Diagnosticos da America SA
BOVESPA:DASA3
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Good afternoon, ladies and gentlemen. You are mostly welcome to Dasa financial highlights about the third quarter 2024. This teleconference is being recorded, and then you may access that in the website, www.dasa3.com.br, and the presentation will also be available for download. All participants will be just listening to this web call during the presentation. And right after that, we're going to open for the Q&A session, when more instructions will be given.
All information in this presentation and any possible statements during this call about business perspectives, future perspectives and financial aspects, they just beliefs and assumptions of the company as well as current information available. Future considerations, they are not guarantee of performance as they involve risks as they are entitled to future events, and they will depend on circumstances that may or may not occur. Investors, they should understand that general considerations, marketing aspects may interfere in the Dasa's future financial perspectives.
Now I would like to give the floor to Mr. Licio Cintra, who will start the presentation. Please, Mr. Licio, you may proceed.
Good afternoon, everyone. You are mostly welcome to our web conference for the financial highlights for the third quarter. Before I proceed to our results, I'd like to congratulate our 9th of July collaborators, not just physicians but the whole health providers and everybody else who is involved in our business.
According to the international rank Nove de Julho is scored as the fourth best hospital in the globe and also in the 11 hospital in Latin America. And as to sustainability, we are ranked in first place in Brazil. We feel so proud about that. And also, it clearly shows all our operational efficiency efforts, which aims to improve productivity, which not just focus on better results, but also our level of care delivered to our patients, and that's exactly why we are here for.
So now getting into the third quarter, we have to consider a number of aspects. We had a reduction of our net profit which is a consequence of our operational growth, a new level of investments. We have a very strict way approve further investments and shareholders, they are always controlling all of that since June '24.
So our financial debt plus the receivables, we went from 5.14 to 4.7 (sic) [ 4.07 ]in the third quarter, which represents 20% reduction which addresses our goals for the coming months.
As to investments as it has been announced, we have a year with a significant lower budget in comparison to prior years. And to our management, it's quite clear that our decision process in emphasizing our processes to explore those assets, which got investment, large volume investments that has been very effective.
Investments done in technology tools that will lead to digital check-in at our units. We see a great growth in the compliance of our collaborators and clients. We want to be in the similar level of investments in technology assets and compliance by our patients and hospital managers in relation to what has been invested. We are pretty sure that our decision was really affected.
As to hospitals management, we have decided to change the way as we were performing. Until last year, we were fighting strongly for volume without a margin criteria, increasing the number of beds and impacting our CapEx. And since the beginning of the year, we are more clear about a margin discussion and now we decided not opening new beds to add up our volume. We are trying to adjust proper procedures at proper hospitals. This is a journey to our payer sources. It's not a matter of not helping our users but rather a complete portfolio review, surgical review, and we are very optimistic to face a totally different reality by next year.
Operational economic is here. We closed this quarter with EBITDA 14% growth with the same trend as the prior year and we exceed our growth in 1.4 percentage points EBITDA margin resulting from the higher volume of services provided prioritizing of the procedural mix, thanks to our excellence program, which is under progress, and that is part of our day-to-day agenda. And this excellence of program allowed 12% adjusted expenses reduction versus third quarter '23 with the benefits from the operational excellence program.
There is no magic or silver bullet is just working really hard, and we believe that we are going to get profits in the coming months.
As to revenue, we have another quarter with a consolidated revenue with a 6% gross revenue with expansion with growth in the volume of operations and occupancy in both BUs, if we take into account that we are following our mix of products avoiding more volume of procedures, which do not make sense from a margin perspective or from a vocational hospital perspective.
Generally speaking, if we are in search for strong efficiency and headcount control and EPS decreases. Unfortunately, we have been very successful in balancing that. Last quarter, we said that we had reached a record level in our NPS in this quarter once again. And that is linked to the award that Nove de Julho Hospital has been granted, but we are considering a company in a middle to long run. If we would sacrifice quality, would have a better result in the short run, but that is not our goal.
