Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record-high quarter with exceptional gross margins and almost zero cancellations.
- Significant capital allocation to land bank with innovative land swap strategy.
- Strong ecosystem for Minha Casa Minha Vida (MCMV) with regional incentive programs.
- LUGGO's innovative rental model showing significant growth and market adoption.
- Resia's disciplined operations and geographic focus in the U.S. showing promising future potential.
Negative Points
- URBA faced tough years in 2022 and 2023 with profitability negatively affected.
- High inflation and increased cost of capital impacted financial performance.
- Legacy projects from 2021 and 2022 still affecting current financials.
- Pro-Soluto funding remains a challenge, though it has been reduced.
- Cash generation guidance for the year remains a concern despite positive outlook.
Q & A Highlights
Q: What is the estimated impact on MRV with the potential change in the income brackets of the MCMV program?
A: (Eduardo Fischer, Co-CEO) The change in income brackets is expected to be very positive for MRV. The growth in bracket Group 1 will increase affordability for around 30% of our sales, potentially increasing this figure. This will help us recover quicker and increase the population that can afford Group 1 and Group 2, thus positively impacting our sales.
Q: What are the expectations of sales for LUGGO in the future, and how will the new business model impact revenue and income?
A: (Rafael Nazareth Menin Teixeira de Souza, Co-CEO) LUGGO has other projects in discussion and will no longer allocate entire equity of the project, selling at the end. The new model allows LUGGO to grow asset-light, leveraging MRV's technology in land acquisition and construction. This will lead to faster revenue appearance and cleaner balance sheets, generating more cash.
Q: How will the reinforcement in the team of Resia impact the business model or strategy?
A: (Rafael Nazareth Menin Teixeira de Souza, Co-CEO) The investment in the team is because we believe in Resia's business. The US market is improving, and we are confident in our product and building technology. The new team will help us be more creative in terms of cost of capital, allowing higher returns on each project. Resia is ready for growth without burning cash, and as interest rates decrease, the growth curve could speed up.
Q: What is the potential of the Flex portfolio, and how much would it account for in total sales of MRV?
A: (Ricardo Rodrigues, CFO) The Flex portfolio is directed at customers with income above BRL8,000 who do not qualify for MCMV. It is expected to account for 10% to 12% of total sales, growing as the company's sales grow. The portfolio has a better VPL and is advantageous until the project reaches 70% to 80% of execution.
Q: How confident are you in reaching the cash generation guidance, and what could boost it?
A: (Ricardo Rodrigues, CFO) We are very confident in reaching the cash generation guidance. The second half of the year will be much stronger, driven by improved operations, growth of sales, production, and better margins. We also have the possibility of accelerating the receivable sales to boost cash generation.
Q: What is the current breakeven for cash generation from operations or gross margin?
A: (Ricardo Rodrigues, CFO) The breakeven for cash generation from operations is around 26.5% to 27% of gross margin. We are very close to reaching that level.
Q: What initiatives have contributed to the significant Pro-Soluto reduction, and is this level sustainable?
A: (Unidentified Corporate Representative) The reduction in Pro-Soluto is due to a combination of external factors like new MCMV brackets and internal improvements in our commercial process. We have been able to sell at a healthy level with lower credit facilities. The current level of 12.5% is sustainable, and we aim to reduce it further to around 11%.
Q: How are the legacy projects from '21 and '22 impacting revenue recognition and cash generation?
A: (Rafael Nazareth Menin Teixeira de Souza, Co-CEO) The legacy projects from '21 and '22 had poor margins and are being phased out. Newer projects from the second half of '22 have better performance and will increasingly impact revenue recognition and cash generation positively. We expect the old projects to have zero impact by 2025-2026.
Q: What is the impact of the change in reporting of Caixa on cash generation, and what are you doing to reduce this time?
A: (Eduardo Fischer, Co-CEO) The change in reporting of Caixa has extended the time to receive funds, but we have reduced the registration process by 20 days in the last six months. We are working with Caixa and registries to further improve efficiency and reduce this time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
