Odontoprev SA
BOVESPA:ODPV3
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Odontoprev SA
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Good morning, ladies and gentlemen, and thank you for holding. Welcome to the OdontoPrev conference call to discuss the earnings of the first quarter of 2020. Today, we have with us Mr. Rodrigo Bacellar and José Roberto Pacheco.
We would like to inform you that this event is being recorded. [Operator Instructions] This event is also being streamed on the web via webcast and can be viewed at www.odontoprev.com.br/ri, where the respective presentation is also available. You can control this slide presentation. The replay of the event will be available right after the conference call is over. We would like to remind you that the webcast participants may register questions in advance via website to OdontoPrev, which will be answered during the Q&A session.
Before proceeding, let me mention that statements made during the call relating to the OdontoPrev business perspectives, projections operating and financial goals are based on the beliefs and assumptions of company management and on information currently available to the company. Forward-looking statements are not a guarantee of performance as they involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that overall conditions, industry conditions and other operating factors could also affect OdontoPrev's future results and therefore, could lead to results that materially differ from those expressed in such forward-looking statements.
Now I'll hand over to Mr. José Roberto Pacheco, IR Officer of OdontoPrev, to begin the presentation. Mr. Pacheco, you may begin.
Good morning, everyone. Welcome, and thank you very much. I hope that everyone is well. Thank you for your interest and trust. We are OdontoPrev. I would like to thank you for attending the company conference call to present the results of the first quarter and inaugurate the cycle of releases for companies directly related to the health care industry now in 2020.
Before I begin, I would like to share with you all our vision relating to COVID, that is how we at OdontoPrev from the start of the pandemic reacted and implemented our actions. The first attention was related to our employees, approximately 2,200 in many different areas of Brazil, with a higher concentration in São Paulo. Since 2019, we had already started implementing home office and home-based activities in several company departments and areas. With the arrival of the coronavirus, in just a few weeks, still in March, 100% of the OdontoPrev staff was already working from home with the appropriate digital tools. It's also natural that the majority of our customers are currently in their homes in social isolation as well as the internal -- international guidance from dentist societies that also recommend that only emergency treatments should be performed or dentists should only work in emergency conditions. Thus in just a few working days after the start of the pandemic, we at OdontoPrev developed adaptations with the accredited network. So the essential urgent and emergency services could be delivered and performed with our traditional assured quality in hundreds of cities, in all states, achieving approximately 85% of the municipalities where our 7.5 million members are located.
Finally, with teledentistry, the online dental guidance service was another differential and innovation for our customers, which was quickly implemented, enabling access to specialized dentists, our employees, to provide information, guidance and clarify any doubts.
Well, now to begin the presentation, it is worth noting that in 1Q, we did not observe any effects from COVID-19. The explanation is simple, and it's related to the average period of 45 days between the dental treatment and the actual realization by that at the company after the traditional processes to technically check the electronic medical records and the paperwork. As of 2Q '20, we should gradually observe a slower pace in the request for authorization from dentists and appointments scheduled by members, proportional to the time that the pandemic lasts, thus resulting in a potential reduction in the cost of services.
On the other hand, the consolidated revenue for the coming months and quarters may reflect the impacts of the specific industry and macroeconomic issues leading to eventual contract cancellations and terminations, and there also may be a greater provision for losses on credits or even financial discounts. We ended the first quarter, as we can see throughout the presentation, with at least 3 achievements that highly encourage us in this specific moment. First of all, we've recorded the highest number of new customers in the first quarter in the last years with 64,000 net additions. Secondly, we've recorded a generation of record cash flow of BRL 113 million, going from BRL 560 million in December to BRL 673 million now in March. And lastly, I'm proud to say that we have almost daily records in new members and individuals, achieving 34,000 at the end of March. And now in April, we've exceeded 40,000.
Now let's take a look at the webcast slides. On Slide #3, we can see data from the ANS since 2012, where the dental plans have a continuous growth, even during the difficult years of the recession, with net additions of 181,000 members in the first 2 months of 2020, exceeding 26 million members.
On the next slide, #4, we can see the evolution of our annual consolidated net revenues and the breakdown per segment with the highlight to the noncorporate segment with an average annual organic growth rate of 16% in SME revenues and 25% in individual plan revenues. These levels are much higher than the industry and our main peers.
On the next slide, #5, we can see that OdontoPrev has added 64,000 new members in the quarter, the best commercial performance for a quarter since 2012, as mentioned, with the addition of 244,000 members in the past 12 months.