Strategically speaking, we had disclosed that our overall focus would be on our own hospitals and oncological hospitals and some assets that do not have a core business such as Dasa company for insurance. And last year, we announced the selling of this asset at BRL 195 million at the close and BRL 10 million with a earn-out of BRL 50 million to be paid in the coming years. And we still expect that this transaction will close in the coming weeks, and that is adjusted to our central focus which would be diagnosed at hospitals in oncologies. And we are ready to face other assets resulting from relevant investments made in previous years.
I'd also like to draw your attention about a huge number of information that we have in redesigning our framework to welcome Americas hospitals within our BUs.
The Americas negotiation to allow us to expand our hospital platform will allow us to redesign our diagnostic hospital framework allowing them to work independently where we find huge opportunities.
And I'm going to go into details later on after Andre, our CFO, has the floor.
Thank you, Licio. Good afternoon, and thank you so much for your attendance. Slide 5, Hospitals and Oncology. BU1 as we name it. Third quarter, we see 5% average ticket in relation to the same period last year with a gross revenue of BRL 2.2 billion. That growth is due to 5% of our average ticket. 18% expansion in oncology has contributed to that growth as well as a better mix of procedures. And the volume of patients per day was quite stable in relation to the third quarter '23 due to the interruption of activities, operations without economic profitability. Thanks to mapping each hospital profitability per type of procedures per health operator deciding which one are not profitable from an economic perspective.
In other words, take into account all benefits, marginal costs, including, for instance, receivables. We expected that for the third quarter, we are going to reduce the gross revenue in around BRL 50 million with a direct impact. However, it will allow better results in the longer term by recovering new revenue or by reducing costs, expenses that could be -- avoid G&As. And the occupancy rate has increased 0.8 percentage points.
Adjusted gross profit in the third quarter has 2% drop with an adjusted gross profit, which is 1.5 percentage points lower than the third quarter '23.
In addition to that, which is a transitory aspect, MatMed has collaborated to that in the oncology growth and also higher costs per patient due to the new regulation, which had impacted our nursing bill as well as inflation.
Gross revenue and adjusted gross margin in the third quarter '23, they are not directly compared to our current level due to the denials that we had in the fourth quarter that led to a variable and lower progression of results. If we reach normal levels, the adjusted gross margin will have a 6% growth with adjusted gross margin of 0.5 percentage points in the adjusted gross margin.
Slide 7, Diagnostics segment. Gross revenue for '24 third quarter shows 8% growth in relation to the same period last year. In diagnostics, we see an advancement which was driven by a better average ticket as well as to an increase in the number of exams at all levels.
To our average ticket, there are 2 aspects which we had collaborated to that. First, best services compensation, especially where we see a premium segment growth. And second, exchange rate impact on the international operation in third quarter '23.
Adjusted gross margin gives a 6% growth or 9% adjusted gross profit with a decrease in the variable reduction of third quarter '23 with an adjusted gross margin of 0.5 percentage points better than the third quarter '23 with a variable compensation effect normalized.
Several initiatives led us to efficiencies such as reduction of 5 operational technical centers and also the reduction of 47 unprofitable service units, where 8 of them were closed during this third quarter.
As we mentioned earlier, the reduction of those NTOs is part of our director plan, which aims to reduce costs without reducing exams throughout reallocation and consolidations.
Closed units, they are a consequence of a careful survey. They had a little revenue and they were not collaborated to our economic profits. And in addition, they were all localized in different areas that were not near to our private centers.
Here, you can take a look at our adjusted G&A and EBITDA. For the second consecutive quarter, we may see an absolute reduction in adjusted G&A. We have seen this new reduction even considering a growth in the operational volume and inflation.
There is absolute reduction in adjusted expenses program started at the end of 2023 and they represent EBITDA growth of 14% with margin expansion of 1.4 percentage points, and net result with significant evolution due to EBITDA growth. We see relevant benefits where we are able to reorganize our personnel with significant leadership positions in a more agile and efficiency restructure.
Second, we are adapting personnel policies and staff policies to the market. Third, reallocation and reduction of administrative premises which was responsible to 40% reduction in the occupancy of square meters. And fourth, strengthening of process and general control, allowing to recover taxes credits to which the company is entitled to, which now is being credited thanks to process improvement and internal control.
