Diagnosticos da America SA
BOVESPA:DASA3
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Good afternoon, and thank you for waiting. Welcome to Dasa's Second Quarter 2023 Earnings Results Video Conference. We'd like to inform you that this event is being recorded. [Operator Instructions] The link to access the webcast with audio and slides is available on Dasa's Investors Relations website at www.dasa3.com.br. The presentation is also available for download on the website.
We emphasize that the information contained in the presentation and any statements that may be made during this event regarding Dasa's business outlook, projections and operating and financial goals constitute beliefs and assumptions of the company's management as well as currently available information.
Future statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operational factors may affect Dasa's future performance.
I now turn the floor over to Mr. Glauco Desiderio, who will begin his presentation.
Good afternoon, and thank you very much for the audience. We will start with the presentation with remarks from Pedro Bueno, Dasa's CEO, followed by Felipe Guimaraes Financial VP. Today we have also here with [ Lício Cintra ], the Chief Operating Officer; Emerson Gasparetto, Chief Executive Officer of Hospitals and Oncology; and Rafael Lucchesi, Chief Executive Officer of Diagnostics.
I now hand over to Pedro Bueno to begin the presentation.
Welcome. We had important advancements. We are leaving some challenges in the health sector despite we have significant growth at both BUs, not just as a consequence of growth that we are working in both BUs but also due to the revenue and to the journey connection and cross-selling among our core business that is leveraging our avenue. And despite a challenging setting, we are very careful to keep on growing on the second half.
Another significant advancement was the G&A. This is a focus point where we have captured some important efficiency in the second quarter. Which were captured throughout the quarter. Some of the implementations in the G&A have collaborated for profitability gain to the company. Conversely, we had [indiscernible] margin, partially due to some specific reasons that Felipe will go into details. And we also have seen some opportunity on fixed costs of the business unit. And our main focus is June, July, August and September, where we hope to get some additional benefits.
As to BU2, the normal growth margin is much share -- is much closer to the semester margin. And last but not least, we have the cash inflow deleverage which has advanced comparing second quarter to the first quarter, especially as to the working capital and the reduction of the CapEx by 35% year-over-year, but we are still within the middle of the journey. We are being very careful for the reduction of leverage for the second half.
So may we proceed now to our highlights, please. I'll try to speed up a little bit here because you have seen the release. We have grown 11%. That was one of the highlights of the half and 4% growth for gross margin and adjusted EBITDA. In oncology, we had 16%. And also, we had a slightly gross margin reaching year-over-year and 36% growth in immuno-oncology. This is organic growth in BU2. A strong growth in BU2 in diagnostic 13% year-over-year, but with a gross margin around 3 to 4 percentage points that I will address later.
G&A reaching 13%. Some quarters, we were closer to 15%. So we are following an important efficiency trajectory in G&A. And our CapEx is being reduced by 35% year-over-year. So first quarter 3.4% and now 3.7%. And the last platform that is leveraging really well. We currently have almost 8 million users, patients registered on the platform. All our Navigation platforms, they are collaborating to guarantee an organic growth for the company.
Now I hand over to Felipe Guimaraes, who will comment on the first (sic) [ second ] quarter financial results.
Slide 6. I'm going to talk about the Hospitals and Oncology business segment. In this quarter, we had an organic growth of 16% result in a gross revenue of BRL 2.0 billion in the quarter, another record for the company. The growth in the period can be explained by the 3% increase in active beds, a 1.5 percentage points increase in the occupancy rate, which reached 79% in the second quarter, '23 and an 11% increase in the average ticket as a result of the progress of the Dasa Ecosystem integration strategy.
We are very optimistic about the results of this business front, which consistently reflects successful execution of operations through organic revenue expansion progress in the oncology segment and increase the complexity of our units.
Moving now to the graph at the bottom right of the slide, we can see the gross margin of the segment which was in line with the same period of the previous year and advanced by 0.6 percentage points compared to the first quarter of this year. The performance of the margin in this period is mainly the result of the progress in cost reduction actions in medical and assistant fees, partially offset by the impact of the increase in the cost of material and medication, and the cost is with expansion of beds in the period and the addition of new units such as Alphaville and Barra in Rio de Janeiro.
