.

Thank you, Diogo. Before now continuing the presentation, I would like to go into the section of operating and financial results, starting with the evolution of our membership and the evolution of revenue per gym. We can see a continued growth in our membership and revenue per gym. In the second quarter of 2025, our membership in gyms reached 5.2 million, an increase of 11% compared to the same period in the previous year. Of these members, approximately 2.3 million are in Brazil, 1.2 million in Mexico and 1.8 million in other Latin American countries. We believe that our robust membership is a direct reflection of our assertive expansion strategy, the maturation of units and the continuous efforts to attract and retain customers. In the same period, the average annualized net revenue per owned gym reached BRL 4.5 million, accounting -- representing a growth of 5% compared to 2Q '24 mainly driven by the increase in the average ticket due to the assertive price transfers made over the last few years in the different regions and the various actions carried out in the period to optimize in a sustainable way the revenue by gym. These results show the strength and resilience of our business model. Now continuing the presentation on Slide 9, I would like to go into financial results, starting with the evolution of net revenue, which in Q2 once again showed a significant growth of 32% compared to the second quarter of 2024. This has been the 16th consecutive quarter of revenue growth. Net revenue reached for the first time, the mark of BRL 1.8 billion in a quarter, mainly due to the 16% expansion in the average number of members in Smart Fit's owned gyms and the increase in the average ticket of 10% with a highlight of the performance in other countries and in Brazil. Compared to the first quarter of 2025, net revenue increased 7%, mainly due to the same factors mentioned above, higher membership and higher average ticket. The strong growth in net revenue in the quarter is a consequence of assertive commercial and operational efforts to attract and retain customers combined with an increase in average ticket, which has occurred due to the combination of revenue management, sustainably optimized revenue per gym, as we said before. To conclude this slide, it's worth mentioning the performance of the others line, which ended Q2 2025 with a revenue of BRL 156 million, twice the amount recorded in the same period in the previous year, representing an 8.7% of the total revenue, an increase of 3.3 percentage points compared to 2Q '24. This increase is explained by the growth in the results of the other business units and the acquisition of the group Velocity (sic) [ Velocity Group ] completed in 4Q '24 and the control of Fitmaster's operations completed this quarter and which contributed with BRL 33 million in the revenue. Now moving to the next slide, we can see that the cash gross profit totaled BRL 911 million in Q2 '25 an increase of 34% compared to 2Q '24, higher than the growth in net revenue in the period. The gross cash margin was 50.9%, the highest level ever recorded in the second quarter, which represented an expansion of 0.9 percentage points compared to 2Q '24 and 0.2 percentage points compared to 1Q '25. This is -- this reflects the solid growth in net revenue and efficient cost management, which resulted in dilution of fixed costs despite the scenario of record expansion in our gym chain. In the last 12 months, gross cash income totaled approximately BRL 3.2 billion, resulting in a gross cash margin of 50.4%. It's also worth noting that the gross cash margin before operating costs, that is those related to openings reached 51.8% in 2Q '25. Now moving to the next slide, we can see that for the ninth consecutive quarter, mature units presented a consistent level of 52% gross margin, in addition to a gross income annualized for the quarter of BRL 2.5 million, a result of the initiatives to optimize revenue per gym combined with intense and assertive efforts in the operational efficiency pillar. Another important highlight was the number of units opened in 2023, which presented a gross margin of 54% above the level of 53% in 1Q '25 with an increase in gross profit per annualized unit of 5% versus the previous quarter, reaching BRL 2.3 million per unit. The solid performance of the company's own units in 2023 Vintage was still in process of maturation is a result of a combination of strong revenue growth, reflecting the expansion -- intelligence and strength of the Smart Fit brand with a structurally lower occupancy cost than mature units, resulting in a profitability level of more than 52%. It's also worth highlighting the solid maturation trajectory of 2024 Vintage, which at the end of the quarter has already achieved an average annualized net revenue per unit of BRL 3.8 million and a gross cash margin of 51% in the period, showing a strong margin expansion versus the previous quarter. We monitor the performance of these units on a daily basis, and we remain confident that they will provide good results once they reach maturity. As Diogo said when he explained about the acceleration in the pace of openings in 2025, the good level of margins of mature units and the excellent ramp-up of margins of new units makes us very confident that we are on the right path for the consolidation of -- consistent results with assertive choices of the new commercial point -- strong cost management, pricing and sales intelligence in addition to the high quality of services provided. Now moving to Slide 12 about the company's operational expenses in the second quarter of 2025, focusing on SG&A. Compared to the first quarter of 2025, SG&A remained stable with a solid dilution of 1.2 percentage points as a percentage of the net revenue. In the annual comparison, general and administrative expenses grew mainly due to the higher investments in structuring new businesses, mainly related to TotalPass in addition to reinforcements in the staffing in other countries. The increase in sales expenses on the same comparison basis is mainly due to the greater number of units that we opened in addition to marketing initiatives to strengthen the brands on different business units. Now I would like to give the floor to Andre Pezeta, CFO of the company, who is going to continue the presentation of our results.

