Kora Saude Participacoes SA
BOVESPA:KRSA3
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Good evening, everyone. Welcome to the earnings call at Kora Saúde for the second quarter of 2023. My name is Rhayza Malone, and I'm part of the Investor Relations team at Kora Saúde.
For another quarter, we were able to achieve a new all-time high in our net revenue. Our adjusted EBITDA reached a historical level, and we had strong cash generation. As a consequence of our agenda to strengthen the existing hubs, we evolved in our main indicators, including the amount of beds and operational beds, patients, occupancy rates, surgeries, lab exams, image exams, oncology treatments, among other KPIs.
The results in this quarter demonstrate an evolution of the Kora Saúde strategy to become a provider that is more full for health care, bringing new specialties and procedures of high complexity to patients in all of the markets we operate in, offering excellence at fair value.
And to explore a bit more of these agendas, today, we have Dr. Benjamim, the CEO and Founder of Kora Saúde; and also Elias Leal, our CFO and Director of Investor Relations. Our broadcast is live, and you can keep up with the material that's being presented on the screen through the webcast or downloading the presentation as well if you'd rather as this is already available on our website and also on CVM. After this presentation, we will have a Q&A session as well. [Operator Instructions]
Before we begin with the -- we continue the presentation, it's important to highlight that possible statements that could be made during the presentation are related to the year of '23 as well as the future of the company are not a guarantee as they involve risks, uncertainties and circumstances that should not be understood as a guidance.
Having said this, I'll pass the phone to Dr. Benjamim, our CEO, to mention main highlights in this quarter. Dr. Benjamim, please the floor is yours.
Thank you, Rhayza. Well, good evening, everyone. Once again, welcome to another earnings call for the second quarter of '23 at Kora Saúde. It's a pleasure to be with you guys. You can move along, please.
So as Rhayza has already mentioned, we -- in this first quarter, we had a net revenue that was an all-time high of BRL 565 million and a 9% growth as compared to the previous year and over BRL 130 million in adjusted EBITDA, a growth of 11%, strong cash generation of BRL 88 million. Elias will get into more details about this as well with the main financial highlights and reaching over 130,000 patients per day, strong growth in oncology, opening up a new radiotherapy service, over 2,000 oncological infusions as well, reaching over 320,000 services in the quarter, over 200,000 image exams and over 30,000 surgeries.
So we can demonstrate our strong performance so that we could really improve our net revenue and improve our earnings for cash generation as well as our adjusted EBITDA margins as well. And I would like to highlight that in the second quarter, we had some strong adjustments as well when it comes to surgery volumes and with surgeries that have a high use of OPMEs. And we've seen a lot of surgeries with the referrals that are not always well based where the OPME costs were always very high, sometimes going over BRL 200,000 per surgery with results.
But as I mentioned, we're not always within the best results when we're talking about evidence-based medicine and generating high costs for the payers with high revenue for the hospital with very low margins. So I think that now we are reorganizing our track and roots with many different types of surgeries that really made us have our total revenue even drop. And our average ticket was even reducing a bit compared to the other quarters due to this drop, which was very purposeful and strong work with surgeries and that had intense OPME costs as well, above reasonable.
So just some highlights like always highlighting this, we have the Espírito Santo hub, and also we have all the radiotherapy services. And we also have the surgeries, hospitalizations. And now with radiotherapy as this is also an important complement for most of the patient's journey with cancer treatment, our demand -- so that we can have a full occupancy of this machine.
Of course, not all of the payers are signed up yet. This has been operating for the past month or so. So we do hope that throughout the year, we'll have this full portfolio and that the machine will be working basically at full in the next few months.
And in Cariacica, at the end of last year, we opened up 70 new beds, 20 last year or so. And now in the second quarter, we opened up with 10 beds for intensive pediatric surgeries, and we have 40 beds that are ready that we also hope to open throughout the next months.
We also opened a hemodialysis service, which is a service that in Espírito Santo is pretty much a pioneering service. Very few ICUs have this kind of continuous dialysis service.
And so when we move on to the Midwest, as we talk about Anchieta, it's a hospital that we've been already operating with 245 beds and the total of 270 beds, reaching almost 30 beds that we could be opening up in the next few months. And of course, I want to remind you that we have many new payers that entered Anchieta. And some of them are still in a ramp up in this process.
So with this, we already have 80 ICU beds and 30 children's ICU beds. So a total of 10 ICU beds and also some examples of services with hemodialysis that was managed by a third party, and we reached an occupancy rate that was quite high at 85%. So we have about 8 months of full operation, and month-over-month, we continue to grow.