On Slide 6, we highlight the specific provisions or one-off provisions occurred in the quarter related to individual plans with free choice accredited professionals and dedicated to the high income members in the amount of BRL 24 million, accounted for in the cost of services, increasing the dental loss ratio of the segment and the company as a whole within the cycle of maturation that we have discussed with everyone since the third quarter of last year of 2019.
On our next Slide #7, we can see that the consolidated cost of services, 45.8% in the quarter, 540 bps greater than the 40.4% in 1Q '19 as a result of the provisions we just mentioned. Excluding these provisions, worth noting that the consolidated cost of services would have been only BRL 184 million in the quarter, absolutely in line with 1Q '19.
The commercial expenses, as we see on Slide 8, improved in the annual comparison with emphasis the drop of 150 bps in individual plans due to the growing share of bank channels and the composition of the portfolio with the lower acquisition cost compared to department stores.
On the next Slide #9, we see that in the quarter, there was a sequential increase in the contribution margin of the corporate segment by 390 bps and 330 bps in the SME segment. Individual plans, in turn, of course, considering the provisions, dropped in the contribution -- to 26.1% of the revenue. Excluding such provisions of the contribution margin in the individual segment, it would have been 47.3%, 350 bps above 4Q '19.
On our next Slide #10, we can see that bad debt was just 3% in the quarter, the lowest level in 5 years as a result of the lower share of individual plans from department stores and a higher share of the individual plans from the bank channel.
Now moving on to cash generation. According to Slide 11, we see an adjusted EBITDA of BRL 112 million in the quarter, 8% higher than 4Q '19 with a margin increase from 23% to 25%, but still low, of course, compared to the excellent margins observed a year ago when we realized BRL 13 million in reversals for the award in the ISS suit back then.
On Slide 7 -- on Slide 12, I'm sorry, we see that the company generated BRL 127 million in cash in the quarter, a record quarterly performance since the IPO, ending March with net cash of BRL 673 million, 20% higher than last year, with no debt.
On Slide 13, our next slide, we can see the evolution of shareholder compensation in cash dividends. During the meeting of the Board of Directors held yesterday, an additional dividend distribution was approved, an interim payment for the first quarter, in the amount of BRL 24 million.
On our next Slide #14, we can see the company's investor base has -- remains globalized within approximate free float of 87% with foreign investors from over 30 countries. We're also proud to highlight the continuous growth in the number of individual shareholders, as you can see on Slide 15.
And lastly, the record in share liquidity for 2020 according to our last Slide #16.
Once again, I would like to thank you all for your interest and trust in OdontoPrev. And now I would like to move on to our Q&A session in our common practice of a 45-minute earnings conference call. Thank you all.
[Operator Instructions] Our first question is from Mr. Leandro Bastos from Citi.
Two questions. The first one is more specific about the extraordinary provision for the quarter, just to understand the nature of that and what was the trigger for that. So that's my -- the first point. And the second one about COVID, you well explained the impacts to the company. Could you share the magnitude -- the order of magnitude of that impact? I know it's still low for a while. So how did you -- how do you see April so far, if you can give us some flavor on that?
Leandro, thank you for your question. About the BRL 24 million for the provisions in the individual plans for free choice, high-income plans. Well, that's a topic that we've been commenting since the third quarter last year. So back then, we advised the market and everyone that, that would be an annual cycle that would move through till mid-2020. So they were plans that had adverse selection. They were plans that were sold, in some cases, by brokers that are not typical brokers in our commercial chain. These dentists aren't accredited. They are free choice and therefore, picked by customers. So it's an atypical plan that has been discontinued since 3Q '19. But the customers are still entitled to use the plan and have some surgeries. So that's the issue with the individual plans. In 3Q '19, we've been seeing a continuous reduction in the number of these customers as these treatments are delivered and performed.
So what we've noted in the beginning of the year, particularly in January and February, was the higher intensity of these processes, given their higher complexity. They haven't -- still haven't been totally concluded based on the company's understanding. Be it because of the admin aspects, some documents, for instance, the paperwork or the technical side, the dental side, relating to coverage of a given plan or even the process, how it was done, how surgery was, in fact, performed.
And finally, on the legal side, where there still could be some additional steps until it's concluded based on the veracity and the accuracy of the paperwork submitted. So our stance is very conservative. It's not about the events, which is main aspect in the cost of services. We made that very clear in the press release and the ITR, where you can identify that in the explanatory notes. So where it's the -- it's also part of the cost of services. So that's an event that stood out to us in the first months of the year.