Thank you, José. Moving to the next slide, we present the strong evolution of our EBITDA, which in the second quarter of 2025 was BRL 576 million, the highest historical level ever recorded in a quarter, representing a significant growth of 32% versus 2Q '24. The EBITDA margin for the quarter was 32.1% is stable compared to the second quarter of 2024 despite the record number of units opened. It's worth noting that in the last 12 months, we have also reached a record EBITDA level of BRL 2 billion with a 31.5% margin, one of the highest historical levels for the company. Finally, considering the adjusted EBITDA before preoperating expenses also at a record level, reached the expressive or significant mark of BRL 600 million in second quarter 2025. Now I would like to talk about our recurring net income, which was BRL 189 million in the second quarter, representing a significant growth of 32% compared to the same period in the previous years and a net margin of 10.6%. This performance mainly reflects the operating leverage of the business, driven by the consistent profitability of mature units and a solid ramp-up of the units opened in recent years. In addition to the positive impact related to the booking of financial revenue of BRL 10.8 million. This revenue is related to the update of the balance of credits to be recovered from previous quarters. We will continue with this updating practice in future periods. In the last 12 months, recurring net income reached BRL 651 million, resulting in a recurring net margin of 10.1%. To talk about our investments and the impact in the variation of adjusted net debt, we move to the next Slide 15. In the second quarter of 2025, the company's adjusted net debt increased BRL 180 million because of the investments made in the period that were partially offset by the solid operation cash generation -- operating cash generation was positive by BRL 521 million, driven by the record EBITDA for the period and a high conversion of EBITDA into operating cash, which reached 90% in the quarter. CapEx activities totaled BRL 563 million, mainly due to CapEx related to the opening of new units. Additionally, other activities accounted for an increase of BRL 137 million in the adjusted net debt. We continue to move forward with our growth plan, which resulted in an expansion CapEx of BRL 356 million, an increase of 20% compared to the previous period, which reflects mainly the construction of new units that will be opened in subsequent quarters. Additionally, in the second quarter of 2025, maintenance CapEx was BRL 88 million. Innovation CapEx was BRL 13 million, totaling a CapEx of BRL 457 million, BRL 25 million higher than the same period in the previous year. Finally, it's worth mentioning that in the last 12 months, the maintenance CapEx of Smart Fit brand gyms reached BRL 290 million, representing 7.1% of the net revenue of mature units, a level that is compatible with the strategy of offering high standard experience to our customers. We continue to intensify our expansion plan investments and payout of dividends, keeping our discipline, we leveraged, due to the company's strong operating cash generation, it's worth mentioning that the net debt over LTM EBITDA ratio, excluding the IFRS 16 effects related to real estate lease ended the second quarter of '25 at 1.63x versus 1.65 in the first quarter of '25. We consider this level to be healthy, especially due to the high predictability of the company's results and the very long debt maturity profile. In addition, the same index or is the same ratio of the annualized EBITDA for the second quarter of 2025 was 1.43x. Finally, it's worth noting that the company's funds locally its expansion needs. And at the end of the period, Brazil, Mexico and other countries represented, respectively, 29%, 29% and 42% of the company's net debt. This net debt distributed in different geographies gives us flexibility to invest considering the local cost of capital, where in some cases, we have had a reduction in interest rates. Now I will give the floor to Juana Melo Pimentel, the company's Legal, Compliance and ESG Officer to continue the presentation of results.

