Kora Saude Participacoes SA
BOVESPA:KRSA3
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Earnings Call Analysis
Summary
Q2-2024
During Q2 2024, Kora Saúde saw a modest 2% revenue growth to BRL 583 million, despite terminating partnerships with several insurance operators. Adjusted EBITDA stood at BRL 117 million, a drop from BRL 130 million in Q2 2023. Oncology services experienced robust growth, contributing BRL 46 million to net revenue. The company's occupancy rate remained strong at 79%. Significant efforts were made to enhance working capital and manage debt, including issuing debentures extending to 2029 and improving payment terms. Kora is optimistic about future growth, aligning strategies with insurance operators and planning new oncology centers.
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Good morning, everyone. Welcome to this earnings call for Kora Saúde referring to Q2 '24.
Q2 was marked by important operational and financial advancements in our business, consistent with our growth strategy. In this Q, we conducted several actions in order to keep on growing sustainably, taking quality medical care to patients, offering compensation models that are sustainable for payers and ensuring the profitability of our business.
To talk a little bit about all these initiatives, we have here with us: Mr. Antonio Benjamim, CEO and Founder; and also, Elias Leal, CFO and CIRO. This is a live event, and you can follow on the presentation on the screen of this webcast. You can also download the presentation that is available in our IR website. At the end of this presentation, we will have a Q&A session. [Operator Instructions]
And before I continue, I would like to say that statements that will be made during this presentation connected to 2024 and to the future of the company are not future guarantees. They involve risks, uncertainties and external circumstances, and they cannot be seen as guidance.
I give the floor now to Mr. Benjamim, our CEO, who will mention the highlights of Q2 '24. You have the floor.
Thank you, and good morning. It is a pleasure to be here with you in another results call, our earnings call for Kora Saúde. This is Q2 '24. Let me show you some figures. And it's important to reflect about the current moment we're going through. This is a moment of transformation for private health. Mostly when it comes to insurance operators and service providers, hospital service providers, we've had 2 or 3 difficult years.
And this first half of the year, mostly Q2, we've had lower occupancy rates, in general, for everyone. It is due to seasonable reasons. There was also some change in behavior of the insurance operators who are making it more difficult to have access, more difficult to obtain authorization for procedures. That's why we see new arrangements arising, things we didn't see before: hospitals or networks developing new types of partnership with buyers.
We saw this happen in the last 2 years. And in my opinion, this is the current trend. So in the next few months, in the medium term, I believe we will see new agreements and partnerships between hospital service providers and buyers working in closer partnership in order to have a win-win situation, working with more transparency and more trust. That is our bet. And we are trying to create these opportunities with several buyers. We believe we are in the right track.
But yes, this is a moment to restructure some things, to be careful and think in the medium term so that we can move forward and go back to a more stable and constant and sustainable growth. And that's what we are trying to do at Kora.
While looking at our main figures, our net revenue, BRL 583 million for Q2. This is a growth of 3% (sic) [ 2% ]. We had a loss of revenue throughout last year, and we mentioned this in our previous earnings call. It happened for several reasons. We stopped having around [ BRL 50 million ] a month for different insurance operators for many reasons.
One was in the delinquency situation, and we had to stop working with them. Another one for strategic reasons. It didn't make sense to keep on with the partnership. With other operators, the ticket was very low. We tried to renegotiate our price tables for 1 or 2 years, and we were not successful. So we decided to cease serving these operators.
Others have payment deadlines that were very extended and the tickets weren't that good either, so we decided to step back. So in any case, these variables led us to stop partnering with these operators, and we had also to let go of this revenue. With some of them, there is the possibility of partnering with them again, if we solve these issues. We have more advanced negotiations with some of them. But still, we grew by 3%.
We have now more healthy pie chart. Tickets are higher and payment deadlines are better. Of course, if we hadn't lost that revenue, figures would be even better. But this is part of the current scenario we're going through. And sometimes we need to take a step back.
We reached BRL 117 million in adjusted EBITDA. And that is very much connected to our strong cash generation, BRL 92 million, quite strong. Our EBITDA margin, a little bit over 20%. The oncology net revenue keeps on growing. We are going to have more oncology centers in the short term.
Our occupancy rate is at 79%, which is within target. Our target is between 75% and 80%. So it's quite a good occupancy rate. 126,000 patients-day. And if we still have the other operators, we would have an additional 10,000 or 15,000 patients.
