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

Before starting, an important message for those who chose to listen to the conference in English. Good morning, everyone, and welcome to Smart Fit Conference Call. This call will be translated into English. To access the English mode, please click on interpretation button int he icon at the bottom on the screen and choose your preferred language. There's also an option to mute the original audio in Portuguese by clicking on mute original audio. Today with us, we have Mr. Edgard Corona, CEO; and Andre Pezeta, CFO; Diogo Corona, COO; and Jose Luís Rizzardo, IRO Director of M&A, FP&A and Treasurer. [Operator Instructions] We remind everyone that the results presentation that we will guide this presentation is available on Investor Relations website at CVM and on the webinar platform. Before continuing, I would like to clarify that any statements made during this conference call regarding the company's business prospects, operational and financial projections and goals and the information about the potential of the target market are beliefs and assumptions of the company's Executive Board and are based on information currently available to the company. Forward-looking statements are not guarantees performance because they involve risks, uncertainties and assumptions. Now I would like to give the floor to our Founder and CEO, Mr. Edgard Corona, who's going to start the presentation. Edgard, please, the floor is yours.

Thank you. Good morning, everyone. It's a pleasure to have you here in our conference call to announce the third quarter 2025. Now I would like to start by highlighting the main points of another solid results, a reflection of tireless work dedication and consistent delivery of our entire team. I also take the opportunity to share some relevant strategic messages. So growth about the club network and guidance for openings in 2025. We ended the third quarter of 2025 with a solid annual growth of 17% in our club network totaling 1,867 units in 16 countries in Latin America. The strong pace of expansion reinforces our leadership position in the region's Fitness segment. It's important to highlight that in this quarter, the first Smart Fit Club opened in Morocco, a milestone that symbolizes the company's entry into a new continent, which presented our performance in the first weeks that is consistent with the expectations. We maintain our confidence in the execution of the guidance of opening 340 new clubs for 2025, and we'll talk about this during the presentation. Net revenue. Net revenue reached BRL 1.8 billion, a strong growth of 28% year-on-year. This result reflects a 12% increase in the average membership in Smart Fit-owned brand clubs and the continuous advances in our revenue management agenda with the consolidation of the pricing strategy as essential pillars for strengthen our competitiveness and our value proposition in each micro region with a presence, promote operational efficiency gains and ensure sustainable results in the various markets in which we operate. Gross profit. The strong revenue growth was accompanied by gross cash income, which also grew 28% versus Q3 '24, totaling BRL 906 million in the quarter, a margin that is 49.6% stable compared to the same period the previous year. Excluding preoperating costs, which in our view, reflects the robustness of our business model and shows the recurring performance in the business. Gross cash margin reached 50.8%, an expansion of 0.3 percentage points vis-a-vis 3Q '24. The mature units continued to have an outstanding performance with a 52% margin, a level consistent with the last 10 months. It's also worth mentioning the performance of the clubs opened in 2023, whose results are quite significant in addition to the promising maturation curve of units opened in 2024. Of the 1,471 Smart Fit owned clubs in our base, more than 30% are not yet mature as this occurs, investments already made in these units tend to be converted into higher levels of profitability and additional generation operating cash. We posted a record EBITDA of BRL 586 million in the quarter, a strong growth of 33% year-on-year and a margin of 32%, an expansion of 1 percentage point versus the same period of the previous year. We continue with a higher conversion of EBITDA into operating cash when 103% of the quarter's EBITDA was converted into operating cash generation, evidence the strong generation capacity of our business model, even in a context of accelerated expansion. Recurring net income. Recurring net income presented a strong growth of 43% compared to the third quarter of 2024, totaling BRL 177 million in the third quarter with a net margin that is 1 percentage point higher than 3Q in 2024. This is just the beginning. We remain very enthusiastic and focused to continue transforming the fitness sector. Once again, I would like to thank our customers, employees, partners and investors for their trust and partnership. I'm counting on you in Q&A session. Now I would like to give the floor to Diogo Corona, our COO, who's going to continue the presentation.