Thank you, Andre. On the next section, I would like to highlight some advances on the group's sustainability front that occurred in the second quarter of 2025. In environmental pillar, we ended the quarter with 389 units operating with automated air-conditioning, which corresponds to a growth of 42% versus the second quarter of '24, initiative contributes to greater energy efficiency and reduction of waste. We also expanded the use of renewable energy, reaching 257 gyms with supply via free market distributed generation, 34% above the previous year. This represents 44% of the base of owned gyms in Brazil. In water management, the highlight is the expansion of online water consumption monitoring project, both in Brazil with 450 units and in Mexico 46 units. This project allows real-time monitoring and provides savings of about BRL 133,000 per month with a reduction of more 2,000 cubic meters of water. On the next slide, in the social pillar, we carried out actions in several countries in Latin America, such as the winter -- welcoming winter campaign in Brazil in which we collected more than 7 tons of clothes -- donations of clothes and food for families affected by heavy rains in Colombia, the support for Casa De La Moneda in Chile, where we have space to receive women that are victims of violence and abuse, physical activity for children in Mexico and delivery of school kits for children in Peru. We also advanced in training people with different agendas. As part of the governance, we started diagnosis to assess the adherence to IFRS S1 and S2 standards. We also published the 2024 Annual Sustainability Report in accordance with GRI and SASB guidelines. Now I give the floor to Matheus Nascimento, who is going to coordinate our question-and-answer session.

[Operator Instructions] Our first question comes from Gustavo Fratini from Bank of America.

First one, can you give us more details about the increase in revenue per member in Brazil, break it down between TotalPass or Black, and price transfer. And also, if you could, how was the transfer of TotalPass to Smart Fit? And the second question, can you share with us a little bit more detail about Fitmaster? We would like to know more about it to have more visibility of P&L, recurring revenue, gross margin and EBITDA margin.

This is Rizzardo answering your question. Thank you very much for being with us and asking the questions. When we think of average ticket in Brazil in an annualized basis, it's important to remember that earlier this year, we had a price transfer of the Black plan of 10% in this geography, and this is reflected on different plans of the company. And also on this annual comparison, if we look at the end of the period the second quarter '25 to '24, so it's relatively stable in Brazil. It grew 1%. It's about 72% last year. It was more like 71% of the base. When we break down the growth of annual ticket in Brazil, 12%, you can attribute something close to 7% to revenue management initiatives and price increases, which obviously are still to come in next quarters. So there's price increase. It's always for new entrants and the rest is attributed to TotalPass, a combination of TotalPass gaining more share within our membership and also we're gradually reducing the gap between the revenue per visit in indirect and direct channels. The second question about Fitmaster. So this subsidiary that we have that operates especially in Mexico, it's focused on studios. So it was a JV that we started a few years in April and we acquired control. This level of revenue that you saw for the quarter is a recurring level of revenue. So the company has a subscription base and this volume of members of Fitmaster, if it keeps growing, the revenue will keep growing in future quarters. And this is a business with a profile of gross and EBITDA margin that are well below the company's margins, but with a net margin that is very similar. So it delivers a net margin that is close to 10% to 15%, but EBITDA margin and gross margin below the consolidated level of the company, but without capital allocation to deliver this level of profitability. So when we think of the share of the EBITDA of this business in this quarter, specifically, it was below BRL 5 million.

