Lavvi Empreendimentos Imobiliarios Ltda

BOVESPA:LAVV3

Q1-2025 Earnings Call

[Operator]

Good morning, ladies and gentlemen. Welcome to Lavvi's conference call to announce the results of the first quarter of 2025. The presentation and comments about the results are going to be presented by Ralph Horn, CEO; Sandra Attie, CFO; and Maria Luiza dos Anjos Oliveira, IR Manager.

This call will be presented in Portuguese with simultaneous translation into English. [Operator Instructions] This conference call is being recorded and will be available at the company's Investor Relations website, www.lavvi.com.br as well as the slide deck that you're seeing.

[Operator Instructions] Before proceeding, we would like to take the opportunity to say that forward-looking statements are based on beliefs and assumptions of Lavvi's management and are based on information currently available to the company. Forward-looking statements involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future.

Investors, analysts and journalists should understand that events related to the macroeconomic scenario, the industry conditions and other operating factors may lead the results to be materially different from those expressed in such forward-looking statements. Now we are going to start our conference call, giving the floor to Mr. Ralph Horn. Please, Mr. Horn, you may start.

[Ralph Horn, executive]

Good morning, everyone. First of all, I would like to thank you for your presence here today. It's an honor to have you with us at this conference to talk about Lavvi's results for the first quarter of 2025. We are happy with the company's performance at the beginning of the year, although we had smaller launches we had a good inventory sales performance. I would like to highlight that despite the slight operational slowdown this quarter, our accounting results continue at a strong pace.

In terms of cash, we ended the quarter with a cash position of BRL 2.5 million net cash. And as expected, the company burned cash in the quarter to buy land. Even so we announced the payment of minimum dividends approved by the Board in the amount of BRL 21 million to be paid in May.

Soon, we will have the launch of Soleil, Le Six. And overall, there will be approximately [BRL 1.2 billion] PSV, both 100% Lavvi. We are optimistic about our products, but we know that speeds will not be as strong as in 2024 due to a unit's ticket and the raise in interest rates, customers are more careful are taking care in their conditions.

Thank you so much. And now I'm going to give the floor to Sandra to talk about the operational results.

[Sandra Esthy Petzenbaum, executive]

Good morning, everyone. As Ralph said, we have had a quarter with smaller launches. First, the second phase of Marajoara closing the second project of Novvo with 61% sold.

On Slide 6, we launched the Aura Pacaembu Studio in partnership with Cyrela with 52% sold until March, thereby totaling BRL 200 million sold. So in Marajoara, we launched the second phase, but we are booking 100% of the project this quarter.

And on Slide 7, we see launches and sales despite the fewer launches, looking into the last 12 months, we grew 3% in Lavvi's percentage and 21% in sales, thereby keeping our 60% SoS. It was strong in terms of inventory sales, even though this quarter is slower because of the summer vacation and Carnival.

Skipping to Slide #9, inventory dropped 3% in our share, showing that it is at a healthy level. 60% is related to launches since 2024. We have a low ready-to-sell inventory accounting to only 2.6%. In the scenario of scarce funding and high interest rates, some products might be slightly more challenging. But overall, we were able to [sold] well inventory.

On Slide 10, this quarter, we had the approval of the license of Wonder Ipiranga and 72% of the units have already been fully transferred or settled. Sales advanced well in the last year. And today, we only have [7.5] units in inventory.

We would like to present our Landbank. At the end of the quarter, we had in cash a land or property in Itaim, a noble area, very few land available. And we closed with 5.6% in terms of our share. We are still looking at real estate properties to resume our launches.

Now I'm going to give it over to [indiscernible] to talk about financial results.

[Unknown Executive]

Thank you, Sandra. Good morning. Now starting on Slide 13, Lavvi's first quarter financial results were net revenue grew 17% when compared to the previous year. The interest adjusted gross margin was 39.3% in the quarter, an increase of more than 2 percentage points year-over-year.

Net income reached BRL 87 million with a net margin and ROE of 26%. Looking into future revenues, our backlog is BRL 2.4 billion with a gross margin of 36%. We had a burn of BRL 47 million in cash. And if we disregard land purchase, we would have generated BRL 135 million in cash.

Now moving to Slide 14. Our revenue is BRL 335 million in the quarter, and we are reaching a new record for the company with [indiscernible] billion in the last 12 months. The margin for the quarter ex interest was 39.3%, impacted by the accounting of the first and second phases of the Novvo Marajoara project whose margin was above our REF.

The adjusted margin for the last 12 months was flat compared to the previous year. Our investment income is still positive. The drop in the last 12 months is due to the impact of the recognition of interest arising from the 2 corporate CRI issuances taken by the company in 2024. Our administrative expenses, despite the percentage increase compared to the previous quarter, remained stable in relation to the revenue when compared to the last 12 months.

Commercial expenses this quarter include launches that will come in future quarters. And so they went to 8.5% of our revenue. Finally, net income was BRL 87 million with a net margin of 26%, and a new record reaching BRL 359 million in the last 12 months.