Thank you very much, Edgard. Indeed, we had a very good quarter. And now I would like to talk a little bit about our expansion and important part of the company's future. For this year, we remain very excited and confident in delivering the guidance released which foresees the opening of 340 to 360 clubs. This delivery represents a growth of approximately 15% versus the growth of 2024 and once again, a growth in the base of clubs of more than 20% when compared to the previous year. Our current pipeline reinforces this confidence. We ended October 150 new units and 252 units under construction to open mainly in 2025. Over the past few years, we have constantly accelerated the pace of our expansion, and certainly, 2025 will be another year. The strong pace of expansion is anchored on a solid basis. that have been proving themselves daily, such as the performance of mature units is consistent with high profitability and proven by several consecutive quarters. the concrete results of our expansion strategy on 1 new units demonstrate a solid ramp up in members and margins. We have extensive know-how in opening clubs with a strict selection process negotiations with long-term partners and high-quality implementation factors that ensure its quality and long-term delivery potential. Moreover, we are leaders in a region that continues to have a strong growth potential, also a potential for consolidation, as we have shown on another occasion in all the markets in which we operate white spaces still wide, which gives us a lot of confidence and visibility to continue growing. We are talking about a potential of more than 1,500 Smart Fit clubs in future years. With this positioning, discipline and market opportunity remain very confident in delivering these results with record expansion and solid profitability. Now a little bit about what we are seeing for the construction of new clubs in Mexico. In our last meeting, we had the opportunity to share a little bit more about Mexico, about our trajectory achievements and most recent developments in the main strategic agendas of our operation. We highlight the significant progress we made in cost management, revenue optimization and especially gross margin growth over the last few years. Mexico is our second main country of 416 Smart Fits with a growth of 62 new clubs in the last 12 months. So our position and our expansion pace certainly places us in a leadership position in the region with 1.1 million people training in our clubs. One of the main pillars of these adjustments with benefits that are already being captured are related to CapEx -- construction CapEx for new clubs. Over the last few months, we have worked intensely to find alternatives and sustainable solutions capable of generating sales of approximately 20% in the construction of new units. The significant value of 20% reduction came from a strategy based on reinforcing the expansion team with people who already have solid experience in Smart Fit business model, project revision based on the success of efficiency obtained in projects in Brazil will improve engineering that maintain quality and safety indispensable pillars for our projects. And it was in April this year that we opened in Cancun, the first unit that went through this new process that has already presented the expected gains. The success of this unit has been replicated for the 2025 pipeline if compared to the openings of 2024. We monitor very closely the changes that we make in our units. And as a company focused on our customers, we observed the same levels of NPS, a result that makes us very confident to follow the strategy and the results of things so far. We assure that gains like this have been enhanced by scale, our opening volume presence in numerous regions and highly qualified team. which allows learning and efficiency to cross-borders, generating more value and synergy between our operations. Results like these are part of our DNA. We are extremely focused and diligent in the quality of our points and profitability of our investments. Examples such as Mexico to reinforce our DNA. Now moving to the next slide. Now let's talk about the evolution of our physical presence, bringing an update on the recent growth of the club network. In the last 12 months, we added 276 new clubs, a growth of 17%, totaling 1,867 units at the end of the third quarter. In this quarter alone, there were 49 openings which reaffirms the consistent pace of our expansion plan. It's also worth highlighting the geographic diversity of this growth. Today, Brazil accounts for 47% of our total base, while Mexico and the other countries already totaled 53%. If we look only at Smart Fit's own clubs, Brazil represents 41% of the base. In addition, another relevant point is the maintenance of our growth base. Currently, 65% of our own clubs are mature units, which corresponds to 952 clubs. In other words, we still have more than 1/3 of the units that have not yet reached maturity. And as this occurs, we are going to obtain higher levels of profitability and generation of operating cash. We remain with disciplined, diligent and sustained with an operation that combines scale and operational efficiency. On this slide, you can see the annual growth of our membership and revenue per club. In Q3 2025, our membership reached 5.2 million, an increase of 8% over the same period in the previous year. Of these members, approximately 2.3 million are in Brazil, 1.1 million in Mexico and 1.9 million in other countries in Latin America. It's worth noting that the members of the TotalPass aggregator are not included in these numbers, but their access checkings have been gaining more -- have been gaining share every quarter. We believe that our robust member base is the direct reflection of our assertive expansion strategy, the maturation of the units and continuous efforts to attract and retain members. In the same period, the average annualized net revenue per private label club reached 4.5 million with higher tickets in the assertive price transfers over the last few years in the different regions and the many actions carried out in the period to optimize in a sustainable way the revenue per club. These results show the strength and resilience of our business model which are translated into solid financial results that will be presented by our Investor Relations Director, Jose Luís Rizzardo.