Our next question comes from Victor Rogatis from Itaú BBA.

I have two questions. One is a follow-up on the previous answer. So when we think of profitability of TotalPass members. So can you give us an idea of what is the expected number of units of Smart Fit in Brazil that will demand TP2 plans until the end of the year? And how is this number compared to the end of last year? And still on this theme, when you think of TotalPass economics of TotalPass members, is it more related to TotalPass members that have in Smart Fit and will have more expensive prices more similar to your prices? Or is it because there is more revenue coming from TotalPass customers? So this is the first block -- this is the first block of questions. And there's a second question, which is related to the follow-up to a previous question, Rizzardo mentioned that there is a gap between check-ins and revenue of TotalPass members in '24 was BRL 813 million and 5 percentage points difference. So today, this gap, is it the same, 5 percentage points? Is it higher, lower? And does this gap ever close? If yes, how long? I don't really want to know the percentage, but the gap specifically, if you could tell me more about that, it would be great.

Victor, this is Diogo answering your question. I'll try and answer all your questions. You need to understand that TotalPass is a business that it gains profitability with scale. So the main cost is G&A. So it's the revenue, the revenue of companies. So they pay us a fee and the package is little difference between transfer in our TPV and there's G&A. So G&A is diluted. So the broader the scale, the higher the margin also to paying Smart Fit better. So today, we are at -- we gained a lot of scale. So we are at a much more -- at a much better position than we were before. And so this is very good gains of scale. Now a little bit about the logic that we see in terms of tier, TP2. So more -- we have more than 150 Smart Fit TP2. So this is a living process. Every month, we update the number of Smart Fit units with this plan, and we are doing. And this is correlated to TotalPass tiers and is related to Smart Fit tiers. So Smart Fit in Brazil, talking a little bit about Brazil, which is the largest share of TotalPass has 6 tiers. So smart units today have TP2. So we are doing 2 from. And at the end of the day, we see the channels. So we have two different channels, counter. So one is Tier 1 and the other one is TP2. So there is a 2 from also in terms of allocation. So one has 6 and the other one has 2. So there are some other variables to make this decision. We always look at that and transfers and TP2 is different from TP1+ because the co-pay is different. So we are always making this comparison because what matters to us and the numbers that the market looks at, especially representativeness of TotalPass, we have a smaller number of members, and we ended -- I'm not opening the TotalPass in terms of business vision. So you see a smaller number, but the ticket is higher. So there is this distortion that is more in Brazil. Now a little bit about the gap that we used to have in revenue and check-ins, as we showed at the end of last year was 13 to 8, 5 percentage points. What we can say today is that this gap has gone down and is going down. So we want to break this down in order to reveal the exact numbers, but at the end of the year, we are going to show that the gap is smaller. We think that the aggregator is not going to close for a reason. So we have the default rates, and there is a gap here. So when you compare TotalPass to Smart and this should have that. And then this considers our scale.

Just a quick follow-up, Corona. In terms of the improvement of profitability a long time, is it because members will have slightly -- subscribe to slightly more expensive plans of TotalPass?

No, it's actually due to scale. The G&A -- so we build a major G&A that exceeds your company fee, especially. So you need lots of company for the scale. I think that the easiest way to show there, we compare SG&A of TotalPass with the revenue that we have from companies. So this ends up being a cash generator. So we built the team to support that. So patients or rather if the person changes the plan, this doesn't change. The breakage, which is related to transfer. So there's a way in and way out. So more expensive plans are not necessarily more profitable. We look at the co-pay, so more companies and more fees from companies and scale and G&A. So what we've been doing to make this clear, too, is the efficiency of having many plans, you can be optimized allocation in the units. But this is something that is very alive. So in the beginning of TotalPass we used to have 5 plans. Today, we have a total of 10 plans, despite the complexity for members, it makes you more efficient in terms of pricing, but the scale is more on the side of company. Just one last point, complementing what Diogo said. When we look at TotalPass, their trajectory over the past few years, we've been able to combine a very fast growth in TotalPass, and this has improved the profitability of the business unit together with the market share gain of that business unit at the same time. We have a smaller and smaller difference between check-in and revenue. So all of this has been going on over the last few years and idea is for it to continue in the future.