So our understanding is that it shouldn't repeat itself for 2 big reasons: First of all, the first scenario, COVID, where frequency is decreasing in all of Brazil. Rodrigo will talk about COVID. As -- and after treatments are concluded relating to this specific product group, that portfolio will close, will end, will no longer exist, if not at the end of the first half, this theme should no longer be relevant as it has been since the 3Q '19. So it's an annual aspect. It -- there was a highlight in 3Q '19. And now we still have some procedures that are being analyzed as well as the paperwork in the beginning of the year. That's why we're provisioning that specifically in 1Q '20.
Now I'm going to hand over to Rodrigo so he can address COVID. Thank you.
Leandro, thank you for your question. Just to add, relating to the provision that Pacheco already mentioned. In 3Q '19, we said that it would take until the end of June 2Q '20 and maybe even go into July to dilute the effects of that plan that Pacheco just mentioned. So this was done based on a curve that we were considering the different seasons, the periods of sale, the regions where these products were sold. We even considered the brokers that were involved in selling these products. So just to explain that this curve is in line with what we were predicting last year in September. So it's very much in line with a deviation of approximately 1% in the amounts that we expected. So we continue to affirm that it would take till June and July to have the entire dilution in that case.
And just an important thing that we have to also link with COVID. I think it's about caution. We're experiencing something that we never have before, a lockdown, extreme lockdown. And every single day, we get different information about becoming more flexible or information if it's a virus that we will become immune or not, so a person may have gained immunity and some for just 60 days. And then after 60 days, they could get contaminated again, and then cases with no immunity at all. So a number of things are being studied. It's a new disease. And we -- there's a lot of doubt about the effects. So that's why I'd like to use the word caution plus uncertainty, given all of this novelty in terms of what we should expect moving forward. So there's 2 ways to look at the impacts we've seen so far: the internal impacts and the external impacts. Based on the internal point of view here at the company, at the end of January this year, when we weren't even talking about lockdown or social isolation, one of our employees that came back from Italy at the end of January, he was already placed in quarantine. He stayed home for 2 weeks before he came back to the company. So in that sense, and about surviving, that was very good for us because in our 2,200 employees, we only had 2 reported cases, and this was a while back, and thank God, they are doing very well.
So with that, any travel of employees from the end of January, we were already placing them in quarantine here at OdontoPrev. Another important aspect, first, I'm talking about the internal aspects here at the company, was the development that we had to enable the company to operate remotely. So currently, we have 1,090 cities that are servicing approximately 86% -- 87% of our members in the urgency and emergency regimen. In just 2 weeks, we were able to implement in urgency and emergency network servicing 86% -- 70% of our customer base. We also use teledentistry. So a patient calls. They will be serviced by qualified dentists to give them first service, indicating an inflammatory drug, for instance. Or if it's a case of an urgent manner, to send them to a clinic and where that clinic is located. We'd like to kid around that last year, we shot what we saw and we hit what we didn't see. So when we had the better zones for work and more functional areas for working, that based on the principle that we would change and renovate our offices all over the country and have less area as well. We used to have 2 floors here in Alphaville. Now we only have 1 floor because at any time, we have from 20% to 25% of our employees working from home and as well as the other ones that are home-based since August and September when we started to migrate. So they were 100% working from home already. So I think many things that happened and enabled us to reach this moment where we're able to operate the company remotely.
So that's internal. How about external? How do we see this development? It has a lot to do with the economy as well. So what have we felt so far? I'll give you some flavor about April as you asked. We feel that the corporate sector is more resilient to the crisis. Obviously, there are companies that are directly impacted by the crisis, and we see negative movements as we call that internally, being -- employees being terminated. And for instance, airlines, the low flow in tourism, the shopping centers, merchants, those services that are connected to airport and port services, flights and tourism, we see that. Based on the news, we see a decrease in those cases. They are already terminating employees. Sometimes there are just layoffs and sometimes they're actually terminated.
So what will happen to the corporate sector? So far, it's highly concentrated in the industries that I just mentioned, and that will depend on the economy getting back or not. So we've seen that as from the 10th or 17th of May, there will -- São Paulo will be more flexible. So that could change obviously, but the start is -- the idea is May 10. We're not sure if they're going to -- how they're going to flexibilize that. So there are a number of uncertainties in the disease itself that makes us use our word as a guiding star caution. So we're very careful in relation to our operations. So in corporate, we'll see when it's going to come back and also the flexibility.
In SMEs and individual plans, we clearly see a reduction in activities because that's highly related with the distribution channel and the distribution channel for individual plans and SME, in most part, goes through the bank channel, which is suffering the restrictions. Even though the bank branches are open, since people are avoiding going out, you have less contact, relevant contact during this moment. So there's a drop in visits and the ability to do business within -- with SMEs and individual customers. So that's what we feel. We feel that there's a first impact in sale and new production in SMEs, and corporate is still resilient, and there's also the comment that I mentioned about the industries.
