Direcional Engenharia S A : 3Q22 Earnings Release

EARNINGS RELEASE

3Q22

Belo Horizonte, November 7th, 2022 - Direcional Engenharia S.A., one of the largest homebuilders and real estate development companies in Brazil, focused on the development of low-income and medium-income projects, and operating in several regions of the Brazilian Territory, discloses here its operating and financial statements for the third quarter of 2022 (3Q22). Unless otherwise expressed, the information in this document is expressed in the national currency (Brazilian Reais - R$ or BRL) and the Potential Sales Value (PSV) demonstrates the value consolidated (100%). The Company's consolidated financial statements are prepared in accordance with accounting practices adopted in Brazil, which are based on Brazilian Corporate Law and on the regulations issued by the Brazilian Securities Commission (CVM).

3Q22 EARNINGS RELEASE

• ADJUSTED GROSS MARGIN¹ OF 35.0% IN 3Q22 AND 35.4% IN 9M22
• ADJUSTED NET INCOME2 REACHED BRL 62 MILLION IN 3Q22, 12% ABOVE 2Q22 AND 31% ABOVE 3Q21
• ADJUSTED NET MARGIN2 OF 10.7% IN THE QUARTER, A 1.3 P.P. INCREASE VERSUS 2Q22
• ADJUSTED ANNUALIZED ROE² OF 18% IN 3Q22

HIGHLIGHTS

• Record-highLaunches in 3Q22: BRL 1,2 billion, growing 50%versus 2Q22 and 10%versus 3Q21.
• Best quarter in Net Sales in Company's History: BRL 847 million, a 32%growth over 3Q21.
• In the last twelve months ended in September (3Q22 LTM), Net Sales totaled BRL 3.0 billion.
• Net Sales Speed ratio (VSO) of 19%in the quarter in the consolidated view and in the Direcional segment.
• In 9M22, Adjusted Net Income2 reached BRL 152 million, a 33%growth over 9M21.
• Payment of Dividends of BRL 0.47 per share in 3Q22, totaling BRL 70 million.

RIVA

• Net Sales Record in Riva's segment in 3Q22: BRL 326 million, 38%growth over 2Q22 and 3Q21.
• In 9M22, Net Sales reached BRL 733 million, a growth rate of 36%in relation to 9M21.
• Riva's VSO came in at 19%in the quarter, 2 p.p.above 2Q22.

1 - Adjustment excluding capitalized interest for financing of production.

2 - Adjustment excluding expenses with sale of receivables and swap results.

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EARNINGS RELEASE

3Q22

TABLE OF CONTENTS
MESSAGE FROM THE BOARD...............................................................................................................................................................................	3
MAIN INDICATORS ..................................................................................................................................................................................................	6
LAUNCHES...............................................................................................................................................................................................................	7
CONTRACTED SALES ............................................................................................................................................................................................	8
NET SALES SPEED (VSO) ......................................................................................................................................................................................	9
Canceled Sales......................................................................................................................................................................................................	9
INVENTORY............................................................................................................................................................................................................	10
TRANSFERS...........................................................................................................................................................................................................	11
PROJECTS DELIVERED........................................................................................................................................................................................	11
LANDBANK ............................................................................................................................................................................................................	11
Land Acquisition.................................................................................................................................................................................................	11
ECONOMIC AND FINANCIAL PERFORMANCE ..................................................................................................................................................	12
Gross Revenue....................................................................................................................................................................................................	12
Revenue from Real Estate Sales .......................................................................................................................................................................	12
Revenue from Services ......................................................................................................................................................................................	12
Net Revenue ........................................................................................................................................................................................................	13
Gross Profit .........................................................................................................................................................................................................	13
General and Administrative Expenses (G&A) ..................................................................................................................................................	14
Sales Expenses...................................................................................................................................................................................................	14
Equity Income .....................................................................................................................................................................................................	14
Other Operational Revenues and Expenses ....................................................................................................................................................	15
Financial Results ................................................................................................................................................................................................	15
EBITDA.................................................................................................................................................................................................................	15
Net Income before Minority Interest..................................................................................................................................................................	16
Net Income...........................................................................................................................................................................................................	16
Deferred Results from Real Estate Sales .........................................................................................................................................................	17
BALANCE SHEET HIGHLIGHTS ...........................................................................................................................................................................	18
Cash, Cash Equivalents and Financial Investments .......................................................................................................................................	18
Accounts Receivable..........................................................................................................................................................................................	18
Indebtedness.......................................................................................................................................................................................................	19
Cash Generation (Cash Burn)1 ..........................................................................................................................................................................	20
DIVIDENDS .............................................................................................................................................................................................................	20
RIVA - Operating Highlights ................................................................................................................................................................................	20
CONSOLIDATED BALANCE SHEET ....................................................................................................................................................................	22
CONSOLIDATED INCOME STATEMENT .............................................................................................................................................................	24
CONSOLIDATED CASH FLOW STATEMENT ......................................................................................................................................................	25
GLOSSARY ............................................................................................................................................................................................................	26

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EARNINGS RELEASE

3Q22

MESSAGE FROM THE BOARD

Performing our operations by seeking excellence is a core step in achieving good metrics and consistent results. We are very proud of reporting our figures for the third quarter of 2022. This release presents the performance we had so far and makes us confident for what we need to make to achieve the goals we set for the year. Thus, we are keeping on performing the planning with the same energy and effort we did since we started.