Our next question is from Felipe Husein from Citibank.

It's about the expansion. What is the level of flexibility that you have between geographies to keep the pace of expansion? If one geography is slightly more difficult, how fast can you reallocate the growth to other geographies?

So this is Diogo saying. So we have local strategies in each country. We can accelerate one country and reduce the other whenever we want. But a little bit about the optics and so we look at the profitability project by project, unit by unit. So we have a macro. So in Peru, a project may provide more return than one in Brazil. Well, so regardless of the country, this is important. So one thing that we said in the presentation of the benefits of being diversified of having presence in many different countries that in addition of having white space and have a large number of units in terms of quality and criteria, we can handle better the more challenging times in a country. So we can use the more challenging times to gain market share. So at different times, different countries have problems. Sometimes it's Colombia, Mexico, well, this is Latin America. It's a living thing. So looking back, maybe at difficult times, challenging times, we should have invested to gain market share. Well, you can look at from different points. If we look at in a long term, we shouldn't accelerate or decelerate -- expansion is not something that you can change the pace so fast. There is a pipeline. There is a major benefit of being diversified in many countries in Latin America as we are. So in a nutshell, we don't prioritize one country over another. We always consider whether the project is profitable or not, and we're always looking at the white space in each country, and to provide return at the right time.

Our next question comes from Julia Rizzo from Morgan Stanley.

I would like to explore a little bit the average ticket in Brazil and the competition. So the average ticket went up by 7% to 12% if we take out TotalPass. In that regard, I have two questions. The first one, what is the churn receptiveness in terms of the price increases that have been going on for a few years? And thinking of TotalPass specifically, how can we analyze it? Because one of the things that affects in addition to the average ticket is members per unit. What would be the number of members per unit considering TotalPass, not to understand the TotalPass potential, but also related to NPS of the units. Is it full? Is the gym full or not? And lastly, when do you expect the TotalPass to breakeven?

Well, Julia, this is Diogo. I'll talk a little bit about TotalPass members. If we look at sales channels, so regardless of one thing or the other is the importance that there a price that they don't have a very wide gap. And I showed it to you last year, this gap has been going down. There is from 2 from counter prices, TotalPass prices, so more than 150 units in Brazil already have TP2. When you look how full it is and we look at the tickets on both channels. Here, we don't disclose, but to us, it's very clear. You look at one unit, see how full it is, NPS and then we work with the prices, we do from 2 and we try to balance it while TotalPass gains scale and improves its financials, as I said before. And the situation is incredibly better than we had last year, and we are more confident. And this is because of scale that it has been improving. Now talking a little bit about churn and price increases, we don't see the difference in churn. So it's the same thing for all our plans. It doesn't change because of price increases, just complementing, we do revenue management, Julia. So regardless of whether it's an individual, TotalPass or what, we want to have margin. So that number -- in the number of students, this is not very easy to do. So TotalPass there is a very significant competitor. So it's important. This is the name. So there is a market, 27 and today, the market has 2 players rather than just 1, and this has an important contribution to take out the vulnerability. So sometimes there is 190% of the market. This was very good, and it's very good for the market, too. I don't know about the solutions. But at some point in time, there are some adjustments and they will be able to zero down their operational costs. But this is all within our numbers.

So you have 30,000 units. So there's a potential. How many units do you need to have so to have a significant competitive advantage to take the aggregator to breakeven?

