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Good afternoon, ladies and gentlemen. Welcome to the conference call of Dasa to announce the results of the first quarter of 2024. This conference call is being recorded, and a replay will be available at the company's website at www.dasa3.com.br. The slide deck will also be available for download. [Operator Instructions]
The information in this presentation and statements made during this conference call relative to the business prospects, financial and operational projections and goals of Dasa are beliefs and assumptions of the company's management, and they're based on information currently available. Forward-looking statements are not guarantees of performance because they involve risks, uncertainties and assumptions as they refer to future events and, therefore, depend on circumstances that may or may not occur. Investors should understand that overall economic conditions, market conditions and other operating factors may affect the future performance of Dasa.
Now I would like to turn the conference over to Mr. Licio Cintra, who's going to start the presentation. Mr. Cintra, please, the floor is yours.
Good afternoon to everyone attending this conference call for the first quarter of 2024. I am here with our executive officers. And first of all, on behalf of the more than 50,000 employees of Dasa, we would like to express our sympathy to the people from Rio Grande do Sul and everyone living in the south of Brazil.
I would like to reinforce that so soon as the catastrophe occurred, we did our best to, first of all, to assure that our employees and their families in the region could have full assistance so that they were safe and assisted. And at the same time, we triggered several actions to keep as much as possible all our units in operation try not to interrupt health care to our users. And we are monitoring on an everyday basis through our crisis committee. We have started many different fronts, both with the government and private initiative, doing our best to minimize the suffering of everyone living in that region.
Before turning it over to Andre Covre, our CFO, I would like to go back to a few topics that were addressed in the 2 previous conference calls before I joined Dasa in order to try and connect everything that has been said to the actions that you're seeing now and make a connection with -- between them and the results.
First of all is the operation that we announced yesterday after the market closed, the AFAC, which is the advancement for future capital increase. So we have been structuring the best sequencing of measures so that we could have the best results possible in terms of our de-leveraging process, including operational improvement and new funds that should be included. So the AFAC was the first step in our de-leveraging process. It's going to drive away the risks of violating the covenants in future quarters, adding and totaling more than BRL 1.5 billion in our current cash of approximately BRL 2.1 billion.
And just recapping late last year, we renegotiated our debt with 2 interesting benefits. The first one was significant reduction of our debt cost. And the second, a longer debt, more compliant with our capacity to generate cash.
More than just a cash effect, there are some other effects that may be quite relevant for our day-to-day work. Number one is that we'll be more confident and more at peace and a better balance with paying -- with the payers. So the plan that we presented late last year, we are going to choose better the payers and to have a better mix to have better quality revenue in our structure. And we will also be more at peace in terms of our de-leveraging alternatives that will take place afterwards.
And then this reinforces the commitment of Bueno family to continue to support us in the long term, in the understanding that there is a progress in the operational excellence plan, which is going on, and space for companies to grow, the companies that want to provide good quality care in the Brazilian health care industry.
People were wondering the true intentions of the controlling shareholder in terms of the continuation of the company. So the operation that we announced yesterday is a clear message that this controller that has been in health care for decades believes in Dasa projects in explicit vote of confidence to the executive team that is trying to operationalize and improve operational excellence.
Another point that has been mentioned is the commitment that we have made to have more discipline in reviewing processes and expenses. And when we look at the numbers quarter-on-quarter, we're already seeing the effects of this process.
If we analyze our expenses, they dropped from 13.9% to 13.2% of revenue, with a drop of 0.7 percentage points in the first quarter. But what makes management more optimistic and confident is that this is just the beginning of a journey. So we are seeing this theme as an internal transformation in the way we approach processes and expenses. And we have a whole set of actions that have already been triggered that we are going to give you details further on, already with reductions being implemented, that did not really have much of impact in the first quarter, but we are going to see the results along the year.
Another point that I would like to draw your attention to is the expansion of revenue of our 2 business units, but especially in Hospitals and Oncology. I think that we have a lot of discipline in implementing the initiative of choosing good quality revenues, which clearly demonstrates that despite the plan, we are still growing consistently quarter-on-quarter, which demonstrates the quality of our assets, of the care we provide, of our physicians and discipline and good practice of medicine, thereby making it possible to deliver to payers care delivery indicators that are accurate with good clinical outcomes for patients.
I think that the combination of revenue growth, cost and expense control has driven the Q1 EBITDA to grow as compared to the same quarter in the previous year. The comparison basis of the year before is extremely high. Q1 last year was the best quarter in the whole year, so -- which made this quarter's EBITDA in Dasa one of the best ever.
