Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Smartfit Escola DE Ginastica E Danca SA (BSP:SMFT3, Financial) accelerated its expansion, adding a record 285 new units in the last 12 months, reinforcing its leadership in Latin America.
- The company reported a strong growth in membership, reaching 4.28 million members, an 18% increase year-over-year.
- Smartfit achieved a record quarterly EBITDA of 442 million BRL, a 35% increase compared to Q3 2023.
- The company maintained a healthy cash position with stable leverage and high predictability of results, converting 96% of EBITDA into operating cash flow.
- Smartfit's net revenue grew by 41% year-over-year, reaching 1.422 billion BRL, driven by an increase in average membership and ticket prices.
Negative Points
- Despite the strong expansion, there was a slight decrease in gross margin, attributed to increased costs of units in ramp-up and expenses related to new openings.
- The company faces challenges in maintaining its margin due to the accelerated pace of expansion, which could lead to temporary margin compression.
- Smartfit's net income was impacted by higher income tax and social contribution rates, resulting in a 13% decrease compared to the previous quarter.
- The company anticipates a big challenge in delivering its guidance of at least 100 new units by the end of the year, requiring rapid execution.
- There is a potential risk associated with the company's high level of investment in new units, which may not yield immediate returns.
Q & A Highlights
Q: What is the healthy leverage level for Smartfit, and how do you plan to focus your investments in the future?
A: The target leverage for Smartfit is 1.5 times net debt over EBITDA. Regarding investments, there are no major investments expected in the near future, except for the acquisition of Velocity, which will be relevant in Q4. The focus will be on slightly faster store openings, particularly in the studio line, which will primarily be based on franchises, requiring minimal CapEx from the company. (Answered by Unidentified_2)
Q: Can you explain the pressure on gross margins in other Latin American regions? Is it due to faster openings or a reduction in margins in mature units?
A: The margin compression in other Latin American regions is primarily due to the mix of mature and non-mature units, rather than a significant change in the performance of mature units. The mature units are performing in line with previous quarters, and the compression is expected to be temporary as new units mature. (Answered by Unidentified_2)
Q: How does Smartfit plan to manage its leverage dynamics, and what is the impact of the buyback of Colombia franchise units?
A: Smartfit aims to balance leverage with expansion and dividend payments. The buyback of Colombia franchise units involved acquiring 17 units for approximately BRL65 million, which is expected to incrementally increase EBITDA by BRL25 million after accounting for royalties. (Answered by Andre Petta and Unidentified_2)
Q: What is Smartfit's pricing strategy, and have you observed any economic slowdown affecting your business?
A: Smartfit's pricing strategy focuses on maximizing revenue without affecting volume, using a granular local approach. There has been no significant economic slowdown observed in the market, and the business model has proven resilient across various geographies, including during historical crises. (Answered by Diogo Corona)
Q: What are Smartfit's plans for international expansion, particularly in Argentina, and what are the prospects for margins and CapEx?
A: Smartfit is cautiously considering expansion into Argentina, recognizing its market potential. The company aims to maintain mature store margins while gradually improving EBITDA margins by 50 to 100 basis points annually. CapEx per unit is expected to remain at BRL5.8 million, with the number of store openings being the variable factor. (Answered by Unidentified_2 and Andre Petta)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