So Pezeta will complement the previous one, but scale in Brazil -- just Brazil. Brazil and Mexico, in Brazil, we are -- we have more than 26,000 and we have about 1,800 cities in Brazil, which is similar to iFood. So the metric of states, which should more like the number -- considering the number of states in Brazil. We used to suffer a lot in the past. We had a gap with -- there was capillarity. But this gap disappeared. Today, there is no company that has more capillarity than us. Whether it's '26, '28, that doesn't change much the decision of the company. So if there is capillarity is the same. What we can discuss is about brands on one side, on the other and brand awareness. So in the way we understand it today, we are very well positioned in the market.

Julia, just to -- in closing your question, trying to combine everything that has been said, this is Andre Pezeta, answering your question. Well, actually, breakeven depends a lot on the transfer that we make to Smart. So I think that the right way to look at this to facilitate analysis is what we published last year of the -- TotalPass percentage that has an utilization and the percentage of TotalPass in revenues of Smart Fit. So as Diogo said before, this gap has been getting narrower and narrower, and we do not have the intention of bringing it down to 0. But we can continue to reduce the gap until the end of this year to a satisfactory level when we can keep TotalPass close to 0 to 0 and with not such a big gap as we used to have last year between Smart Fit revenue and the use of Smart Fit by TotalPass members.

Our next question comes from Ruben Couto from Santander.

Can you give us an update about the internal work that you've been doing about efficiency optimization of CapEx and the opening of new units? Diogo talked a little bit about Mexico, but I would like to hear about this topic in Brazil and other LatAm. So I understand this is a continuing process. You're always after that. But there was the idea of leverage that could be more significant. I would like to hear you a little bit whether there is something with that regard, whether this has evolved and we should think that these efficiency efforts may provide some reduction in CapEx per store in terms of face value or it's more of having a similar CapEx offsetting the growth of inflation. I would like to hear an update on that, not just for this year, but for future years, too.

Thank you very much for the question. So we did the first relevant work in Brazil last year for CapEx reduction. It's been implemented already. So it's included in our numbers. We have also been working to take the work from Brazil, first, taking it to Mexico, which is #2 region with the highest CapEx and also starting to take this work to other countries. Each country has a different system or dynamics, in one country it's more easy or difficult to work with CapEx. But looking at the company with a macro approach, looking into future years, we have our CapEx. So we can do this in a short term, but looking in the mid and long term, we should keep growing together with the inflation.

This is right. Now if I may say something else, I think that interest rates in Brazil are very, very high, but the company's leverage is under control and good cash status. What do you think about appetite for buying back franchised units? Are you thinking about that?

So some countries have been cutting down interest rates, and we've been trying with higher interest rates in Brazil, the lowest net debt possible in Brazil. So our opinion about franchised units is very opportunistic because most of our franchised units are in Brazil. So looking at buying back franchised units, we're thinking about Brazil, we might buy back one or another, but we do not have the intention of accelerating this plan because the main thing is to open stores in new regions to increase Smart Fit's capillarity further and further to -- our program of franchise buyback is always open, but we do not have the intention of accelerating it right now.

Our next question comes from BTG analyst [indiscernible].

I have just one question. It's about profitability of your units in the last few years. You have been giving us a positive surprise with the Vintage 2023. And I would like to understand what are the main drivers for this gain in margin? And what do you see looking into the future?

Joseph, this is Diogo answering your question. And we have a few reasons for that. We've been negotiating better rents. So the Vintage the '23 in our processes in terms of purchase and analysis has helped us to set records in expansion, keeping quality in the company as a whole. There is a structuring know-how, history and care, and we are very confident to be much more accurate in choosing where we locate our units. Just as a reminder, something we've been seeing the ramp-up of the new Vintage units that is very similar to what we've been seeing historically. And those Vintage units in the short term also have a benefit as compared to mature units because as they are new Vintage, we don't have a significant maintenance OpEx for those units. But when we look at our average maintenance OpEx over net revenue on mature units, we are talking about something like 3 percentage points of cost over revenue. So the structural cost is lower in terms of rental. But as these units mature, together with the revenue increase with the maturity, there's also an increase of cost, which is the maintenance cost of the units. So with that regard, we aim to have a level of mature scores of 51%, 53%. It might be slightly up depending on the Vintage and country that we are talking about.