Lastly, as to the structure that is closer to operation and focus on execution, this has been another of our flags in the new phase after many years of very fast growth. We look into the operation, get closer to the operation. And in fact, we have discipline in execution.
We have something that I consider one last change in our executive management. And I would like to welcome our -- Carlos Prebelli, and I've been working with him since 2006. It's almost 20 years that we've been working together, and he's our Commercial Vice President. So he used to work in San Francisco. We sold it. He went together with us to Hapvida. He was there for 4 years. And now we welcome him that is arriving fully focused on bringing closer relationship with payers and the discipline in the pursuit of good quality revenues.
In line with this movement, Rogério Reis will now become the VP for hospitals. And as a reminder, that Rogério, who is a doctor and has more than 20 years of experience in management, did great work in Dasa managing hospitals in Rio de Janeiro in the last 3 years.
Now I would like to turn it over to Andre Covre to give you more details about our performance this quarter. Thank you.
Good afternoon to everyone. Thank you very much for being here with us. And so since we have covered the highlights on Slide 4, so to talk more about the AFAC and in terms of structured capital investments. So as part of this operation, controlling shareholders have committed to contribute with BRL 1.5 billion allocated exclusively to a future capital increase of data. AFAC is part of a set of operational and strategic initiatives focused on reducing leverage on establishing a solid financial and more capacity of investment.
A unique feature of this operation is definition of the price for the issuance of shares. It's going to be defined by the weighted average on -- immediately after when we have 2 events, so the announcement of any transaction or implementation that will result in a reduction of the net debt by at least BRL 2.5 billion. So here, we are talking about BRL 2.5 billion in addition to BRL 1.5 billion of the AFAC or December 31, 2024.
So this criteria used to determine the price has the objective of allowing all shareholders to make an informed decision about the exercise of their subscription rights. Having relevant information about the aforementioned transaction should occur before the end of 2024.
In other words, so AFAC is part of a de-leveraging program, which includes the operational excellence program and the strategic initiatives. With this tripod, AFAC, operational excellence and strategic initiatives, we have a work plan to strengthen the financial and operational positions of the company.
Now moving to Slide #5. You can see the performance of Hospitals and Oncology that we call BU1. And this quarter, we had a growth of 11% in gross revenue as compared to the same period last year, which led to a gross revenue of BRL 2.1 billion. The increase in revenue last year is a result of the growth of 7.6% in the volume of patients day and average tickets 3.6% (sic) [ 3.3% ] greater.
So 3 factors have contributed to this. Number one, the '23 expansion in oncology, this growth. And number two, the occupancy rate is 1.2 percentage points higher, which reached 78.4%, driven by new medical teams, and this reflects the profitability of existing assets. And lastly, our annual contract adjustments. This growth in revenue has made it possible for the adjusted gross profit to grow by 6%, with an adjusted gross margin of 25%. However, the adjusted gross margin that was reported in Q1 last year is not directly comparable to current levels because of the review of the statistical model of provisioning for denials that took place in Q4 2023.
If we normalize the margin with the effect of denials, you see a growth in the adjusted gross margin of 0.7 percentage points, despite the higher costs with personnel, materials and medications, which were minimized by efficiency initiatives in the operations of this segment.
Now moving to Diagnostics and Care Coordination on Slide 6. You can see that the gross revenue was close to BRL 2 billion, with a growth of 3% as compared to the first quarter last year. And now looking at operations in Brazil only, the growth in gross revenue was 4%.
The advancement in this segment is a result especially of the volume of test that was 3% higher as a result of higher demand for tests for dengue fever and vaccines too, which was partially offset by the calendar effect of Easter, which in 2024 was in March and reduced the number of work days as compared to Q1 2023.
Our international operation showed volume growth. However, it's impacted by the effect of -- by the FX rate, which was unfavorable and reduced revenue year-on-year. Looking at the lower part of the slide, we had a stable adjusted gross profit as compared to Q1 2023. And this happened because the growth in revenue and efficiency -- and development efficiency actions were neutralized by a one-off concentration of discounts in Q1 '24 amounting to BRL 26 million and by the FX impact of international operations. If we normalize the effect of discount concentration in Q1 '24, the adjusted gross margin in the period was 36.9%, a growth of 0.2 percentage points as compared to Q1 2023.