And in our hospital in Cuiabá, we had an occupancy rate that was very high, about 85%. And we were able to retrofit all of the apartments basically adding more modern resources. And this is an important investment we've been working on the modernization of these hospitals. Of course, as hospitals have been performing some very unique surgeries in the state of Mato Grosso, we're also doing this in the neurology institute in Goiania. We've already renovated and retrofitted many of the beds, and we're moving towards retrofitting basically all of the apartments for hospitalization and rooms at the ING hospital.
We also worked on the clinical analysis lab. That's already existed in hospital, but it used to be operated by a third party. So the demand was already there. But since the contract was expiring, we had -- we didn't renew it anymore, and we started to operate with this lab, which is a practice we've been doing with all of our hospitals where we internalize the lab, and we start operating.
These are labs that normally have 40,000 to 80,000 exams per month, and so patients that are hospitalized in the emergency rooms and outpatient centers. And we've had very satisfactory results.
We can move on. So over here at Oto Santos Dumont, we internalized our lab, which was also operated by third parties. So we internalized this, and ever since the beginning of the year, we've been operating with this lab as well as the image that was operated before by third party. Now the contract expired. And ever since the month of May, we've been operating with images for the hospital Oto Santos Dumont, which is also a demand that already exists.
And we have outpatient centers, the hospitalization, we already had over 1,000 CT scans. So basically, we just had the previous operator leave, and then we came in with an installed demand and production that already existed.
And so at Oto, we had an important increase of surgeries of almost about 1,000 surgeries. And I want to remind you that we have about 3 hospitals in the base in Ceará, Oto Meireles and Oto Santos Dumont and [indiscernible], which is the headquarter. And these 3 hospitals together have been achieving over 3,000 surgeries per month. This is a lot.
So almost a total of about 450 beds at Oto Aldeota, which is our main hospital. In Ceará, we transferred 10 infirmary beds into ICU beds. And now we have the hub in Ceará with about 120 ICU beds with our almost 450 beds, about 120 beds are ICU beds.
We can move on. And when we move on to Tocantins, we see that there was an increase in our emergency room there at the Palmas Medical Hospital. At the end of last year, this is still on a ramp-up. And in Palmas, no hospitals were offering such a complete emergency room. Basically just have clinical services, and we had a hospital with a pediatrician on standby. But now we have orthopedic services, gynecology services, a full emergency service, and we're still in the ramp-up. That's a really interesting level with new specialties. And with this, of course, we have the hospitalization of more specialties.
Oncology continues to be strong, and it's our biggest oncology service at the Santa Thereza Hospital at Palmas. And we've already gone through growth that's above almost 30% in the first semester from 22 to 23, adding up to almost 150,000 infusions with very interesting levels of growth.
We can move on, please. And besides the fact that we've been operating in each of these regions, growing hospitals and opening up new services, we have also created new partnerships. So last year, we talked about the partnership also with Vale do Rio Doce in Espírito Santo. We've been continuing to ramp up on that and moving very well. This improved our relationship a lot with Vale after this partnership. And so we've been opening up like almost like a Vale embassy.
And we created the executive check-up as well in Espírito Santo in our hospital there. This is a model that we would like to replicate in each of the cities we're in, where we try to attract -- and well, one of the biggest companies in Espírito Santo that sometimes had -- would leave to do the check-ups out of the state. So these big companies are already signing contracts with us. And this is very important.
So you have the decision maker and getting to know the facilities and then after testing, certifying the quality of the learning process, which is really a way to have adhesion and greater loyalty from the executives but also the employees from the companies that are executives and [indiscernible]. We also created a loyalty program called the Kora Card, where patients that don't have a health plan can have access to primary care services, prevention services and exams at a more competitive price. And for patients that do have an insurance, they have preferential services through the [indiscernible] at the Kora hospitals in Espírito Santo, but we should probably expand it to the other regions of Brazil.
We can move on. And so then when we talk about our first screen when we talk about our increase in the occupancy rates, when we consider the last hospital that entered our base in September last year, 2022, and from ever since then, we opened up another 100 beds in the same base of hospitals. So 100 beds that were not operational became operational. And 100 beds with a base of 1,650 beds, almost 7% of an increase in beds and even so with an increase of the occupancy rates.
And so in the year when we consider that it was still quite tough for the payers with such a high claims rate, so of course, the procedures that were more elective or optional had their authorization deadlines expanded or extended. And the number of users kind of went sideways. So we had about 1.5 million users. But even so, we were able to open up 100 beds and increase occupancy rates. And we believe that this is something that should remain in the next few months.