On the next slide, 15, you can see a vision comparing not just to 2024, but since our IPO. Here, you can see what I said in previous slides. about the company's record in terms of revenue and profit recognition.

Now on Slide 16, you can see ROE 26%, 1 point above Q4 '24 and 4 points above 1Q '24.

On Slide 17, on the last column, you can see backlog revenue totaling BRL 2.4 billion, the result of sales already made that will be booked in the results over the next few years according to the evolution of construction. Considering a margin of 36%, it will generate to the company approximately BRL 860 million gross profit in the future. Although Novvo Marajoara impacted the current margin, the positive impact of the REF was up only 0.5% because of PSV volume.

Now on Slide 16, we closed the period with BRL 2.5 million of net cash, a net debt to equity ratio of minus 0.1%, which indicates that the company has more cash than debt. The company burned BRL 47 million cash, especially because of the purchase of property in the district of Itaim mentioned by Sandra in the Landbank. Excluding investments in that, we would have generated BRL 135 million in cash.

To conclude, this is our last slide. On Tuesday, BRL 20.6 million were approved in dividends equivalent to the minimum mandatory of the profit for the quarter, which will be paid out to our shareholders on May 26. Finally, we have BRL 725 million in terms of amount that paid out to shareholders since 2021.

Thank you very much for your participation. Now we are open for questions.

[Operator]

[Operator Instructions] Our first question comes from Elvis Credendio from BTG.

[Elvis Credendio, analyst]

I have 2 questions. First about the gross margin. You highlighted that it was slightly higher this quarter because of Novvo Marajoara. So what was the margin of these projects? Exactly it was above the REF and the feasibility of projects under the Novvo brand, do you see higher gross margins even if it's more of a one-off effect of this project?

And question number two is to understand how you see the size of the Novvo operation. Are you more excited with this segment and which are going to be the challenges that you see to grow and deliver profitability? That's it.

[Sandra Esthy Petzenbaum, executive]

Elvis, I'm going to first answer about the gross margin. So as the revenue of the quarter was smaller than in previous quarters, so the booking of Novvo Marajoara could drive up our margin a few points above our REF margin and Novvo products, both Barra Funda and Marajoara are above our REF margin.

About Novvo operation and Ralph is going to answer this.

[Ralph Horn, executive]

So we are very happy with the results of the operation with the results of our Novvo operation. We have another 2 plots already reserved. Yesterday, we closed another one. We have 3 plots of land, and we are very happy even though SFH's funding is slightly more scarce. So we might get to 30% of the company with Novvo.

Let's see how things evolve. We are going to serve the wave that is good. The 2 things that we did sold very well. We're very happy with this operation. So we are gaining experience. We're almost delivering construction. It's very good to have in-home production because this -- we go through a first cycle. So in short, we -- Novvo is going to account for almost 30% of the company.

[Operator]

Our next question comes from Ana Júlia Zerkowski from UBS.

[Ana Zerkowski, analyst]

So we would like to understand better the beginning of the second quarter. Could you tell us a little bit about the operational performance of April? And what is your feeling for May? What about launches and performance of sales of the launches?

And a second question, thinking of cancellations, and you said that you were seeing this in the second quarter? And what is the level expected for the year in line of Q1 or more in line with the last 12 months?

[Sandra Esthy Petzenbaum, executive]

Ana Julia just a minute, Ralph is down. He's going to answer about the operation in Q2. Well, about cancellations. In Q1, once we think about Novvo, we have many more units. So half of the units that we reported as cancellations in Q1 come from Novvo. So customers that paid the first installment and until the transfer, they ended up giving up, no, I thought it better. I have a problem this or that, and they give up.

So that's why it had a higher impact in terms of number of units. But what we did not have -- so we delivered Ipiranga and this is good news. The number of cancellations did not come from the Ipiranga project. This is something that we monitor very closely. And what would be really scary that to get to a project, we can't transfer any customers and everything drops. So only 3 have been canceled, 6 were refused, but it's a very small number as compared to 576 units that it has.

So I think that we are confident. We are not worried about that right now. We have always had -- apart from Novvo, we've always had about 11 or 12 units canceled per month. And when you see the detail, it's in 1 in one project, the other in another one, nothing is concentrated in a single project. And this is how it's going to continue.

Now about the operations in April and Ralph is going to talk about that.

[Ralph Horn, executive]

So we launched Soleil. We are going to book it. We have sold 20% of it. Customers are thinking more about buying, they are negotiating with us. They think very much before buying. Now we have the Cubatão an BRL 800 million launch. So very good location, but it's much busier. We are feeling demand, and this is something that people really want. They don't think so much because they really want to live there.

I think that we are going to have better liquidity there, and we had a convention with agents and there are many agents who want to work with that project. We're still selling every month. And each case is one case. When we need to slow down, we do, and we want liquidity. At high interest rates, we want liquidity to try and sell inventory. It's not always so easy.

[Operator]

Our next question comes from Ruan Argenton from XP.

[Ruan Argenton, analyst]

I have 2 questions to ask. The first one is about land. If we look at last year, last year was quite relevant in terms of purchase of land and you have had significant acquisitions this quarter. I would like to understand your mindset for the year? Do you think you're going to accelerate the purchase of land to recover to replenish your inventory?