Now moving to Slide 7 with the reduction of our adjusted expenses in EBITDA on this quarter. In the first chart, you can see the phase stability of adjusted expenses as compared to the same period last year, despite the growth in the volume of operations and inflation. This amount represents a dilution of 0.7 percentage points in adjusted expenses as a proportion of the net revenue and as a result of ongoing initiatives in the revision of processes and in management and organizational structure, prioritization of activities and negotiation of service contracts.
About the EBITDA, I would like to draw your attention to a small change that we are making in our presentation, which now coincides exactly with the amount calculated based on the ITR and the calculation criteria according to the guidelines of the CVM.
Now going to the right-hand side of the slide, you can see an EBITDA growth of 4% as compared to the same period in the year before, despite the strong comparison basis this quarter. We had favorable -- factors that favored and were against our results. We reported one-off credits amounting to BRL 58 million between costs and expenses, which added to the actions of operational excellence, more than offset the one-off concentration of discounts in Q1 '24 in our diagnostic businesses and a lower level of denials in Q1 '23, as we said before.
The EBITDA margin in the period was 17.1%, practically flat as compared to the same period the year before. And as a consequence, we are reporting a 21% improvement in the net income before taxes this quarter as compared to the first quarter of 2023.
Now moving to Slide #8, talking about consolidated investments. And as announced in our last conference call, the reduction of investment limit authorized by the Board of Directors is only possible considering the quality of Dasa's assets and investments made in the near past. So this year, we can responsibly direct our investments to projects with higher return in the short term, maintenance of existing assets and technology services that play an important role in our operations.
From this perspective, this quarter's investments have totaled BRL 53 million, which means a 58% reduction as compared to the same period in the year before. And this is 9% of the maximum amount approved for the year's budget. In technology, we had a reduction of 74% as compared to the year before.
Now focusing on structuring projects. In maintenance, we focused on having sustained care delivery units and processing of tests, aiming at operational efficiencies and improvements to keep service levels to patients and to meet the legal demands. In this expansion, we completed projects that had been met in 2023, and we are prioritizing new projects with better indicators in terms of financial returns, which are essential in both business units.
Now on Slide 9 on capital structure. This quarter, we have completed the 21st issuance of debentures amounting to BRL 1.7 billion. With this cash reinforcement, we could do the advanced redemption of the remaining balance of the 19th issuance amounting to BRL 0.9 billion, whose cost was well above our debt. We also chose to reinforce cash for 2024 as part of our liability management actions, which provide a longer amortization profile and lower costs. You can see that the company closed the period with a cash position above the debts that are going to mature in 2024, average debts time of 4.1 years at the average cost of CDI plus 1.7% per year.
Looking at the table on the lower part of the slide, we had an increase in leverage measured according to our debentures closing the period at 4.2x. This increase is explained especially by the seasonality in revenues between March and December. The evidence of that is the peak of leverage was also in the first quarter in the last years. In that, since the AFAC provides a pro forma leverage for the first quarter, which is 0.7x lower than reported, and we continue to implement actions that will improve both the numerator and denominator of this equation. Part of those actions are -- Licio is going to comment part of those actions further on with more details about the plan that we presented last quarter.
Now I give it back to Licio.
Thank you, Andre. Now going to Slide #10. And now with an engineering mindset, defining persons responsible in times for each action, I go back to what we said in our last conference call when we listed very clearly that we would center our focus and would prioritize core in the hospitals, oncology and diagnosis. This is what we are doing. Uruguay has been discontinued. We are de-prioritizing home care. We are de-prioritizing coordinated -- care coordination as a core activity. So it's almost 0. And we are continuing reassessing non-synergistic or nonstrategic operations, and this has very much to do with our de-leveraging alternatives. And in due time, we are going to talk more about that.
Drawing your attention to the 2 lines here, so reorganization of personnel structure and alignment of policies to the market and the other one's reallocation and reduction of occupied business with more administrative efficiency. These are 2 important actions. This is a journey. These actions are going to go on during the year, but they have already been mapped, and decisions have been made. And if this had happened in 2023, they would have had an impact in 2023 of BRL 170 million.
And questions could be, so when are we going to capture this? This is going to be captured as implementation is possible. Of course, we need to comply with contract terms in terms of demobilizing areas that we are using. So along this quarter and more precisely this month, we had a reallocation and reduction of our structure. We want to make the company leaner, lighter, closer to the operation. And this set of measures, in our opinion, are going to improve not just our expenses, but our company as a whole is going to become lighter, more streamlined.