Analyzing Direcional's figures and sharing our vision with our shareholders, customers, workers, suppliers, and other stakeholders every quarter, is a unique possibility of evaluating the scenario where we are in and reflecting on the course of our operations and the opportunities we are looking ahead. In every earnings release, we reaffirm our confidence in Direcional's business model and our commitment towards a vision focused on the core business of developing and building low-income (Direcional) and middle-income (Riva) real estate. We keep focusing on the execution of the operation, reinforcing our tireless search for more efficiency and profitability, keeping the Company positioned among the most outstanding and solid companies in the real estate market in Brazil.

We launched 4,113 units in 3Q22, resulting in the highest Potential Sales Value (PSV) Direcional already had in a quarter: BRL

1.2 billion, 50% above the results of the previous quarter and 10% above the results of the same quarter of 2021. In addition to the performance of the strategic planning set for the year, our launches have been following a proper pace of sales, showing the assertiveness of our team in prospecting unique opportunities in the cities we operate.

Direcional broke once more the record in contracted Net Sales in the quarter, reaching BRL 847 million. In the year-to-date period, we reached BRL 2.3 billion in Net Sales, 30% above the results of the same period of the previous year, with growth in both Direcional and Riva products. In both segments, as well as in the consolidated view, Net Sales speed, measured by the VSO index, reached 19% in 3Q22. We should point out the resilience of our middle-income segment, despite a less favorable macroeconomic scenario. Over 3Q22, many cities where Riva operates had their best monthly sales performance.

Analyzing the 12-month period ended in 3Q22 (3Q22 LTM), Direcional Group's Net Sales totaled BRL 3.0 billion, which evidences the expressive operational evolution we had in the latest years, with emphasis on the compound annual growth rate of 35%, as follows:

Net Sales Track Record

(PSV 100% - BRL billion)

			CAGR:
			+35%
					2.4	3.0
		1.5	1.3	1.7
	0.9
0.5
2016	2017	2018	2019	2020	2021	3Q22
						LTM

As we will detail further, the sales mix for the quarter showed a high number of units closer to their launch - therefore, in a less advanced stage of completion - and units from projects that are not consolidated in our balance sheet, i.e., from developments we jointly control with partners. As a result, we had a growth in both the Deferred Revenue from Real Estate Sales (REF), which will affect our Net Operating Revenue as the works will progress, and the Equity Income line. Thus, Gross Revenue from Real Estate Sales and Net Revenue in the quarter were in line with the 2Q22 results, when we had the highest revenue in our history.

Evaluating the 3Q22 Gross Margin, we managed to deliver once again an indicator within the parameters that we consider healthy to remunerate our shareholders' capital. A keen eye on demand and our ability to properly price our products, combined with the diligence and granularity in the monthly budget analysis of each project, allowed us to end 3Q22 with an Adjusted Gross

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EARNINGS RELEASE

3Q22

Profit1 of BRL 201 million and an Adjusted Gross Margin1 of 35.0%. Considering 9M22, Adjusted Gross Profit totaled BRL 577 million, with an Adjusted Gross Margin of 35.4%.

		Adjusted Gross Margin¹ Track Record
				(BRL million and %)
33%	36%	37%	36%	38%	36%	37%	36%	35%	35%
						179		207	201
		157		160	163	168
134	136	149

2Q20	3Q20	4Q20	1Q21	2Q21	3Q21	4Q21	1Q22	2Q22	3Q22
	Adjusted Gross Profit¹	Adjusted Gross Margin¹

Sales Expenses for the quarter remained stable when compared to 2Q22, with a representativeness of 9% over the Development Gross Revenue, the same percentage in the previous quarter. Regarding the year-to-date period, Sales Expenses totaled BRL 150 million, representing a dilution of 130 bps when compared to the same period of 2021 - achieving 9.1% over the Development Gross Revenue.

General and Administrative Expenses (G&A) in 3Q22 went up by 9% when compared to 2Q22, totaling BRL 40 million. That figure mainly results from provisions for the payment of profit sharing and the collective bargaining in some cities where we operate. In 9M22, G&A totaled BRL 111 million, representing 6.5% over the Gross Revenue for the period, a dilution of 50 bps when compared to 9M21. Thus, we emphasize that the dilution of G&A, as well as of Sales Expenses, remains one of our main focuses, as shown by the accumulated figures for the year.