And the other question is related to how careful customers are today? How do you measure this carefulness? And how much could that influence your pace of launches in the future if it -- if you see that customers are more careful, you would rethink the launches planned for the second half of the year? Or are you still not worried about that?

[Ralph Horn, executive]

Ruan, I'm going to go for your last observation. So customers are more careful because interest rates are very careful. So you put BRL 1 million in the bank. And at the end of the year, you have BRL 1.150 million. So you're still looking for land because we need to replenish. But now we want to buy cheaper than last year because of high interest rates. And today, we want more swap than cash because cash yields a lot.

So we have a team to do that, and our team is very strong, and we are trying to contract even stronger people. We're always looking. So one good business that I close, it pays off and everything takes long. So we never stop.

Today, we want to pay less than we paid last year because today, we think that the speed of sales can be lower than last year, but there's still demand. Now My Home, My Life, same speed. We are going after, there's not much. We don't really feel the competition in the medium and high.

From My Home, My Life, not too many much competition. There are a few players in this segment, and we are happy about that.

[Operator]

Our next question comes from Mariangela Castro from Itau BBA.

[Mariangela Castro, analyst]

It I have 2 questions to ask. The first is about revenue. Your revenue is slightly lower this quarter because of fewer launches because of Soleil, is going to evolve along the year at a lower revenue this first quarter. So are you going -- is this going to be the same in future quarters? Or is this going to pick up in future quarters in order to make up for the slower pace in Q1? This is the main in terms of POC.

And I want to follow up Elvis' question about margin. We are seeing the margins of Novvo much higher than the medium and high-end products. Was this something you expected? Or could you say that My Home, My life project are delivering margins that are above expected, above you had seen in the feasibility studies. How are you dealing with that?

[Unknown Executive]

Mariangela, this is [indiscernible]. So revenue is because of quarters. So we thought that we will launch Soleil in Q1. Now it's been left to Q2 because of the suspensive cost. And as it happened to Novvo Marajoara that we displaced revenue, same thing will happen for Soleil.

Now about gross margin. So our REF margin is a basket of land that we bought in the past. That our land over PSV was higher, but now it's smaller. It's not the Novvo is well above our REF. Our launches are also performing above REF. We have a basket of products in REF that on average is 36. So we have been seeing recent launches such as Heaven Novvo Barra Funda, Novvo Marajoara, they are above the REF.

So it's not just for Novvo. It's each product. But today, as we have a basket with several products and negotiations of land and so on.

[Mariangela Castro, analyst]

This is very clear. Another question. Without considering your REF margin, thinking of feasibility for Novvo and what you're booking now. Do you see My Home, My Life products with a better margin, a margin that is better than expected because you have more cost savings? Or was it in line with the plans with your budget and what you expected?

[Ralph Horn, executive]

For Marajoara, it was not lower cost. We increased prices because the land is a very nice avenue. And this affected prices a little bit. So margins are better because of prices, not because of a lower cost.

[Operator]

Our next question comes from Rafael Rehder from Safra.

[Rafael Rehder, analyst]

I have 2 questions to ask. The first one is what is your expectation of deliveries for the year? And what is the LTV for this portfolio? How do you see cash generation? This is more -- do you see any difference in your customer mix this year, maybe fewer sales to investors because there's a higher interest rate? But did you see any differences compared to last year?

[Sandra Esthy Petzenbaum, executive]

Rafael, this is Sandra answering your question about sales to investors. So usually, we sell more studios to investors. Considering the new master plan, we don't need to make so many studios. So in fact, we have fewer investors in our portfolio. So about deliveries for the year, we have approximately 2,000 units to deliver this year. We have just delivered -- we have had the permit for 570 units in Ipiranga, we have 2,000 overall. Cash generation is impacted by that.

As we said before, this year, we expected 0 cash generation, flat, but we improved a lot in terms of what we said last year that we were going to burn '24 and '25. Now we will be able to have 0. So neither generating neither burning.

About LTV, so all the projects in our portfolio, everything that we have today have an average LTV of 38%, 40%, which benefits us at the time of transfers when we wanted to transfer these customers despite the challenge of high interest rates.

[Operator]

[Operator Instructions] We have a question in writing from Rafael [indiscernible].

Could you give us a little bit more detail about the land in the district of Itaim? Where is it located? When is the project going to be launched? And what level is it going to be?

[Ralph Horn, executive]

Rafael, well, the land is on Clodomiro, close to [Google] building, almost 4,000 square meters. It took us 1 year to negotiate it. We want to have high income with the brand. It's almost 100% decided, and there's something very nice to come. More details in the future because we haven't made any final decisions yet.

[Operator]

Our questions and answers session has now ended. I would like to turn the conference over to Mr. Ralph Horn for his closing remarks.

[Ralph Horn, executive]

Well, I would like to thank everyone. We are very driven and motivated for a more challenging year as it always is. Thank you very much for believing in us. The conference call has now ended. We thank you for your participation, and we wish you a very good day.

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