Our next question comes from an analyst from JPMorgan, Joseph Giordano.

I would like to talk a little bit more about TotalPass. If you could share with us a little bit the initial analysis about what is the difference in lifetime value of a member that goes through TotalPass or a member that goes directly into Smart. So is there a major difference in churn? So it's 6%, 7% in a gym? TotalPass must be much lower because this is corporate? This was the first question. The second question is related to Mexico. So many people still worry that Mexico would be a major problem. And we are not seeing the number of members that we would like to see, but it wasn't catastrophic either. So do you see any market opportunities to capture slightly more market share and to accelerate in that market that should go back to normal? And lastly, in Brazil, in São Paulo. We are starting to see a much more intense expansion of smaller groups of gyms. So how do you see the competition and the competitive environment? How do you see this? And how does this affect the profitability?

This is Diogo talking. I'm going to answer the first question. The TotalPass, so we don't see that the best metric is to look at is lifetime value of members. So it's different from B2C customers, but the best way is to look at the ratio between what they pay and how much we transfer in and out. So this is a better way to see this than looking as lifetime value. The best way to look at it is the end users. So there is more churn, but it's a company, right? But we don't think this is the ideal metric, the best thing for us to monitor. We monitor profitability, how much they pay, how much is transferred and not necessarily the transfer is higher. The difference is how much stays, what goes in and out, and this has a seasonality. So depending on the month, there is more or less. So just to set the context of how we analyze this. In this business model that is slightly different with different dynamics than we look at Smart Fit. About Mexico, as we said in the presentation, Mexico is going through a time that we are accelerating. We are gaining market share. We grew twice. We doubled our network of units in the last 5 years. We have increased membership too. We have about 80 stores in the country or 80 units, and we are at a growth of about 20% considering the base of units. So this is a country where we are advancing. We see opportunities for growth, but this is related to our dynamics of high growth. So our prospects remain the same. So has the market grown? Has demand grown? Much more Brazil and United States, and everything that has been going on in terms of social media. So there has been a growth in Europe, in the U.S. and in Brazil in terms of the number of gyms. This is part of the growth. People are exercising more. This is one thing. The other thing is that there are more offers close to where people live, convenience is a factor. And there is a coordinated growth considering the growth of the market. So there is more competition, sometimes the market is better or worse. But the thing is we need to be consistent. It's increasingly more consistent, more focused and more accurate in the choice of our points of sales. And we thought that the best stores and the best points would be taken and should go to worse points with worse results, and it's just the opposite that is happening. So '23 season in Brazil is very good, '24 better, and '25 even better in terms of design cost. So the entire product is much better. So this gives us skill to do it. When we see the whole thing, the package, everything that is being implemented is that many units with no parking, no air conditioning, no structure that would make it possible for everyone in the future to compete with what we have. It's also important to emphasize looking at how we find it, you need to be reminded and in some of our conference calls in '21, '22 that we explained to the market that we thought that there was a change in culture with more people going for body building and lesser cardio. We started making this transformation in our units is to meet customer demands. In '21, and this is like a ship. It's more than 1,000 units for us to reset everything. So we should get to '25 competitive. And it's even more competitive. We are still making adjustments. And just as a reminder, the main player in the world in 2025 has woken up. In their explanation to investors saying, well, we are changing. We went from 3,000 to 2,000 square meters. We see that there is a trend. They kind of woke up, the alarm clock went off. Well, it looks like bodybuilding is serious. So in '25, they are starting to do what Smart Fit did in '21, '22. This is why since 1996 when situation is much more difficult than the U.S., we keep in every quarter, every half year, every year, we grow with consistency. And now we are in 16 countries with different formats and all of them very successful. So what needs to be done and what we are always doing. The first one to get -- I'm the first one to get on Monday, the last one to leave on Friday. The competitors need to respect and to see everything that is going around the world, see whatever is new and the trends and the competitive spirit of the team makes them implement before and better than others. So we are humble, but we will continue being challenging for the competition.