Thank you, Diogo. We'll now continue the presentation. I would like to go into the financial results, starting evolution of the net revenue, which in Q3 2025 again showed a strong growth of 28% compared to the third quarter of 2024. This has been the 17th consecutive quarter of revenue growth. Net revenue reached BRL 1.8 million, mainly due to a 12% increase in the average number of members in Smart Fit private label clubs, an increase in the average ticket of 10% with emphasis on performance in Brazil and other countries. Compared to the second quarter of 2025, net revenue increased 2%, mainly due to an increase in average ticket. The strong growth in net revenue in the quarter is a reflection of accurate and assertive commercial and operational efforts to attract and retain members combined with increase in average ticket that has occurred due to the combination of revenue management agenda, sustaining and optimizing revenue per club. Additional commercial operations initiatives such as the expansion of the offering and the consistent progress of the expansion of our network of clubs will increase the value proposition of the Black plan. It's worth mentioning also the increase in access check-ins of TotalPass users, increasing the revenue of Smart Fit brands, especially in Brazil. To conclude this slide, it's worth mentioning the performance of the other line, which ended the third quarter of 2025 with revenues of BRL 151 million, more than double the amount recorded in the same period the previous year, accounting for an 8.3% of the total net revenue, an increase of 3.2 percentage points compared to the third quarter of 2024. This increase is explained by the growth in the results in the Other business units and the acquisition of the Velocity Group compared -- completed in the fourth quarter of and the acquisition of control of Fit Masters operations completed in April 2025. Now moving to Slide #9. You can see gross profit cash totaled BRL 906 million, an increase of 20% compared to Q3 '24 in line with the growth of net revenue in the period. Gross cash margin reached 49.6% in 3Q '25, stable compared to 3Q '24, mainly due to efficient cost management, which offset the increase in expenses related to the opening of new units, including the units opened in the period and the clubs that will open in subsequent quarters together with an increase in the cost of units in the process of ramp-up with emphasis to those that we opened in the last 24 months. In the last 12 months, gross cash income totaled approximately BRL 3.4 billion, resulting in a gross cash margin 50.3%. It's also noting that the gross cash margin before operating costs, those related to openings reached 50.8% in 3Q '25, an increase of 0.3 percentage points compared to the same period -- of the previous year. Going a little deeper into this analysis, which, in our view, reflects the robustness of our business model, we move to the next slide. Here, you can see the analysis of gross cash margin before preoperating costs per business segment. This analysis isolates the effect of these preoperational cuts, allowing a clear understanding of profitability level. From this perspective, the consolidated gross cash margin reached 50.8% in the quarter, an expansion of 0.3 percentage points compared to 3Q '24, showing the robustness and consistency of our business model. When we look by segment, we note stability in the margins of Smart Fit brand, our core business. The margin of and other clubs was impacted by the opening of new units that are still in a ramp-up process and momentarily have lower margins. This was offset by the solid performance of the Other segment, which maintained a significantly higher margin level, although impacted by the consolidation of Fit Master compared to the same period of the previous year. Within this context, it's important to highlight the positive effect of the change in the mix with the other segment gaining share in gross profit before preop costs going from 7% to 10%. In summary, the company once again demonstrates its ability to deliver solid results despite the context of strong expansion and maturation of the club base, also driven by the contribution of new business units. And now moving to the next slide. You can see that for the tenth quarter in a row, mature units are reporting a consistent level of 52% in addition to gross profit per private label club annualized in the quarter of BRL 2.4 million, a result of the revenue optimization initiatives per club combined with intensive and assertive efforts in operational efficiency. Another important highlight were the units that we opened in 2023 with a gross margin of 53% with a performance above the level of mature units for the third quarter in a row. Gross cash income annualized per unit reached BRL 2.2 million in 3Q '25. The solid performance of the company's own units in the 2023 vintage is still in the process of maturation is the 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 and mature units, resulting in a profitability level of more than 42%. It's also highlighting the solid maturation trajectory of the 2024 vintage, which, at the end of the quarter reached and average annualized net revenue per unit of BRL 4.1 million and gross margin of BRL 54 million in 3Q '25, 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 it will provide good results once they reach maturity. As Diogo said, when he explained about the acceleration and the pace of openings for 2025, the good level of the margin of mature units and excellent ramp-up make us confident that we are on the right path to the consolidation of consistent results with the good choices of new commercial points, strong cost management, pricing and sales intelligence in addition to high quality of the services provided. Now we are going to present the operating results of the companies in the third quarter with focus on SG&A. Compared to 2Q '25, SG&A were stable with a solid dilution of 1.2 percentage points as a percentage of the net revenue. In the annual comparison, SG&A grew mainly due to higher investments in structuring new businesses, mainly related to TotalPass in addition to reinforcements in the personnel structure in other countries. To increase sales expenses on the same basis of comparisons mainly due to the larger number of units opened in addition to marketing initiatives to strengthen the brands of the different business units. Now I'll give the floor to Andre Pezeta to continue the presentation.