We have 310,000 emergency room visits. And this -- our target is to be around 270,000, 300,000. It has a seasonable aspect, this figure. Oftentimes, this can mean a higher occupancy rate, or other times, it's just ER visits. 240,000 imaging exams. And surgeries, 25,000 surgeries performed.
Here, we see some highlights. We have our Espirito Santo hub, and it is quite strong. We have reached 500 liver transplants. Few hospitals in Brazil have these figures. And we do it with the same team. It's the same team from the beginning. And that is why this team performs at excellent technical levels, and they are constantly improving their indicators. So we are the only hospital in Espirito Santo qualified to perform liver, kidney, bone transplants and now also bone marrow transplants.
Radiotherapy in Meridional Vitória has reached 100 patients. Of course, there are some difficulties. We needed to accredit our radiotherapy services within several insurance operators. And this takes time, but we are in the right path. Most insurance operators are already accredited and we have a strong ramp up, most of all in Q2.
In Brasília Anchieta. Important growth in oncology services. Of course, there's still room for growth. Anchieta has quite a high occupancy rate. We still have certifications in several hospitals. So Anchieta Ceilândia, ONA Level 2, and we soon expect to be ONA Level 3.
Then we have the neurology hospital in Goiânia, which is quite stable, and we want to have more specialty areas in this hospital. We want to have cardiology there. And we are growing in these institutions as well. We will add more exams throughout the last -- the next months. And this is a hospital that keeps on growing steadily with intensive care and hemodynamics with high occupancy rate. We have 20 intensive care beds, and we will open 10 additional beds in intensive care.
In the state of Ceará, Oto hospitals, we have many initiatives. We internalized the SADT Oto Santos Dumont and Oto Meireles. We did this a while ago, and we keep on growing in these hospitals. Imaging has grown. Oto CRIO is one of our partnerships, and we have Oto Meireles as well there, both growing in a sound manner. This is a service we've been providing for a little over a year.
And we have Oto Aldeota. We now have a robotic service in this institution, and we increased our ER facilities. And now we have pediatrics. This is a problem in the city of Fortaleza in Ceará: very few hospitals have pediatric ERs. We did this already in Oto Sul, but now we have also ER pediatrics in this institution at Oto Aldeota.
Then we have the state of Tocantins. We have the medical network, very strong in oncology. And this is an increasingly complex hospital. It has become a benchmark in terms of hospital services in the state of Tocantins. Our latest achievement was to implement the Da Vinci robot in our Palmas unit. And we were very successful in the first months of operation of this robotic service.
As I mentioned, our occupancy rate is growing a little bit. We opened new beds and we closed some beds, but occupancy is always around 75%, 80%. We have reached 79% in Q2. Hospitalization volumes follow the same line. It's stable when compared to Q1, and it's a little bit down versus Q2 '23.
We had a loss of revenue, as I mentioned, caused by the reasons I mentioned before. And we believe that this growth, if we compare it month-on-month, it would have been higher. We would have been at 140,000 patients a day, but we had to make that move and we hope to keep on growing in the medium and long term.
I will now give the floor to my colleague, Elias Leal, who will show the financial results. And I will be available for the Q&A session. Thank you very much. Elias, you have the floor.
Thank you, Benjamim. Okay. Good morning, everyone. Here you see a summary of our results. Our net revenue has increased slightly versus the same period of last year, also an increase when compared to Q1 of '24. As Benjamim mentioned, we had a quarter that was seasonably lower versus Q2 last year. And we also faced the impacts of these partnerships that we decided to terminate or suspend. Some of them had low tickets, some had poor payment terms. So our volumes were lower for Q2 '24 versus the same period of last year. But this was partially offset by growth in oncology, which was quite strong. And we have also increased our average ticket, as you can see versus the same period of last year. 4% was the growth of our average ticket versus Q2 '23.
Speaking of oncology, we grew considerably, and this has been a constant growth. Most of all, considering the Brasília and the Brasília operations. These are 2 newer operations for our group, with huge growth potential looking forward. These operations are becoming more mature and they keep on growing, and we expect a lot from these states.
And we also have Espirito Santo and Tocantins. These are more mature operations, most of all, Espirito Santo. Tocantins was inaugurated in '21. But they also grew quarter-on-quarter, and that allowed us to reach BRL 46 million in net revenue for oncology in Q2 '24. And we have some hospitals of ours that still could have an oncology center, and we are planning to do so. We have an oncology center in Ceará and the other hospitals could have oncology centers as well, such as Brasília, Goiânia. So we see huge growth potential for these services looking forward.