Just for your reference, we have another two questions here on the list. Our next question comes from Danni from XP.

I have one that addresses two different angles in terms of options for growth. We've been seeing more in the news or you being more vocal in terms of the growth of Bio Ritmo. What has led to this growth? The resumption of growth, is it more of complementing TotalPass? Do you have something more in Brazil base because you're negotiating with bigger companies? Or is it a niche that you see that there is a lot of space in the premium segment? And the other thing is that the thing of going international. Could you give us an update in terms of what is the operation like in Morocco and -- so that we know the midterm potential?

Danni, this is Diogo speaking. So about Bio Ritmo, complementing what I and Edgard said, we noticed a higher demand in the industry as a whole and in every layer, both in low end and high end. So people are prioritizing exercise. So it's a priority in how to spend money. People who didn't go to the gym, they prefer the gym over other things. And people who used to pay X in mid-gym are paying 2x. So the demand goes up proportionately in every tier or range in Smart Fit, in Smart TotalPass, Studios. So this is an agenda that for a long time, we didn't focus very much on. It was kind of on the side. But then last year, for all the reasons that I have mentioned here, we placed focus on Bio Ritmo again with opening of stores. And it takes a while for us to make the decision and do everything for them to open. So we have a pipeline of 10 stores this year. And this is the result of what we did last year. And there is more demand on the high end and also the evolution of products, but low-end products have also evolved and smart too. So we needed to evolve a lot in terms of our product. Our product evolved a lot in our scenario. So profitability and return is very good. We look at that. So we see project by project. So we are keeping a look at that and also the strategic component for TotalPass. So it makes full sense everything. So the entire return for individual growth and strategic complement for TotalPass, this is very important to have a robust offer for the high end, and we are focusing on that in addition to expansion, and we need to assure a delivery that no one in the industry is working on high end. We need to improve delivery, improve services. And with all the know-how that we have of different countries, we have lots of know-how to get all of this and to make an effort and to differentiate ourselves in the high end. Now about Morocco, we expect the first unit to open in Morocco will be this year. We are really looking forward to that in what we are going to learn once we open our operation in Morocco.

Our next question comes from Vinicius Strano from UBS.

Can you tell us a little bit about the attendance of members to the units and the cost dynamic looking into the future. And I would like to relate this to the weather. In Brazil, the winter was slightly colder than last year. So could you tell us how this affects new members frequencies, attendance costs in Mexico, it's been raining a lot. Just the weather affect attracting new customers?

Well, we haven't ended the quarter yet. But we experience -- the rain is a bit of a problem, but the cold weather is a bit of a problem. But rain really affects a lot. It is a bad traffic. It's difficult to get your car to go to the gym. So dry weather is better for our business. About the winter in Brazil, people are kind of used to that, and it's worse in the south of the country and in Rio too. Rio people are not so much used to the cold weather, but frequencies may be slightly worse. Once people create the habit and they are working out, they never want to stop, whether it's cold or hot, they always go to the gym. It's only the rains that affects a little bit. Considering Brazil and Mexico, it affects a little bit more and complementing it, God sends if you need shoes. When we think about the other variables that you addressed in your question in our cost base, it's fixed mainly. But usually when temperatures are milder, not too cold that you need to turn on the heater in colder winter, this improves a little bit the electricity in unit. So we spend a little bit less than we usually spend or would spend in where it's much hotter weather. And so this is what we see in the cost dynamics. When we look at attendance, usually talking about Brazil, June is usually a month of lower attendance. There's vacation, it's cold in Mexico, the dynamics is different. It's a month when there is a high attendance. And when we think about attendance through the quarters and months when attendance is lower, this is usually more positive for the business unit.

We now end our questions-and-answer session. Thank you very much for your attendance. The Investor Relations team is available to answer any further questions. Have a good afternoon, and a good Friday.