Thank you. Moving to the next slide, #13. We present a strong evolution of our EBITDA, which in the third quarter of 2025 was BRL 586 million, the highest level ever, representing a significant growth of 33% versus 3Q '25. The EBITDA margin for the quarter was 32.1%, an increase of 1 percentage point compared to 3Q '24. It's worth noting that in the last 12 months, we also reached a record EBITDA level of BRL 2.2 million with a margin of 31.7%, one of the highest historical levels of EBITDA margin. Finally, considering the adjusted EBITDA before preoperating expenses also at a record level reached the expressive mark of BRL 617 million in 3Q '25. Now I would like to comment on the recurring net income, which showed a strong growth of 43% compared to the same period of the previous year, totaling BRL 177 million in the third quarter for a net margin of 9.7%. This performance is mainly explained by the growth of the EBITDA, 33% in addition to lower tax rate in -- due to the statement of interest on equity in the third quarter of 2025, which are a result of the acceleration of the expansion plan. In the last 12 months, recurring net income exceeded BRL 700 million, totaling BRL 703.6 million with recurring margin of 10.3%. To talk about these investments and impact on adjusted net debt, we move to the next slide. In the third quarter of 2025, the company's adjusted net debt increased BRL 104 million, reflecting investments made in the period that were partially offset by the solid operating cash generation. Operating cash generation was positive by BRL 605 million, driven by the record EBITDA for the period and high conversion of EBITDA into operating cash, which reached a significant mark of 103 in the quarter. CapEx activities totaled BRL 562 million, mainly due to CapEx related to the opening of new units. Additionally, other activities representing an increase of BRL 147 million in adjusted net debt, mainly due to the debt service and the payment of interest on equity. We continue to move forward with our growth plan, which resulted in an expansion CapEx of BRL 326 million in Q3, an increase of 10% compared to the 3Q '24, mainly due to the construction of units that will open in subsequent quarters. As Diogo mentioned earlier, at the end of October, the company had a significant number of construction in progress referring to units scheduled to open, especially this year in 2025, which should impact this line over the next few quarters. Additionally, in 3Q, maintenance CapEx was BRL 72 million and innovation CapEx of BRL 15 million, totaling BRL 513 million CapEx, 13% higher than the same quarter in the previous year. Finally, it's worth mentioning that in the last 12 months, the maintenance CapEx of Smart Fit brand clubs reached BRL 306 million, accounting for 7.1% of the net revenue maturing unit is compatible with the strategy of offering high standard experience to our members. Lastly, we continue to intensify our expansion -- our plan of expansion investments, and payout of dividends, keeping discipline in leverage due to the company's strong operating cash generation. It's worth mentioning that the adjusted -- EBITDA ratio over the last 12 months excluding IFRS effects related to real estate lease ended the at 1.57x versus 1.63x in 2Q '25. We find this level to be healthy, especially the high predictability of the company's bottom line and a long time profile of our debt, in addition to the adjusted net debt to analyze the EBITDA in the third quarter, excluding IFRS effects related real estate lease is 1.45x. Finally, it's worth to emphasize that the company funds locally its expansion needs. And at the end of the period. Brazil, Mexico and other countries are counted, respectively, for 33%, 27% and 40% of the company's net debt. This net debt is distributed in different geographies gives us flexibility to invest, considering the local cost of capital when in some cases, there was a reduction in interest rates. Now I would like to end the presentation by thanking everyone who contributed to our results and all our investors. Now I will give the floor to Matheus, who's going to coordinate our questions-and-answer session.