Now on Slide 11, talking about hospitals, oncology and diagnostics. When we talk about good quality revenue, this agrees with reviewing each hospital's core business or mission. And we are obtaining better and better results, and evidence of that is the better revenue this quarter as compared to last quarter despite many problems that we may have had with some payers.
So here, I'm going to repeat what we talked about, the leadership, resizing leadership, and seeking a lighter structure such as Rogério's joining, the realignment of contracts with payers. So we are getting closer with almost all payers as part of our financial strategy, and this is going to change substantially once we solve our leverage problem. So we're strengthening the team responsible for the standardization of materials and medicines. So we have results that are still very much in the beginning as compared to what we could have.
And standardizing and including standard materials and medicines in our formulary, this is very important. Resizing structures, units, beds, this is important, and the use of care delivery structures compliant with our volume. And you can see that despite higher billing, we did not increase the number of beds.
In diagnostics, we have advanced the digitalization of our scheduling and services. This is providing gains in productivity. We could see it a little bit in Q1. We had the growth of productivity in tests, 7% compared quarter-on-quarter, Q1 '24 against Q1 '23.
Another front that is very important to us, if you remember, I had mentioned that we would reduce our operational technical centers. So the project evolved along 2024. We are going to end the year with 21. We have already closed 2 of them. So we have 24, and this is the right schedule to end the year just as planned.
And I do not need to reinforce that our efficiencies -- that our operation is going to become more efficient. And this reduction of technical centers, as we said in our last conference call, so we have fewer centers. We have an increased capacity in test processing by 10%.
Now this is the end of our presentation and we move to the questions-and-answer session. And I and the team are available to answer any questions you may have.
[Operator Instructions] Our first question is from Felipe Amancio from Itaú BBA.
I have 2 questions. The first is a little bit more strategic. We've been seeing more recently many partnerships with payers, service providers, commercial agreements, acquisitions. Do you think there is any space for Dasa to seek a partnership similar to that? This is my first question.
And my second question is that you said in the release that you felt the pressure of the working capital this quarter. Can you give us an update if, together with these initiatives that you're taking, if you felt any improvement in the negotiation environment with payers? Or do you think it's still very much stressed?
Felipe, thank you for your question. I'll try and address it and answer the first question. Well, it is true. If we look not just at recent months but recent years, the partnerships between health care players, this is a reality. This is a natural step of a fragmented industry and there are challenges. And having an alignment is one of the things that we can do to improve performance.
At the same time, and this is what we said when we closed the results for the year, I am sure that Dasa's assets are very good. And they are underused in terms of performance, especially in terms of hospitals. So we have the exact same planning, which is a planning of discipline, better performance and trying. And this movement of the AFAC and taking out the pressure to have a better balanced relationship with payers, so this combination of actions at the more appropriate levels. So any negotiation will start off better, so we continue this. We think our assets are very high quality. We are not saying no to any partnerships, but we want to make the most of the -- our existing assets.
As to your second question, if you pay attention, there is an increase of 2 days in average payment times very much because of the seasonality of Q1, when the last day of the quarter was on a weekend, so the maturities go to the following months. And even though we had a worsening when we look at the other providers that do not have payers within their own operation, we suffered less than the others. This is already the result of a process review of the revenue cycle, as we said at the end in the conference call of 3Q last year.
We were working with a lot discipline there. But this is where process is time to get better. So the discussion with payers have become more intense, and the history shows that this is something that we are stretching. And despite the adjustments of payers to customers and the performance of payers, this relationship tends to be less tensioned along 2024.
Our next question comes from Mr. Mauricio Cepeda from Morgan Stanley.
Licio and Covre, I have 2 questions about operations. So in the press release, we saw a concentration of so many millions of discounts concentrated in Q1. So we want to understand what this was. This is a one-off negotiation? This is a way of avoiding denial? More long terms? Or different price policy? This is the first part.
The second is about cost optimization. I know you are working intensely on that. And obviously, this improves the results on the bottom line, but this is not a turnaround in terms of the leverage. What are you doing to mitigate the risks in terms of cost control in revenue? Could this compromise your capacity of obtaining revenue in some operations?
Mauricio, thank you for your question. On your first question about the discounts, as you must know, this is part of our business. It's that from time to time, we have pending negotiation items with payers, so it involves credentialing, denials, times, revenue mix. So we negotiate involving all these items. And it might lead to a concentration of discount at a certain periods. Of course, down the line, the result is positive. This was just this time, not more than that.