So the volume went from 117,000 to 130,000 patients per day. And so this is a significant increase of, as I mentioned, over 11%, the same hospital base. So we think that this is an important result that we should continue with opening of new bed with about 300 operational beds that we can open up according to the demand, new accreditation and certification processes and services in the next few months.
We can move on. Now I'll pass the floor to Elias so he can talk about the financial indicators and results, and I'll be available to clarify any other questions. Thank you very much. Floor is yours, Elias.
Hey, good evening, everyone. Thank you, Benjamim. Once again, I'm here to talk about our financial results in this quarter. And please, Rhayza, you may move along.
So I think the first good news we bring is strong growth in our revenue that we've been having quarter-over-quarter with this being the third consecutive quarter where we have growth in our net revenue but also while we look at the accumulated results in the past 6 months versus the same period last year. So we had this growth due to the reasons I mentioned, and we have the traction of many medical teams in our hubs in Ceará, in Brasilia especially.
And we've increased our role of services for SADT. This is something we've been talking about a lot, and we've been discussing this in our earnings calls. And so it's something that we've been working on as we unleash each of these opportunities and this has been generating more revenue.
So we've been internalizing this with -- from the Ceará hub, Oto Santos Dumont. We also created some services such as radiotherapy at Vitoria, et cetera. So all of this makes us be able to open up more operational beds that are anchored upon the new payers that we've been able to attract and also the increase of partnerships that we have with the paying -- the payers.
So on behalf of the ticket, we've seen a slight drop compared to the same period last year. And the main factor for this is the reduction of some surgeries with a high OPME cost, and this is something that we've seen many important hospitals in Brazil taking on continue a bit of high-cost surgeries that we don't always have an actual scientific basis to approve.
And with this, we become partners of the payers because they're the ones that kind of cover all of these costs. So in many cases, they're not even the most -- the best treatments available for the patients. And so we can see that this revenue has very low margins, and this makes our profitability increase despite this drop.
And so we've seen the growth of our revenue for oncology grow. And we've had some important services in Vitoria, Espírito Santo, Cariacica and Vila Velha, and Serra as well as in Palmas. And so we've been growing also in Mato Grosso. And this is a way for us to consider greater growth in the Federal District really based and supported by Anchieta.
So you can see this growth in the revenue and also in the amount of treatments. So oncology has been a big focus and will continue to be in the next quarters.
And also, we have -- we also want to consider with the LTM of the second quarter of '23, we've been growing 22% compared to the last quarter, which is a very close metric. We've been growing 16%. So this has been really anchored upon the growth of our revenue, which makes us have a dilution in our fixed costs and of course, the growth in occupancy. And so the reduction of OPME surgery costs and other occasional negotiations with material and service suppliers in order to reduce prices and increase payment terms.
So this is another point I'm going to discuss up ahead. And with these results, as we can see, they've been growing not only quarter-over-quarter, but also month-after-month. And this makes us quite confident that the plan we've been setting is really reaching the results as expected.
So we also want to bring EBIT of the more positive revenues you've had in this quarter. So we also have been reaching levels that we had been reaching before the year of 2022. So we go from a second quarter of '22 where we had a consumption of operational cash to start having almost 70% conversion in our adjusted EBITDA, which was BRL 130 million and an operational cash position.
So this is a very important metric because when we were able to reach almost BRL 90 million of operational cash because then with this cash generated, we can pay for all of our financial expenses, all of our CapEx. And this really helps us not have an increase in our net debt. And this, of course, considers that we weren't even impacted by the drop in the interest rates that already took place in the last few days and that should continue to keep up with this trend as the overall market expects.
And so this improvement in our cash generation process is based on 3 major accounts, right, that leverage this. The first point is maintenance. This is 1 account and line we still haven't been able to reduce the average receivables term despite the strong growth in the revenue. We're very close to the payers searching for positive agendas for the reduction of the stores, trying to adjust processes on both sides for the reduction of this nonpayment rates and with this the reduction of the receipt terms or payment terms.
And internally, we've been trying to automate this process to send these accounts to the operators and payers so we can have the least impact from human errors, et cetera, and have a cleaner account submission process. And the other initiatives we've already started to see results with is our average payment terms that we've been negotiating with many different suppliers. We've been trying to demonstrate to them that this partnership we've been building throughout over time, we can understand that it's really a different moment we're experiencing.
They've been joining us in this process. And we've been able to really have positive outcomes in the negotiations of prices as well as margins and, of course, payment terms. So we've been trying to readjust and increase the payment terms. So we should continue to see this, and these negotiations are really happening. And these results should continue to go along as the payment terms also take place.