Thank you, Andre. Now we are going to start our questions-and-answer session. [Operator Instructions]. Our first question comes from Gustavo Fratini from the Bank of America.

We have 2 questions. The first, how do you see price transfers next year per country? And then number two, regardless of macroeconomic problems and seasonality and usually, the second quarter is stronger in terms of attracting members, what are you doing to resume the increase in membership in Mexico? And what about the penetration of TotalPass and Well Hub?

So this is Diogo. Thank you. About prices, there's nothing. So we were always defining prices based on clubs and tier. We are thinking about the Black plan. And this would be a change in price. There is -- we are not expecting anything in terms of a structural and overall change. But we need to remember and even last year, we had Black in Brazil. Until the beginning of the fourth quarter, we conducted the analysis based on inflation prospects, and we decided in December, there will be this price and transfers in Brazil were greater than inflation. So this is the objective that we haven't really planned anything. Now about Mexico, in terms of TotalPass, they have less share and more margin that we see in Brazil. This is a market where growth is not so divided by business model. So growth is slower, slightly more difficult, especially considering our membership. And in terms of membership. In Mexico, we have made many adjustments in operations and marketing teams expansion. We mentioned the issue of CapEx. It's not reflected, but this is related to return on investment for us to continue expanding and confident on expansion, so we updated the model there as we did in Brazil. And all the work that we did in Brazil over the last few years than we did in Mexico, so we believe that this is going to help a lot for us to continue with the good numbers that we have in Mexico.

So Gustavo, just reinforcing in terms of pricing, as Diogo said, we are not seeing any price increases in Black. But we have higher based on tier and adjustments, so in the low single digits. Just in closing Gustavo, this year, there will be a price adjustment with a Black plan in Brazil, 7%. We also adjusted the 3 main markets. When we look at our geographies in other countries, Colombia, Chile and Peru, Colombia and Peru adjustments at 10%; Colombia, beginning of the year; and we had Peru third quarter; and in Chile in the second quarter. So as Pezeta said, you can see part of that in our numbers this year already. But in the end, you're going to see over the next few months as we changed membership having new members and as we adjust older members considering the inflation in the countries where we operate.

Our next question comes from Julia Rizzo from Morgan Stanley.

I would like to have a follow-up on the performance of mature clubs. Could you give us some color in terms of growth and sales and the differences between the regions, not just in terms of sales in Brazil compared to others, LatAm on average and growth. How has this been evolving with margins at the end? What do you see looking into the future?

Julia, thank you very much for your question. This is Rizzardo. The main metric that we've been looking at and trying to guide you more to look is revenue and profitability per unit, gross profit with invested capital on a quarterly basis. We have been announcing the results of the mature units consolidate on an annual basis we have margins per region. As a reminder, numbers in 2024, marginal mature units was about 48%, approximately very close to the margins in Mexico and there are other countries with a margin percentage above mature considering what we see in Brazil and Mexico. And there are a few issues that we have already addressed in other webcasts. So they have very -- the different regions have very similar returns, but there is some difference considering the level of maturity of the operations in the different countries and some unique features that will make part of the country's comprising the region that we call other countries have margin levels or higher percentages than Brazil and Mexico. There are issues related to tax, personnel costs, lease costs that are different in each country, and there's also an issue of revenue because usually the number of members in the Black plan above Brazil and Mexico because they are smaller countries where there is higher density of bigger units in some regions. Now when we look at the numbers, when we look at 2025, we are not expecting any major changes in level in terms of profitability of mature units thinking in Brazil and other countries. So similar to last year in Brazil, specifically the price adjustments that we implemented. And thinking above inflation last year, what we did, it's now lower to the price adjustment with a benefit of the margins of mature units in Brazil in the first half of the year and in Mexico, considering what we have based on last quarter. So the mature units have a margin that is lower than that of 2024 and probably closer to what we saw in 2023, which is still a good level, especially when we adapt CapEx of new stores and the margin is still below in looking to mature units, there's a good level of return.

