Release Date: August 09, 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) added a record 270 units in the last 12 months, reinforcing its leadership in Latin America.
- The company reported a 30% increase in net revenue compared to the same quarter in the previous year, reaching BRL1.358 billion.
- Membership grew by 17% year-on-year, reaching 4.6 million members in Q2 2024.
- The company achieved a record quarterly EBITDA of BRL437 million, a 29% growth compared to Q2 2023.
- Smartfit Escola DE Ginastica E Danca SA (BSP:SMFT3) maintains a strong cash position with high predictability of bottom line and strong generation of operating cash, totaling BRL1.5 billion in the last 12 months.
Negative Points
- Despite the increase in investments, the company faces a slight pressure on average ticket prices due to the opening of new units.
- The cash gross margin was slightly lower by 0.3 percentage points compared to Q2 2023 due to increased costs in ramping up units and higher expenses with new unit openings.
- SG&A expenses increased by 30% compared to Q2 2023, reflecting the strong expansion in the network of units.
- The company’s financial leverage increased to 1.4 times EBITDA in the last 12 months, with net debt reaching BRL2.1 billion.
- There is a concern about the potential cannibalization effects and the availability of real estate, which could limit the pace of annual openings.
Q & A Highlights
Q: When we look at the average ticket per member, there is a little sequence pressure in Brazil. Can you explain what happened?
A: The average ticket in Brazil is stable in mature units but shows a slight drop in the consolidated region due to the opening of new units, which typically have lower average tickets due to promotional pricing during presales. We expect the average ticket to grow at low single digits moving forward. (Edgard Corona, CEO)
Q: Can you provide an update on your international expansion beyond Latin America?
A: We are always exploring new geographies. For instance, Morocco is a potential new market. We evaluate opportunities based on our business model's suitability and potential returns. (Diogo Corna, COO)
Q: What is your strategy for using the cash generated in 2024?
A: We are looking for new investment opportunities, including M&A, but will only proceed if there is a clear financial and strategic rationale. If no suitable opportunities arise, we may consider increasing dividend payouts. (André Pezeta, CFO)
Q: How should we think about G&A expenses over the next quarters?
A: Historically, 65% of G&A moves with inflation and 35% with revenue growth. We expect a potential reduction of 50 to 100 basis points in G&A over the next few years. (André Pezeta, CFO)
Q: Can you explain the dynamics of membership per unit in Brazil?
A: The slight reduction in average membership per unit is due to the accelerated opening of new units, which initially have fewer members. Mature units in Brazil have maintained stable membership levels. (Edgard Corona, CEO)
Q: What are your expectations for net adds and churn in the coming quarters?
A: We expect low single-digit growth in membership in Brazil and other Latin American regions, with stable membership in Mexico. Churn rates have remained stable, even with recent price increases. (Edgard Corona, CEO)
Q: Can you provide more details on the acquisition of Velocity?
A: We expect to meet all conditions for the acquisition within the next 60 days. Velocity will be integrated into our Total Pass platform, enhancing our studio offerings. (Edgard Corona, CEO)
Q: How do you plan to manage the increased depreciation and amortization expenses?
A: Our average depreciation rate is 10 years for investments. The best way to project this line is to add 10% per year for new investments. (André Pezeta, CFO)
Q: What is your approach to marketing expenses given the strong expansion?
A: We do not foresee a significant upward trend in marketing expenses. Our strategy focuses on high online investment, with structural differences between geographies. (Diogo Corna, COO)
Q: How confident are you in the margins of mature units in Mexico returning to historical levels?
A: We expect margins in Mexico to improve slightly due to recent price increases but not to return to pre-pandemic levels. We anticipate margins around 50-51%. (Edgard Corona, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