In Q2, we felt some impact in margins. It's -- we still have the same situation. We are being impacted by the threshold. We have strong growth in oncology and immunotherapy. So that means a high value for medication and also for some surgical procedures with prosthetics or orthotics, and this has an impact in our gross margin and also in our adjusted EBITDA. BRL 117 million is our adjusted EBITDA versus BRL 130 million from Q2 '23.
On the other hand, we see great evolution in our working capital. If we see our inventory line, we had a gain of efficiency in inventory. And that has remained from the previous quarter. We have opened 4 Da Vinci Robot units, as Benjamim mentioned. And that means relevant amount of material for these materials. It's all important, of course.
So part of what we gained this quarter was connected to this increase or to this initial operation of the Da Vinci Robots that are in 4 hospitals of ours. Throughout the next quarters, we expect that these evolutions become even more apparent so that we can improve our working capital situation and our inventory as well.
Our average payment deadline, as you can see, we are still negotiating with suppliers, materials and service suppliers, and we have increased maturity or payment deadline because that will improve our working capital from the receivables side. And there's potential for improvement here, of course. But we have improved this quarter.
We have reduced by 3 days our average receiving deadline. And this quarter finished on a weekend. So a relevant part of our payments are concentrated in the last days of the month, but we had to pay them in the first days of the following quarter or Q3. Insurance operators paid in the last working day. They have changed this practice recently. It doesn't bring any losses, any credit risk, but it adds volatility.
Looking at the payment deadlines that we have at the end of the month, which is quite a relevant volume. We've made major negotiations that we highlighted in our financial demonstrations or statements, BRL 50 million. This amount was due, and it's now -- it will still be due. There was negotiation with some insurance operators, and we hope that these resources keep on going into cash in the next quarters. And that will gradually reduce our ARP, our average receipt period.
We have some provisioned amounts in our balance sheet, losses that have already been accounted for, and we are still trying to negotiate those considering the quality of the hospital accounts we have and also the quality of the payers we have. These are earnest and serious payers, and they are willing to solve this increase in ARP that has been created in the last quarters.
From the operational side, we still have strong cash generation. We have a lot to do, most of all, considering ARP. So we do hope that we have good cash generation levels for the next quarters, just like we had in the past, always above 60% of conversion of EBITDA into operational cash. And this positive trend of cash generation, we hope it will be preserved looking forward as we expect from this industry.
Looking at our debt profile. We are always working to improve our capital structure from the equity side and from the debt side as well. We have a debt at a considerably low cost: CDI plus 2.2%. It's an average profile when it comes to maturity or amortization. And we are looking for alternatives that fit our company's payment needs. We are working with banks, with debenture providers or with the previous sellers that saw those hospitals, we still have some amounts due to them.
And with that, I finalize our presentation, and we are available for any questions you might have. Thank you for your attention.
[Operator Instructions] We have received a couple of questions. We have a question from [ Brenna Fortuna ], "Congratulations for the results. Could you give us more details about the initiatives conducted to give a new profile to debt maturity or amortization?"
Elias, I think you can answer this one.
Thank you, Brenna, for your question. We have made 2 major moves in late '23, which is issuing some debentures that have prolonged our liability for '26, '27, '28 and '29. A considerable amount of our debt is concentrated in these debentures.
We've also readjusted the liability with banks with relevant maturity by next year. In 2023, we made a major change in our debt profile. We reprofiled accounts payable for the acquisitions that we made. We have been in conversations with banks and debenture providers and with the previous or with the previous sellers because we want to readjust this. We want to understand their specific needs, the company's payment capacity.
As Benjamim mentioned, this industry is still readjusting itself after COVID. But we see already improvements that are expected for the next quarters. So creditors have always been good partners, and we expect to be successful in these liability readjustments that will take place throughout the next quarters.
Thank you. We have a question from [ Gabriel Bastos ], "What is the average receiving deadline if the quarter had not finished on a weekend? Did you anticipate receivables in this quarter?"
Gabriel, thank you for your question. We have moved some receivables forward, same amount as last quarter. The goal is mainly to preserve our accounts receivable standards. So there was no change in the anticipated payments we had. But the figure I showed you, 144, it already includes what we consider advancing receivables.
It's important to mention when we look at 144 days, they include the [ BRL 50 million ] that have been renegotiated. They're still in accounts receivable. And we have around 7 days of accounts receivable that are signed already. They have deadlines or adjustments that have been defined. And I think this is a relevant point.
We also have an amount due by the end of this month, which is quite relevant -- or by the end of the month. There was a payment of around BRL 40 million early in the month. And this is an amount that would further reduce the average receivables time.