Sorry, to interrupt you, there's a follow-up. Actually, now looking at the numbers that you published for the mature units, it looks to me like it seems that the growth of sales of revenue for mature club had been growing high single digits, and now it's closer to 0. Is this one-off? Is this because of the mix? Is there a region where sales growth is not working so well? It's not so much in terms of profitability or gross margin. This is my question.

Revenue per mature unit in Mexico today is lower than what we used to have in the past. And last year, the revenue per mature unit in Mexico grew much more with a consolidated number that you were seeing due to price transfer of 15%. And what we said, you can see the revenue per mature unit in Mexico at a level that is very similar to the previous year and the increase in ticket was offset by a lower volume. And this has made -- when you look at aggregate numbers, you see this number slowing down due to the Mexico effect, and there is a mix of different countries that do not necessarily have the same level of revenue per unit. So in Brazil, revenue per mature unit is still growing year-on-year, third quarter of '25 versus the third quarter of '24, it's bigger in CapEx, reduction in CapEx, potential 20% per unit.

Can it be replicated all over your base? Could you provide lower CapEx, more cash generation or is this just from Mexico?

This 20% that's just for Mexico. We've been working in other regions, but this difference is especially for Mexico.

Our next question comes from Rodrigo from Itau BBA.

I have 2 questions to ask. The first one is about gross margin and smart in Brazil, if we adjust. I have 2 questions. First, we see constant expansion over the last few quarters. So are you okay with that? Are you confident with the reduction of margins of Smart Fit in Brazil? And my second question, if you see expansion of gross margin versus the second quarter. What explains this slowdown and a gain of gross margin? And the second point is about others LatAm. So margin expansion quarter-on-quarter year-on-year. And so there is some pressure. So others LatAm has been getting better. If you could list 2 or 3 main factors for margin expansion for others LatAm, what would they be?

I'm going to go first with Others LatAm and there are some factors explaining this margin expansion year-on-year. Number one, if you look at 2025 and 2024, there is a much higher concentration of openings in the fourth quarter in all geographies as compared to last year. So last year, we opened approximately 51 private label units until September '24, which was about 15% of the base when we compare to the previous year. And this year, we opened 36 private label units, it's 8% versus the number of units of the year before. This definitely explains part of the increase of gross margin for the region in the annual comparison. There's another point that I mentioned of price adjustments as it flows. According to the company's reports, there's no impact of inflation, but there is a more positive effect on the company's margin expansion, and it is an aggregate of different countries along the years in the region's margins. So in the Other region, the margin -- expansion margin of Smart Fit in Brazil, pre-op in the third quarter was lower than what we delivered in the fourth quarter compared to the same quarter the year before. And also there is an issue that, first, there was a positive impact of price transfers in the company. And then naturally, there's an increase of personnel costs and other fixed costs at the level of the clubs and also looking at the third quarter of '25 versus the second quarter of '25, there is a drop in performance in mature units at the level of margins. So it's a gross margin level that is superior in the second quarter and should be in the second quarter this year.

Our next question is from Danni Eiger from XP.

Well, I want to ask a question about expansion, not so much about this year. So you give the -- we have given the guidance, but looking to next year onwards. So we see the scenario that is slightly a bit challenging and there was something positive in Argentina with the elections. This is a country where you don't have much of a share [indiscernible]

This is Diogo. I'm going to start answering about expansion. We can see a pace similar to this year in terms of expansion. And so there is an initial expectation with regards to focus. So this is very proportional to the size of the countries. We see opportunities in some countries in Morocco, we have 1 unit. We are likely to open the second one this year, for next year or 2. And then we look here, there's an additional step this year even before the results of the elections. And definitely, this is a country that we are analyzing very closely. So we have brand, team, everything. We have a potential to repeat the history that we have in other countries there, too. We are paying close attention to what is going on there. Everything is being very well accepted by the population. And we do not have a specific focus on a country. So we are looking, and regardless of where it is, there is some return on investment and priorities. So in Chile, and this is a little bit of our vision here that our teams and place is capable of operating our expansion with good quality. So we do not -- we are not really too -- we can't give you accurate information in financials of that. At the end of the year, we have the intention of providing an overview as we did last year in terms of transfers, just to have a share -- just to guide the market. We think that there is very good potential that was created, so the benefit of clubs and there's everything and it already is very significant in this industry, and there's a potential to become increasingly more relevant. So this is more related to business expansion, improving products, brands and it being a product that human resources departments will request more and more. And this can be something good considering all the work that we have been doing. Thank you so much.