Mauricio, this is Licio. Thank you for your question. To answer your second question, I'm going to try and break it down into 2 things. So all our efforts to reduce expenses, it's very much in corporate area. So we have big opportunity here. So it doesn't really affect the quality in the front end. It could not affect revenue in any way, much to the opposite. Even though I've been for almost 20 years in health care, I'm always very surprised with the NPS levels of Dasa as a whole. Not just diagnostics, but also the hospitals. I think it doesn't interfere in deliveries. And of course, we do everything very responsibly, always measuring the impact on the front end.
Considering the number of beds that we have, looking into hospitals, we could, without any additional investment, increase our capacity. This is not our main focus. This is very much in changing the mix to have a more appropriate mix. So what we are doing in the NTOs, our centers, is a good example that can serve as evidence. So we are going to have lower cost, fewer centers, but higher capacity for the test processing. I hope I have answered your question.
Yes, you have. Thank you so much.
Our next question comes from Leandro Bastos from Citi.
We have 2 questions. One, leverage. I know you are implementing many actions to take out pressure. But how do you see the de-leveraging prospects in a more organic way? So how should we look at de-leveraging into the future? Looking at net debt and operation, how do you look at that in an organic way, looking into the future?
And number two, in your capital increase, you say a possible transaction that will reduce the net debt by more than BRL 2.5 billion. What is the priority of this action in the company? Or is the energy more in an organic aspects and you are looking at other options, if there's an option in the future? So in your hierarchy of decisions, is it more organic? What is it like?
Leandro, thank you for your question. This is Andre. Now about leverage and de-leveraging organically, I'm going to go back to something I said in the presentation. We are working both on the numerator and denominator, meaning, we have many initiatives seeking operational excellence, trying to improve the company's performance, and this is reflected in the EBITDA.
On the other hand, we have a debt that has grown, and this is very much related to the evolution of our working capital, especially in accounts receivable. So 2 different types of activities. Number one, we have an ongoing project called revenue cycle project to improve our internal processes that demanding the amounts that are due to us. And so we have an external, which is the relationship with payers. And as Licio said, AFAC is going to make it possible for us to rebalance this relationship. So in denials, prices, mix credentialing and times, so we think that in this manner, we are going to reduce the leverage rate.
The external strategic initiatives, this is a priority. The same level of priority is operational efficiency, and these are the 2 priorities of the company at the moment. Operational excellence and strategic initiatives that are going to lead us towards a much lower leverage.
Our next question comes from Samuel Alves from BTG Pactual.
The first is about the material fact, and I have a follow-up on the previous question. If possible, I would like you to give us details about this reduction of BRL 2.5 billion in the net debt. Is this sale of assets? What are you going to do to accomplish that? Is this related, for example, to the discounts of receivables, similar to what you did this quarter? This is my first question.
And my second question is about the receivables. More specifically, about the waging of receivables. There was a significant increase in 180 days. Is this one payer? And how are the negotiations to receive those amounts going?
Samuel, thank you for being with us. Well, about the material fact, what I can say is what is there. We are working in strategic initiatives involving our verticals and our assets. We can have a sales back amounting to BRL 2.5 billion because we do not have sufficient real estate to do that, and discount of receivables would mean discount a very significant part of our receivables. So these are not the transactions that we have in mind as a threshold for BRL 2.5 billion. So you're talking about strategic initiatives and the verticals [ NS ].
As the wage of receivables, this is related to what we have in our industry. As Licio said, worsened by the relatively frailty of the company over the last few quarters and the capital reinforcement of the controlling family, who once again indicated their commitment. So we expect to rebalance this relationship with payers and, therefore, improve this indicator, which is not concentrated on any payer. It is [ pulverized ] across many different payers.
Just on a quick follow-up on the first point. The material fact says any transaction. So should we understand that it is just one transaction?
To start the process of exercise price, we need to have one transaction of at least BRL 2.5 billion that will reduce the company's net debt, once it is implemented by BRL 2.5 billion.
Our questions-and-answer session has now ended. We would like to turn it over to Mr. Licio Cintra for his closing remarks.
Thank you very much for attending our conference call to announce the results of the first quarter of 2024. And I would like to stress what I said. We are optimistic, and the whole management is optimistic with all the actions that have already been implemented. But more than that, with the number of opportunities that we've been finding in our day-to-day work to make Dasa into a more efficient company with better performance and with better optimized assets. I would like to thank all of you. Have a good afternoon. Thank you very much.
Dasa's conference call has now ended. Thank you very much for your participation, and have a good afternoon.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]