So with that, we would reduce this deadline by an additional 5 days. So we have current account receivable 12 days smaller than what we have considering this BRL 40 million that we have adjusted within our contracts, the terms of the contracts, within what is allowed.
Thank you, both. We have 2 similar questions from [ Matthias Brack ] and [ Conrado Ramos ]. "We would like to understand what are the options for debt postponement from 2025 onwards. Do you consider increasing equity or selling hospitals?"
And Conrado asks, "How are conversations with banks to postpone debt for 2025?"
Well, we are indeed in conversation with banks and debenture issuers and the sellers of the hospitals and institutions we have to pay in the next periods. We've seen an operational evolution, and we show this to them both from the results side, but most of all in operational cash generation. This makes everyone comfortable. It makes us comfortable that the company is on the right track.
We need to readjust our liability and our equity structure because this will leave us in a much more comfortable situation. So conversations are quite positive. Creditors do understand the situation we just showed you, and we showed this to them as well. And we hope we can reach positive terms, positive results with them in the next quarters.
Considering equity or capital increase or selling, well, we readjusted on Anchieta, as you remember late last year, with a cap that is very much favorable for our company. And everyone is very much pleased with this operation and the impact it's had in our balance sheet. We would like to do that as well in other 3 hospitals. But we have not yet reached the cap rate and the pricing we expect. And that is why we have not conducted the selling of these assets yet.
For a more dramatic reduction of our debt level, we will need to increase capital or maybe sell one of our hubs. And for the time being, this is not being discussed. But it is indeed something that could accelerate this reduction. So it's not being discussed right now among controlling shareholders or in the Board. We're not considering changing our equity structure or selling hospitals.
Thank you. Now we have a question from [ Livia ], "How is the relationship with operators, insurance operators? This reduction of ARP, will it continue in the next quarters? Will you keep on improving working capital?"
Benjamim, would you like to answer this question?
Thank you. Well, as I said, in general terms, hospitals in Q2 did not have the expected performance. Insurance operators will certainly have good results in Q2. And that makes it easier for us to go back to our previous standards. You know receivables, nonpayment standards, we're not comfortable with the situation because that leads to other consequences. So we are working closely with insurance operators.
We have to understand the current situation. We will not commit on price readjustments, and we want to improve payment deadlines. This is something that has happened. We have renegotiated this with several operators. Usually, all these payment agreements, they are done in installments, 6, 12, 24 installments, so amortization happens with time. And we also have strategic partnerships with some operators. In these partnerships, payment terms are one of the strong points in these partnerships that we establish.
Thank you. Now we have a question from [ Douglas ], "Hello. Considering the gross margin decrease, will we have new impacts from the salary of nurses? Regarding the assemblies negative to leave Novo Mercado, what are the next steps of the company for capital raise considering the amortization time line? Is a new investment a possibility?"
Okay. Let me start with the first part of the question. Salary, the minimum wage of nurses. There is -- in one of our hubs, we still have not adjusted to the regional agreement between employers and nurses' union. So this impact has not happened yet. But this is not going to be retroactive. When we do readjust salaries, this will be only looking forward. And it's a small hub, so impacts would not be that large.
We have seen a growth in the use of immunotherapy drugs in oncology. And of course, immunotherapy is more expensive, but margins are different. We have been reviewing some medication standards, some agreements with physicians so that we can preserve our margins in spite of the increase in immune therapy because this is higher than in traditional chemotherapy. We believe and we want to keep on growing with chemo because we can freeze chemotherapy. In immune therapy, there is another part of the revenue in the hospital that comes, of course, together with chemotherapy. We have surgeries, intensive care, admittances. And this is equal or higher than chemotherapy per se.
Regarding the equity structure and the assembly, the shareholder assembly, there was a vote in the assembly. We decided not to leave Novo Mercado. And the controlling shareholder mentioned the situation of continuing with OPA. We have no information of any other conversation for capital raise or any new OPA. So we have no new information besides the other information that we have shared about 2 weeks ago.
Okay. We have no further questions. I'll give the floor to Mr. Benjamim for his final remarks.
Thank you, Rhayza, and thank you, everyone, for participating in another earnings call. Thank you for the questions and interaction. We have clarified some additional points regarding the company's results. And it's really important for the market to understand what we're going through, the current context.
I've been in this business for almost 30 years. And I am sure that we will leave the situation with more stable and sound arrangements for the company that will allow us to grow in the future in a strong and sustainable manner. It will be a win-win situation between payers and Kora. And I thank you very much. Have a great week.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]