And Danni, just complementing the guidance of 2026. So keeping the practice that we've been following over the last few years, the company is likely to report a material effect in the beginning of last year, so that everyone is on the same page in terms of our projection for the opening of new units in 2026.

Okay, very good. And congratulations on your performance.

Thank you.

Our next question comes from Ruben Couto from Santander.

It's just a quick question in other businesses in gross margin. And the year-on-year, there was Fitmaster. And quarter-on-quarter, you were talking a little bit about seasonality. Can you give us an idea of gross margin that we should expect in the fourth quarter this year, the first quarter next year? So if you could just give us some color on what we should expect now going into the future?

Ruben, Pezeta answering your question. We think it's still too early for us to give more color on business margins because the TotalPass business has been growing a lot and there are many other businesses. But the margin of Q4 is usually a margin that is better than the third quarter because of -- because it matches use and revenues, especially related to TotalPass. This is the most seasonal business in there. So this is more. This is for next year. Similar to this year, sometimes the margin goes way up; and other times, it goes down because of utilization. So you should consider that when we look at annual comparison basis, fourth quarter to fourth quarter last year, we didn't have Fitmaster that was acquired in the second quarter. And as we said in the last conference call, this is an asset-light business unit, but the gross margin, EBITDA margin is below the gross margin, EBITDA margin of the company's consolidated numbers and other business units. So that's why it has been driving down the margin year-on-year.

Our next question comes from Irma Sgarz, analyst of Goldman Sachs.

My question is, what about competition in Brazil? I think that Smart Fit has demonstrated a long time that it has a superior value proposition, but we see all the time headlines of new chains going to the market, expanding. So I must ask this question. How do you see the competition today and after the investments that you have made in your brand in the first half of the year? And the second question is about revenue management in Brazil, specifically, in addition to price transfers all the work that you are doing all the time. Do you see any other opportunities?

Irma, this is Diogo. Well, about the competitive environment, especially in Brazil, what we have been seeing over the last few years is that demand has grown in this industry in Brazil and worldwide. And we have seen that this has driven supply up, too. And also, there are some things that we don't think are sustainable. As there is a lot of competition, it's for us to make sure that our deliveries are being very well done to focus on customer experience. We think that there are many competitors that are only doing well because of a market anomaly, we think that the market will adjust itself and it's going to go back to what it used to be. So if you do things right, you do well; if you don't, you don't. Also, the branding is something that we are focusing very much on. We have been focusing on user experience, our product to differentiate ourselves and to keep up with the solid numbers that we have been seeing despite all the growth in the competition that you have been seeing. So the gross margin of mature units. This is the focus on our main challenge for next year. Now talking a little bit about pricing, as I said before, we see -- we are always analyzing opportunities, changing tiers, plans, but there's nothing that is definitive about structural changes. Of course, internally, there are tier changes. We do upsell for customers to change plans. And this is an agenda that is living and is always taking place internally. Just complementing what we said, not just in Brazil, but in Latin America, our main initiative, we have the rollout of Smart one of the main products that we have in are the bioimpedance scales that help us increasing the penetration of and we hope to close the year with more than 90% of our private label clubs in Latin America with bioimpedance scales. We've been investing in that and they should provide a contribution. It's not too big, that is small increase the company's average ticket and then we think what else we can add on to Smart Fit.

Our next question comes from [ Isabella Lamos ] from UBS.

I have 2 questions to ask. First, in Mexico that you gave lots of details about your strategy, CapEx. But I want to focus on a specific point of the expansion, some more detail that you could give us about the profiles of the cities. Is there any focus on bigger or smaller cities? If the strategy is going, especially in the short term, to go into unpenetrated regions or higher density? And this is a follow-up. As you talked about the prices, are you seeing any recent changes in the dynamics of competitors and plans? This would be number one. And the second point is talking about Brazil and attracting members here. You talked about the dynamics, macro scenario prices and everything. But we know that there is the thing of total pet impacting inflows to the new clubs but we saw a more significant slowdown this quarter. This quarter, there was something specific. Could you mention factors? What do you attribute this slowdown to?