And the third item that has been very much discussed and accompanied here is really our stock. So we understand that there's a lot of room to optimize our purchases and also the payment terms for supplying our stock and inventory that we can also share among hospitals in the same hub. So in places where we have more than one hospital in a city, this is possible.
We've been doing this already. We've been also monitoring the evolution of the purchases and the growth of the stocks in each of the hospitals as well as the reduction -- sorry, and increase of payment terms. And with this, we had an important reduction of 9 days already from our working capital in the first quarter of this year to the second this year.
So this is a reduction that is really based on these indicators and on these initiatives that we've been confident about because we believe that these are very much based on this future in the next few months with positive results up ahead. And then as I mentioned before, we had also the maintenance of our net debt, and we were able to continue to have BRL 2.490 billion, basically the same thing as the last quarter, maintenance of our cash and even paying all of our obligations with interest, taxes, et cetera.
And I think that it's really important to highlight also that we have our properties that we're also seeing some kind of an improvement in the real estate market. And the drop in interest makes some investors be a little more interested and recover the stronger interest in sales leaseback operations. And so this is something we've been advancing with internally.
And also, as you've seen, we have a high level of accounts receivable. So almost 150 days of receivables. So this, of course, generates many -- almost BRL 1 billion that we need to internalize, and we've been able to take this term back to what it was before the pandemic. So I think we have different initiatives that we can continue to work with and that should generate fruits in the next quarters.
With this, I'll pass the floor to Benjamim so that he can talk about our ESG agenda bit as well.
Great, Elias. So guys, besides this, we also have tried to work on some initiatives that are in line with the ESG agenda. And so just you guys can have an example when it comes to the environment aspects, all of our hospitals are accessing the free market, with trackability and smart grid systems with solar power energy supply.
The last ones we implemented this were Medical Palmas and the neurology institute in Goiania. We also have been working on social campaigns for awareness and consciousness. We have strong initiatives that we promote among all of our hospitals to generate awareness among the population. And also when it comes to governance, a culture of transparency, ethics and respect.
One of the biggest examples is the second addition of the [indiscernible] data, which is really interesting, where we gather all of the company's leaders to train them and prepare them and really share values, our transparency, our strategies and so that everyone can kind of be on the same page. So this is a very interesting agenda we have.
And we have a big core team involved in the preparation of this. This has been leading to very interesting results when it comes to ethics, transparency, respect among the entire community. And so this has been one of the agendas we've been working on.
I think I want to thank you all once again for this. We are available to answer any other questions. And Rhayza will be leading this part, and we're available to take questions. Rhayza?
So now we'll begin our Q&A session. [Operator Instructions] We already have some questions throughout the presentation. The first one is from [indiscernible]
So congratulations on the results, guys. Can you please talk about the progress with the strategies for deleveraging the next quarters? And especially, where are you with possible sales leaseback operations? Elias.
Thank you, Rhayza. Thank you, [ Jerome ]. As I mentioned just a bit ago, we have been looking into this drop in interest rates and seeing how this makes investors more interested in developing sales leaseback agreements. So the credit market is reopening, and the fixed-income market has also been improving a bit.
So we're quite excited for the next months, and we hope that we can really perform our sales leaseback this year. But we still don't have anything very concrete to announce to you, but it is a strategy that is very important that we've been working on.
Our next question is from [indiscernible]
Which are your expectations towards cash generation in the company for the next quarters considering the current level of claims rates at the interest? And what is the level of conversion at a normalized rate? Elias, please?
Well, historically, we've seen cash generation that's about 70% of our cash EBITDA. So we've already reached the historical levels. But as I did mention, we have a huge amount of accounts receivable that we can bring in-house.
So we have a reduction submission of these accounts to the payers. And we do hope that this process will continue to grow as it has been in the last few months and quarters, as I mentioned, in that slide.
And on the other hand, as I also demonstrated, we were able to reach a level of cash generation that makes us not have an increase in our net debt. So that, of course, at every percentage point less in the interest rates, we have a direct impact in our leftover cash position. So this, of course, along with the control of CapEx and the growth of our operational cash generation, we can imagine that it still is possible to have a reduction in our leverage operationally.
Well, maybe 3 important factors here. In the last few months, we reached an all-time high of submission of bills to the payers. So we kind of eliminated our backlog already considering that when we have the growth of everyone, there has been an increase in terms for submitting our accounts and invoices. And we've seen this has been reaching a normalization level now.
So at the same point, while most of the payers for some reason have some kind of a difficulty, and they extended some payment terms with some agreements, and they've been establishing the payments in the current month. And so this has been basically happening in full. So we started to receive part of this extension, and it's starting to shorten up a bit.