To the right of the slide over the third quarter of this year, BRL 751 million EBITDA, 14% growth driven by the number of revenue in both units and also G&A reduction. With that, EBITDA margin reached 18.9%, represented 1.4 percentage points in relation to the third quarter '23.
Net results had an expenditure of [ BRL 310 million ], 11% higher than last year due to some currency exchanges of BU2.
And finally, net results this quarter has increased significantly, 52% in a position to last quarter, especially due to EBITDA growth of 14%. If we exclude currency variations, our net growth would have been almost 0.
Slide 8, investments. Consolidated investments, they amounted BRL 137 million, 19% reduction in comparison to last quarter '23. As Licio has mentioned, investments level in '24 reflects the guidance of the company, which prioritizes projects with better economic profile, investments focused on structuring projects with the highlights for renovations of systems essential to the maintenance of the operation and digitalization of efficiency gains in all the hospital oncological and diagnostic services.
As Licio has highlighted, the reduction of authorized G&A investments has just been possible, thanks to the quality of Dasa assets and investments carried out recently.
As to maintenance and expansion, 7% reduction, prioritizing projects with those better economic profile and key at both BUs. We keep the focus to keep up with our exam units to improve operations and to allow same level of services to our patients.
In technology, we see 36% reduction versus third quarter '23, renewing all systems, which are essential and digitalization initiatives for efficiency gains, which is one of the aspects which collaborate to our productivity in diagnostics.
This is my last slide, capital structure at Dasa. Upper part of the slide, you see a leverage growth considering that financial debt plus acquisitions payable and advances on receivables, 4.07 fold. This is an indicator which represents a significant reduction of 20% in the company leverage. This is a consequence of what our controllers are doing and a better operational improvement, improving our EBITDA, better working capital and a new level of company's investments.
We closed the quarter with a good liquidity, cash flow and titles in with BRL 2.8 billion, which represents 1.5-fold sales up to 2025 in terms of amortization. We have an average ticket growth of 4 days. In the past, we had a decrease of 2 days and now we had gained 4 days.
So since March, we see a liquid growth of 2 days concentrated on hospitals business unit that has been a sectorial aspect, which we address from one side thanks to systems and process internal improvements and on the other hand, an increase in selection and recruitment of hospitals.
Another project on process and systems improvements, which is being quite advanced is on inventories, where we managed to reach 4 days reductions on inventory average days offsetting the average time for our prior inventory.
Now I would like to give the floor back to Licio.
Thank you, Andre. Before we close the presentation, I would like to let you know that the execution of the phases, which are being addressed with Amil, they are ongoing. We underwent officially to CADE last September and the organization, internal organization has been completed.
So we are deeply revising all our processes. We are spending most of our time revising all the process to understand how much each one of the roles will add to our core business and to each one of the BUs, and we are identifying some areas that are not necessarily need to exist in those areas that they should continue to exist, but in a less relevant manner than they are nowadays.
And now we are very optimistic because we see that we may be able to optimize G&A for the coming year. And about the transaction per se, when we see a joint EBITDA of hospitals and Americas hospital of BRL 770 million. But just in the first 3 months, BRL 589 million, BRL 786 million, which represents over 30% of growth in comparison to last year. And the last quarter that's even better because the last year EBITDA margin of 10% goes up to 13.3%, which allows us to have a hospital company, less leverage where we would consider BRL [ 3 850 million ] debt considering 2023 EBITDA of BRL 786 million, so now we feel much safer that this company has a much lower indebtedness level than the one we had projected priorly.
With that, we have reached the end of our presentation. And now we may proceed to the Q&A session.
[Operator Instructions] Our first question is from BTG Pactual, Mr. Samuel Alves.
We have 2 questions. First is a follow-up of the past slide about the partnership agreement between Americas hospitals. Could you elaborate a little bit more about the indebtedness structure. If you are going to transfer the holding depth to this new structure? And my second question is also related to the company's indebtedness. We see a significant improvement in all indicators, but how do you see the debt indicators vis-a-vis? Could you remind us a little bit measurement data levels so we can see what is the level of freedom.