Isabella, this is Diogo, I'm going to talk a little bit about expansion prices and competition with Mexico. With Mexico, we don't have a specific focus. So there are cities that have wide space for us, and we -- so the real estate can be in any region, and we analyze the return on investment regardless of the region. One of the things that we did in Mexico, it was a team adjustment, it's the same thing we did in Brazil. So we have a bigger prospection and expansion team so that we can have more prospecting in Mexico is almost as big as Brazil. So we need to have a playbook very similar to what we did in Brazil, and this is going on over there. And so this is good. We have good analysis. There is no special focus, but it also related in terms of the white space of each market, which is proportional to the size of the market. So this has been happening a lot in Mexico. So a price novelty and competition in Mexico, not much changes. We still have the same competitor there that works with prices below ours. Their model is slightly different. So we don't see too many difference price strategies with individual competitors. Now Isabella moving to your question about the growth in membership in Brazil. There are different factors having an impact. So we still need TotalPass and the aggregator that we have in Brazil, it's different. When we look at increasing membership for TotalPass, they are not included in this membership. So if you do the math considering references and then you put in TotalPass considering those coming to Smart Fit, you would have seen a sequential growth in membership in Brazil the third quarter over the second quarter this year, even though smaller than what we saw last year, but especially in September, performance was slightly worse for mature units in terms of sales as well as in terms of churn of our members in the country. And another factor that is important that is related to the explanation. This year, so we opened 53 new units this year and 54 last year until September. So the ramp-up of new units this year in Brazil is less representative than it was last year. Also together with a quarter that was slightly colder affecting adversely margins. So each one of those things are part of the explanation, the slowdown in the margin and attraction of new members for mature units, but in terms of revenue per unit is higher than we had last year, and if we're looking at Brazil, specifically.

Our next question comes from a Citibank analyst, João Soares.

Two quick questions. So I would like to hear from you in terms of capital allocation. How do you see capital allocation considering the unique features of the aggregator? So your main competitive advantage of the aggregator is that it is integrated and the biggest player in this industry doesn't have any exclusive relationship with partners. So is it more vertical? Are you going to more premium units, you are going to increase exposure, other kinds of additional services? I would like to understand your mindset in that regard. And the second point, looking into the short-term, there are many investors worried about expense phasing in the fourth quarter, considering the opening of units in the fourth quarter. So how should we look at the seasonality of expenses? Is there any opportunity in terms of efficiency that could mitigate preop expenses? So I would like to hear from you on expenses.

This is Edgard answering your question. There are 2 different companies. So there is TotalPass, but TotalPass is important for the market in terms of sales. This makes the market better. So with that regard in a year with lots of -- with many openings, lots of people, companies have more opportunities to meet the needs of the staff better, and we are expecting a better year considering the large number and this can be good. Now for us, when we look at investments, and we see the purpose with lots of openings, many customers and there is our high end, so we are looking at this and there is a robust plan of opening in local basis to have a good return on this channel. So considering both ends, this is what we have and there is good return considering our franchisees and this produces more growth, also considering construction works and it also improves offer in the group as a whole. We are very excited about this with the possibility, and this has been happening in Chile, Peru, Panama and then maybe also the strategy looking into the future.

[Now Matheus complementing Edgard's answer]. It's very important to defy the context. These 2 high-end segments thinking of and studios, we see value on a stand-alone basis. Of course, we are also going to consider the value proposition that it adds as part of our commercial proposal of total test, which helps carrying brands that are very well positioned in their target markets with lot of capillarity. So certainly, within TotalPass strategy, we can see this verticalization as a competitive advantage that is very important against our main competitor and in terms of new units with an expansion basically focused on our own units, whereas the Studios segment, this is a strategy where this marginal expansion should come from the number of franchisees and number of franchised units. Now on your second question about costs and expenses of the last quarter. As to preoperating costs, we should have a slight acceleration in the last quarter and slightly in line with the acceleration that we had last year and so small acceleration. But yes, you should expect some acceleration. Now as to sales, expenses and G&A, our level in the last quarter is very similar versus the third quarter. So basically, we have the structures, they are in place to take on the opening of new units. So we might have a little bit more preop expenses, but SG&A in itself is likely to remain in line.

Congratulations.

Thank you, Joao. We now end our questions-and-answers session. I would like to thank everyone for your participation. Investor Relations team is always available for you to answer any questions. Have a good Friday.