Moving on to the Diagnostics and Care Coordination business on Slide 7. We see that revenue for the quarter was also a record for Dasa, a total of BRL 1.9 billion, organic growth of 6% in the comparable between the periods being 12% ex-COVID. The advance in this segment shows a continuous gain in market share, a consequence of the increase in vaccines and imaging test despite the reduction in COVID tests compared to the same period the last year. The same composition shows a mix effect with the effect of reducing the average ticket in this business unit.
We have a gross margin, which showed a reduction this quarter, partially explained for by 4 main points: First, the mix effect mentioned above, where we have a lower representation of COVID-19 test, representing 6.1% of revenue in the second quarter '22 versus 0.9% in the second quarter '23. Second, the current impact of losses of materials related to vaccines and COVID-19. Third, the cost of implementing two important new contracts in Sao Paulo. And fourth, the increase in fixed costs in the units with efficiency actions already initiated in the third quarter, mainly related to process improvement, digitalization of the units and readjustment of the workforce.
Moving now to Slide 8. we'd like to show the evolution of our digital strategy and the monetization funnel of the NAV platform. This quarter, we can see that we continue to be very effective in increasing the user base, both patients and doctors at the end of the second quarter '23, we already had 7.7 million patients and 54,000 doctors registered on our platform, a very significant growth versus the previous year. Of the registered users we also see a continued increase in the recurring use of the platform, resulting in a satisfactory evolution in the indicators of active patients and doctors. And finally, we can also see a robust advance in the reach of our services, which grew 77% compared to the same period last year, bringing greater navigation opportunities to our ecosystem.
Slide 9, we present the evolution of our expenses and adjusted EBITDA this quarter. Starting on the left-hand side, with expenses. This was the fourth consecutive quarter of efficiency gains in G&A reaching 13.1% of the net revenue, in line with our efficiency and productivity plan being directly linked to the efforts of greater productivity and efficiency gains in personnel. Moving on to the right side, we presented the evolution of adjusted EBITDA, which grew 4% versus second quarter '22, reflecting the robust increase in the number of employees.
Slide 10. We closed the quarter with a reduction in leverage, which for convenient purpose amounted to 3.71-fold net debt to adjusted EBITDA for the last 12 months. Our net debt close the quarter at BRL 8.3 billion. And thanks to the reduction in mainly the result of the proceeds from the public offering of shares concluded in April. We hope to keep on reducing leverage for working capital, reducing interest rates and a possible sale of hospital assets.
We closed our -- at the close of the second quarter, the average debt maturity is 3.4 years and average cost of CDI plus 1.5%. It's important to highlight that in line with our liability management strategy and bringing comfort to the payment schedule on July 17, '23. The settlement of Dasa's 19 debenture issued in the amount of BRL 2 billion was carried out directly in its entirely to early redemption of the company's first issue of book and commercial notes, also in the amount of BRL 2 billion and which should mature on January 15, 2024. And now the company's debt has an average maturity of 4 years and an average cost of CDI plus 1.9%. It's worth mentioning that the new issue has a prepayment condition on the curve and without penalties.
Thank you. Now I'll pass it on to Pedro, so that he can comment on our trading strategy.
Well, the first item that is the follow-on, which is the public offering of shares concluded in April amounted BRL 1.7 billion. This movement was important for strength in the balance sheet. Secondly, selling hospital real estate. Our negotiations are progressing, and we will notify the market and shareholders promptly and within the regulations, but we are very optimistic. Third, we had the second consecutive quarter of CapEx reduction, mainly as a result of the completion of hospital integration projects, prioritization of expansion and maintenance projects at BU2 and efficiency in technology-related operations, which includes the reorganization of teams focused on operations.
G&A we haven't seen a total benefit in terms of efficiencies for second quarter. And finally, the main opportunities for working capital optimization this quarter. We see an increase in the extension of payment terms and inventory reduction. As previously aligned. It is important to highlight that we still see room for improvement on this front throughout the year. And we have a number of projects and plans so we can reach higher efficiency in the second half. The health scenario is very challenging, but this is a company's focus, as I said, and we are going to go to improve cash inflow -- company's cash inflow.
Before I close, Lício has joined the company, as you are aware of, he's here with us today. He's just participating as a listener because he is concluding just his second week with the company, but we are so glad to have Lício with us because he is highly scaled, he is an expert in the field.
This quarter, the third quarter, his focus will be to learn more about the company, to know all the people and to help to work directly with the operators. So we are going to benefit from his operator's experience, and this will be our strategy. So we hope that with Lício's experience, we will be able to expand our partnership to gain market share to have innovative partnerships so that will be a priority to collaborate to reach better results in our third quarter. Now we can proceed to the Q&A.