Additionally, legal expenses, expenses with sales of receivables, expenses with corporate operations - such as acquisitions and sales of ownership interest - and provisions in general, contributed with the increase of Other Operational Revenues and Expenses line, totaling a net loss of BRL 22 million in the quarter. As for provisions and write-offs of receivables related to the delinquency of pro-soluto receivables, we had an impact of approximately BRL 6 million in 3Q22. In this sense, we are making our best efforts to prevent any increase in this line, despite the fact that we are experiencing a challenging period for our target audience at this time in our country. Therefore, we are constantly attentive to the conditions of the Brazilian economy and the credit capacity of our customers, to have healthier accounts receivable in our balance sheet.

In addition to the factors described above, we had a non-recurring effect in the Financial Results we should mention. Differently from previous quarters, we had a net loss of BRL 0.3 million in the quarter. This is mainly due to: (i) financial gains from the equity swap (indexed to the Company's shares), given the strong appreciation of the stocks in the quarter; (ii) interest expenses and expenses with the interest rate swap related to debt securities; (iii) revenue from financial investments; and (iv) expenses from sale of receivables.

In view of values slightly above the recurring results of the G&A and Other Operating Expenses, in addition to the atypical Financial Results, Adjusted EBITDA1 totaled BRL 108 million in 3Q22, 9% below the results obtained in 2Q22. Adjusted EBITDA Margin1 reached 18.8%. In 9M22, Adjusted EBITDA totaled BRL 324 million, a growth rate of 21% when compared to 9M21, with and Adjusted EBITDA Margin of 19.9%.

Thus, we reported a Net Income of BRL 63 million in the quarter, an expressive growth rate of 53% when compared to 2Q22 and 34% when compared to 3Q21. Net Margin reached 11.0% in the period, a 400 bps increase when compared to the previous quarter. In 9M22, it reached BRL 132 million, a growth rate of 15% versus 9M21, generating a Net Margin of 8.1%.

As we had done in the latest earnings releases, intending to assess the Net Income excluding the impacts from swap results and expenses with sales of receivables, we had an Adjusted Net Income² of BRL 62 million in 3Q22. The smaller value in comparison with the actual Net Income is due to the effects of the financial revenue generated from the equity swap, in the amount of BRL

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EARNINGS RELEASE

3Q22

24.8 million, in addition to financial expenses from interest rate swaps related to the Real Estate Receivables Certificates (CRI), in the amount of BRL 19.7 million, and expenses with the sale of receivables, in the amount of BRL 3.4 million, as detailed below:

Adjusted Net Income2 (BRL million)	3Q22
Net Income	63.3
Result with equity swap	-24.8
Result with interest rate swap	19.7
Expenses with sale of receivables	3.4
Adjusted Net Income2	61.6
Adjusted Net Margin2	10.7%

In that scenario, we had an Adjusted Net Income 12% above in comparison with 2Q22, with an Adjusted Net Margin2 of 10.7%, which represents a gain of 130 bps. Adjusted Annualized ROE2 reached 18.1% in 3Q22. In 9M22, Adjusted Net Income totaled BRL 152 million and Adjusted Net Margin reached 9.4%.

We also should mention the increase in the Deferred Results from Real Estate Sales, totaling BRL 1.1 billion, resulting from the high sales volume for units closer to their launch rather than completed units or units in a more advanced stage of completion. The resulting Backlog Margin (REF Margin) reached 39.6% in 3Q22, a lightly increase when compared to 2Q22. Considering the accounting rules currently adopted (Percentage of Completion - PoC), that increase in the Deferred Results from Real Estate Sales will continue to contribute with the increasing evolution of the Net Revenue as the construction advances with the progress of the works.

As we anticipated in the last Message from the Board, we paid approximately BRL 70 million in interim dividends in 3Q22, equivalent to BRL 0.47 per share. Therefore, considering the payment of dividends and share buyback programs, we had returned over BRL 1.0 billion for our shareholders since our IPO, in 2009.

Our attentive efforts in maintaining a conservative capital structure conducted us to reach a leverage ratio, given by the Adjusted Net Debt³ over Shareholders' Equity of 19.1% in the end of 3Q22. In that sense, Cash, Cash Equivalents, and Financial Investments position remained in sufficient conditions to cover the following 4 years of total gross indebtedness. It is worth mentioning that, after one more successful public offer of Real Estate Receivables Certificates (CRI), held under the CVM instruction No. 400 and settled in July, the weighted average maturity of our indebtedness was extended to 49 months at the end of 3Q22, one of the longest ones in the Real Estate industry.

We believe 2022 has been a year of solid deliveries so far, resulting from assertive decisions and the application of good management practices and a flawless performance. We thrive for continuous improvement in our operations both on the construction sites and the Company's back office.

We count on the energy and dedication of our team, who, aligned to Direcional's culture and purpose, has materialized in numbers everything we have planned for the year, making possible the accomplishment of our goals and the preservation of the prominent place that the Company has achieved.

Thank You,

The Management - Direcional Engenharia S.A.

1 - Adjustment excluding capitalized interest for financing of production.

2 - Adjustment excluding expenses with sale of receivables and swap results. 3 - Adjustment by balance of interest swap operations contracts.

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