So that means that many of the operators or payers, sometimes you have more than 1 month in that month receipt. So now this is something that's already taking place. And we believe that in the second semester, this should happen a little stronger because the payers are being able to transfer some adjustments and price increases to the buyers and clients of these services.
And we think we've been at a level that we consider adequate. So we should have an improvement in the health of the operators as we expect.
Well, thank you, Benjamim. Now our next question is from [indiscernible]
Kora has been reaching an accounts receivable, and we still have about BRL 400 million in accounts receivable. How many days for accounts receivable do you consider feasible for the company to reach at the end of the second semester?
Well, thank you for this question. Here, we are not seeing anything kind of structural aspects that make us believe that it wouldn't be able to achieve before the pandemic. So when we look at the year of 2020, we had about 90 or 100 days of receivable. And so that thing makes us believe that this has changed structurally.
However, as you mentioned, we have like 140 days of receivables in the last quarter. So we have about 45 days to produce this in this production. Unfortunately, it doesn't happen at the same speed we'd like it to. It's going to happen quarter-over-quarter as we can send these bills, which is something that Benjamim has highlighted and also charge the additional fees and so put into eliminating any kind of delays in the processes with the payers.
So we think that all of these initiatives should be effective in the next few -- in the next 4 quarters. And this will help us reduce and get back to levels that are closer to what we had before the pandemic.
Thank you, Elias. Our next question is from [indiscernible]
With some news about difficulties [indiscernible], have you guys seen a worsening in the payment terms for this specific customer?
Benjamim, please?
Sorry, Rhayza. Could you repeat them?
This is [ Natalia Maximo ]
Well, actually, Unimed Vitória is paying us in time and on full in time. So I think that things are getting back on track. And the new Unimed Vitória management has been actually working very well, and they've been very -- having really good austerity and excellent results, however.
Thanks, Benjamim. And so our next question is from [indiscernible]
Was there a reduction in the average ticket in this quarter? Which were the main causes? Can we consider this average ticket is a baseline for the next quarters?
Second question, was a reduction in the cost of materials and medication with an -- despite the increase of the patients per day, what caused this?
Elias, please?
Well, the average ticket, I talked about this a bit. When we get into details, I think the main factor was really the OPME. So I think we reduced this -- we reduced our surgeries. We had an average ticket that's really high with an OPME that's quite expensive. And it's fundamental to highlight that this is when the surgeries do not have a clear scientific referral or basis regarding the actual benefits to patients, of course, controlled by our medical directors and all of the teams in the hospital.
So this is one of the main factors that made our average ticket drop. But as I mentioned also, this average ticket dropped, and we had an increase in profitability. So this revenue that was generating this average ticket was a little higher was bringing margins that are very low. So we did have a positive effect at the end of the day in our EBITDA.
But this effect reduces our average ticket, but it also reduces costs with OPME. And so as we reduce the surgeries and we lose this kind of ticket, we also reduce the need to pay the OPMEs, which makes our margins actually higher at the end of the day.
And besides this, we have a mix issue within our ticket. So we have some variations that are quite normal to happen during the quarters where one hospital maybe grows more than another, and you have a new payer that comes in that wasn't in before. And of course, with all of this, you end up having some variations in the ticket due to this mix.
But just to add on to this, we hope to have an average ticket back to growth. Despite this dilution Elias mentioned with the surgeries that have high volumes and values, this has already gotten into a normal scenario.
We have other initiatives also that should make our ticket grow with the internalization of 5 clinical analysis labs that weren't operated by us. We've brought 2 in internally. And the third one should be open on the 15th of August and 2 more that we're going to be bringing in house till the end of the year.
For radiology, we just brought in one outsourced, one that was -- that is now internal. We have hemodialysis services, and we internalize all of them now, but not all of them were actually internalized. We still have about 3 or 4 that need to be completing their implementation process, and we'll get -- start operating this year still.
And we do have some adjustments in price rates that will happen now between August, September and October. This relate to some kind of a repercussion and increase of tickets. And so we do hope that we can recover this besides the increase of complexity as radiotherapy and continuous increase of oncology. And we hope this gets back to growing.
Well, we do not have any other questions at this point. So we're going to be ending our earnings call, and we continue to be available to clarify any questions, our Investor Relations channels for investors and shareholders. If you have any other questions, please contact us. Good evening, and we'll see you next call.
Thank you, Rhayza, and thank you, everyone, for your presence. Thank you. Pleasure to be with you guys once again.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]