Hello Samuel . Thanks for the attendance. First, how to determine the format of -- [ to the 850 ], that is quite advanced. We have a higher chance to have a combination of formats, possible debts which are transferred and the direct capitation at Impar, but there is nothing closed yet. We are still discussing with the interested parties. In the end, we and themselves are after a scenario which will allocate best way to execute with some rates and deadlines. Once we progress on that, and we have that more clear, we'll be able to give you more visibility.
As to governance indicators, we had a stability around [ 350 ] in the past 2 quarters, the third and the second quarter. But above all, as you mentioned yourself, the net debt plus acquisitions to be paid plus anticipations, they represent a significant reduction as you could see 20% since last March. And the combination of results improvement CapEx at a new level, as Licio described and our efforts on working capital, we believe we are going to see a significant reduction by next year.
Our next question is from Mr. Artur Alves from Morgan Stanley.
I have 2 questions briefly. First, about G&A. We see a nominal reduction. Do you still have more room for reduction? Are you still optimistic? And where do you think you should reach normal levels? How much more is still to improve? And second, you have mentioned non-core asset sales. Do you have any estimate in terms of value? And could you tell us a little bit more about the negotiations? How are they going?
Thank you, Artur, for your questions. I will answer your first question. G&A, a little bit of the same, a little bit more of the same. It's quite clear that G&A opportunities are many. We have a forefront where we are revising processes. And in the meantime, we have a macro view, where does not depend on systems and the process review per se allows the reduction and optimization in the number of collaborators, increase of productivity and systems.
In addition, we have a structure that was created to bring together different companies, diagnostics, hospitals, brokers, insurance providers, home care. Once we focus to our main business units, we have a G&A issue. And this quarter, strikes clearly those several actions that we have been highlighting lately. And we are pretty sure that once we go deep into the processes in details and that we are able to revise or revisit the structure as a whole with the addition of Americas Hospital, we have now a deadline, adding benefits, and we do believe that we'll be able to keep on reducing G&A in the coming months. We cannot give you an exact number right now, but it's quite clear that there is a great potential for improvement in the near future.
About your second question, I think it's a bit too early to estimate values of the non-core assets, and we have been repeating that, especially considering the teams who are involved on the assets, they are not target for not investment because they are weak, bad or they do not perform individually. They are good assets and they are acquisitions that Dasa did in the past and which we target as being good assets, but they do not make sense right now where we have to emphasize our main efforts within our 3 main business.
So we are analyzing that carefully. And if it makes sense, we are going to avoid investments there. But the most important of all is that internally, we had readapted our structure. So the Executive Director will not need to spend so much time into those assets which are not performing so well as others which are.
Our next question is from Lucca Marquezini from Itau BBA.
Two questions. First, about BU2 tickets diagnostics. We see a growth close to inflation. You said due to the mix of products. But was that maybe due to a more beneficial competition or competitive scenario? And second, it has to do with the leverage and thinking about your capital structure, what is your take in this investments -- the investment possibility and how about the negotiations in that sense?
This is Licio speaking. Thank you for your question. BU2, we see an important increase in the tickets this half, and we are very disciplined to take healthy tickets to the company. Ticket growth takes place due to some dimensions. First, price markup, pricing adjustments where we are trying to offset at least partially the inflation. We have a more favorable mix up where we have a ticket increase, but we are after increasing with the health tickets, respecting our market and business. And this composition is helping us to equalize business and prices.
Now your second question.
This is Andre. How are you? What else may I add to that? The deleverage process is a result of 3 factors. First, operational performance, which is divided in results improvement, CapEx and working capital. Second, the conclusion of the transaction with Amil, which transforms our hospital business and allows a geographic allocation of the debt between the 2 companies. And third, potential investments where currently, we don't have any new element to be disclosed since the last announcement.
The Q&A session is closed. Now we would like to give the floor to Mr. Licio to make the company's final considerations.
I would like to thank you so much for our third quarter '24 video conference. And I'd like to reinforce and emphasize that during this phase of so many changes, we are working really hard to guarantee performance improvement and to deliver a company, which is more and more less deleveraged.
Thank you so much to all of you. Dasa's video conference is now closed. Thank you for your participation, and have a good afternoon. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]