[Operator Instructions] The first question is from Arthur [indiscernible] from Morgan Stanley.
We have a question regarding the time line of the maturation of cost reduction regarding diagnostic costs. How much are you expecting in terms of improvement? And what is your time line? And second, you have a forecast for market share improvement in the diagnostic setting is -- are you expecting to keep that in the CapEx levels?
Thank you for your question. Arthur, this is Rafael speaking. As Pedro said, several of the aspects that have impacted our margin in the quarter are quite specific, and we believe they will not be replicated. I will not repeat all of them, but they are very specific. There is one regarding fixed costs. I had addressed the digitalization and productivity gain at business units and call centers. We are speeding that up in the next quarters. We have seen by the last quarter and beginning of the third quarter, some significant gains that we hope to pursue in the coming months. But I may tell you that our digital share for scheduling and prechecking that has been increasing significantly. And we believe that in the next semester, we can decrease our fixed costs. We hope we can increase our cost backbone in a more efficient way to become more competitive in the diagnostic segment. As to margin, this is our main forefront, and we hope to recover gain.
Now let's talk about market share. We see a very positive growth, and there is an additional positive aspect we do have a higher impact in terms of COVID losses. As last year's COVID was much lower, 2.7% to us. Now we have a base with lower losses than last year. With that, we are able to grow a bit more. Your question addressing assets, liabilities and assets. We have enough assets to keep growing in a sustainable way, even with a reduction of our CapEx. We are -- we have a better machine operation, machine yield. And we are prioritizing our CapEx throughout some initiatives such as expanding our plants, our parks, and we have invested on two of Alphaville units that will allow us to invest in a very sustainable and healthy way, where we might get more market share into the premium segment.
So we feel very comfortable to keep on growing even with the CapEx reduction. And there are some other front lines even with the CapEx reductions, such as the Home Care that is still there are growing, even though there is a reduction in the CapEx. And some other units where we see lots of room to keep growing.
Next question is from Gustavo Tiseo Bank of America.
We have two questions from our side. Could you elaborate a little bit more about the second half breakeven plan. We see a certain trend for drop in the second quarter. Is that due to a margin expansion? Should we wait for the third and fourth quarter, something closer to 0 or positive in terms of cash? And when we look at BU2, there was a certain drop quarter after quarter in terms of volume. Do you see any reduction in terms of diagnoses? Or is that anything seasonal that happened just for now?
Gustavo, as to cash leverage, we expect indeed to get into a positive cash inflow generation. Actually, it's a combination of factors. Margin expansion, rentability, especially during the third quarter, which usually is the strongest income quarter we hope or we expect to have gains in suppliers account and inventories where we are growing quarter over quarter, there is a benefit in the reduction of interest is what we have already seen. With that, we might see some inorganic growth in the hospital asset sales feedback. Therefore, those 4 factors make us believe that we are going to have a positive cash inflow. Your second question has to do with the [ BU2 ] volume. There is no backbone impact. We don't see any structural change. What we see though is more a punctual or a seasonal issue, not structural in the sector.
Our next question is from Mauricio from Credit Suisse.
I have two questions. One addresses the operators. Now that operators, they have higher tickets. Does that change the relationship or denials -- is that relationship any better? And now that we see some sort of verticalization in the system sort of speaking. Does that open other pathways to entitle some sort of partnerships with operators to increase hospital flows? And my second question has to do with diagnosis. I have asked that priorly in addition to new contracts with operators, do you see any other way to attract a flow in the B2C diagnostic units?
Hello, Cepeda, thank you for your question. I will start by answering your question regarding the operators Well, we see very optimistic the clients' readjustment, but the scenario is quite challenging. Having said that, we believe that Dasa is the best option to operators. And we prove that throughout indicators, average length of staying, ER's conversion, clinical allowance, we are having very detailed and technical discussion with them to tell them that we have the best efficient choice. So we are trying to get market share throughout partnerships. As you said, those verticalized movements. They allow us to seek for a window of opportunities and we'll be highly focused on that verticalization window of opportunities. But we cannot pretend that we are not facing a challenging scenario. Now I will hand over to Lucchesi to answer your second question.
Thank you. Let's now talk about an increase in diagnosis. What are the main lines that I see room for improvement. First, we see an increase in existing units for services that has been highly consistent out of that is pushing ahead growth and works as a great leverage. And we have such a level of loyalty by users at Alta Lab, Mobile Home Care Services. We are increasing 30% our mobile base service, which is much greater than before the pandemic, and it keeps on growing. Commercial agreements. We had closed some nice agreements. And during the quarter, those two hospital groups. We closed a deal with Santa Catarina Hospital. They have 5 renowned hospitals not only in Sao Paulo, but all over the country.
And also with AC Camargo, which is a cancer center, a reference oncological center in Brazil based in Sao Paulo, and we are acknowledged for medical techniques, quality and innovation. In ACN genomic and that has been -- that became an evidence, thanks to those new contracts, and that is another way to capture new users. With all of that, we are offering more services to our users throughout our network, which is able to increment our sales.
NAV, N-A-V is helping us a lot. And now all digital appointments, they are within NAV and users that also make use of other services, they can schedule their appointments or tests via NAV. So we have a number of actions that will allow revenue increase within a record period of time in the second quarter 2023, we reached a service record in our brands average. We have reached a level of excellence, much higher than the global excellence levels. In addition, every time we attract a user, we have a very loyalty and retention level. We keep on investing now on this endangers and we keep -- we'll be able to retain and keep good rates with this. Thank you.
Next question from Emerson Vieira, Goldman Sachs.
Pedro and all directors. I have two questions from our side. First, as cash inflow, you said that numbers are positive to the second half. But operator's negotiations, they are still a bit hard. Once the company's priority is cash generation, do you believe you should be more aggressive in terms of discounts and deadlines? Or that is a trade-off we should wait for a readjustment continuity? This is my first question. My second question regarding G&A. You've mentioned that several initiatives were implemented throughout the quarter. However, they did not reflect to our results. So the fourth quarter 2023, what do you foresee for G&A results?
Well, what do you expect from us in terms of guidance? Well, I'll do my best. Cash generation. Well, I agree that is a challenging scenario. But we see a unique window for opportunities at Dasa. I don't think the second half will be a semester for discounts. Exactly the opposite because both the hospitals that we acquired does, they are still lagging behind in terms of costs. At hospitals, we are after readjustments -- adjustments even above the inflation. And that is our goal. So we can try to realign costs where we are working on high quality, high efficiency with operational indicators that are not yet aligned to the correct price table. That is an offsite.
Receivables is the most challenging part. But in the second quarter, we tried to decrease it. So now we have to improve our performance from receivables standpoint. And we do see opportunities of growth for some operators to have closer partnerships and to gain volumes, volumes which are not proportional right now, and we are willing to capture that in the next quarters. We cannot give you any guidance for the G&A, but you may expect that this dilution will keep ongoing quarter-over-quarter in a very positive trajectory. And for the coming year, we are going to go after efficiency in the same line. We still see lots of opportunities take into account all the acquisitions, all the process automations, I see many -- too many opportunities that will contribute to profitability as of the end of 2024.
Next question, Leandro Bastos from Citibank.
I have 2 questions. Going back to [ B1, 2 ] gross margin. Can you quantify the numbers loss of material costs? I would like to understand what would be the margin and deleterious effects? And how much would you expect that margin to convert to 34% or 35% as getting back to normal levels? Second, about the nurse salary floor. How are you dealing with that? How about the negotiations with your labor, anything that you could share with us?
Leandro, talking about [ B1, 2 ] margin. Approximately 60% of the impact of the margin over the quarter, we believe it's a consequence of some specific items. And the other 40% is a consequence of mix and fixed costs. So we may say that we have a more specific and for fixed costs and mixed costs. And your question regarding the nurse salary for to the union or to the trade union, we are still under negotiation with the trade union, but I may anticipate that we had designed a number of mitigation plans to better negotiate that with the union where that will include some phasing out time as well as internal efficiency levels. By combining all of those factors, we do not expect any relevant impact to this year and to the coming on, we'll go after some additional efficiency matters to mitigate these issues.
[Operator Instructions] We are now then closing the Q&A session, and I will hand over the floor to Mr. Pedro Bueno, the CEO, for his final remarks.
Thank you so much for your participation at the earnings results call. We are very optimistic in leverage cash inflow as well as organic growth. And we do hope to keep pursuing health numbers and hope to see you soon in our next earnings result video conference.
Dasa earnings results is concluded. Thank you so much for your participation and wish you all a pleasant afternoon.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]