We'll have to see how long this will last and how long -- when we're going to flexibilization, to have more clarity in our next steps. So until then, caution is the word of order. And considering what can happen if sales decrease, on the other hand, the DLR also decreases because people aren't going out. So just to give you some flavor based on the activities in terms of service, we see -- we call them the vital signs, the company's vital signs. We have a meeting at 5:00 p.m. with the Board of Executives that we call the vital signs, where we analyze that clinical, operational treatment and giving out the approvals that give us an idea of the dental loss ratio. And it dropped 92% with COVID. And now we see it going up week after week. So it reached a peak of drop to 92%, and now we see that moving upwards.
The other point -- important point is service, so the relationship channels that we have. Our partner, dentists, broker dentists, members, customers where they communicate with us. So in the first week, we also had a big drop. And then now we're going up to 50% of what we saw before after having dropped to 80%. It dropped less than DLR, and now it's around 50%. And commercial activities, I have mentioned before that there's the corporate and there's SMEs and individuals. That's pretty much it. We're monitoring that on a daily basis and being very proactive in our ability to service, develop digital tools in teledentistry. So that's how we've been working in our day-to-day. Thank you for your question. I hope I was able to clarify your doubts.
Our next question is from Mr. Joseph Giordano from JPMorgan.
I'd like to talk about 2 points. The first one is about daily operations, and the other one is what could be actually transformational for your business post-coronavirus. Rodrigo has already mentioned some initiatives, I'd like to hear some more. So the first is to look at the average ticket. We see a heat up in that in -- on the corporate side, and inflation is still very low. So I'd like to understand on your side how you see the pricing dynamic from now on, given that the inflation is very low. And the second point, in operations, bad debt was a big highlight in the quarter, as Pacheco mentioned. I'd like to understand what the company's approach will be in renegotiating the big and small contracts, if there's going to be a difference. And in individual, it's different if you're going to give discounts or postpone payments. On the transformational side, I'd like to know about the regulatory aspects in terms of teledentistry. So it was -- okay, is it temporary or not? So how could that change your product design from now on? And even working with someone that could -- something that could be -- everybody, more people could have more reach.
Joe, thank you for your questions. I'm going to answer them in order. So about revenues, actually, we have 2 various different situations. First of all, the corporate reality based on long-term relationships, the average typical duration of a contract is 7 years. So we have decades of relationships with some customers. And I don't believe that 2, 3 or 4 months would impact that. So the company has the flexibility to understand the reality of each industry, of each company. And based on that long-term vision, would be able to find commercially constructive solutions for both sides. In the noncorporate segment, the reality is different. So first of all, SMEs, they will suffer more, obviously. It's a different reality compared to big companies, and many of them will no longer exist in the next months and even quarters. It's not even about debt. Bad debt, the companies will not resist.
At OdontoPrev, we have a very important mitigator in that sense, given that over 85% of the SME portfolio came to us through the bank channel. And I believe that all of you know the entire solutions package and efforts that the banks have been endeavoring into rolling over contracts and extending facilities so that SMEs can survive. We believe that the SME portfolio, specifically for the company, it has a higher quality compared to other market players.
Lastly, relating to individual plans, this situation isn't the same as SMEs. We have basically 2 major groups from -- in 1 million members, half is banked and the other is not. They come through commercial partnerships with the retail stores. That's where we should have a higher drop in the next quarters and next months. So that portfolio that already has a lower profitability for the company historically, given that the conditions and terms are higher and bad debt is higher, that should lead to a margin gain. So it's very likely that this portfolio would be cleaned out and would have a higher margin in the consolidated portfolio in the next months -- in the upcoming months. We're monitoring that. It's still early to say. We're in the first month of the new scenario. So far, no highlights to call to your attention. But obviously, the resilience of the corporate portfolio is the major differential vis-Ã -vis the drops that Rodrigo already highlighted in service frequency, in care frequency.
And another point that we have to call your attention to in the natural hedge that OdontoPrev has in its financial framework, given that most of the cost of services is variable, if not all of it, and a significant part of expenses, particularly the selling expenses, so the commissions paid. So it's natural to expect that the company will have a considerable cash flow, a differentiated cash flow. Different compared to other companies, companies that are more exposed to the traditional medical hospital segment.
I'm going to hand over to Rodrigo now.
Joe, about teledentistry or any other trends that may occur, I believe that we just had the opportunity, given all the pressure of an urgent situation of social isolation to be able to advance with the digital service side. But there are things that we can do completely remotely and others where you need in-person treatment. So just to give you another example, in addition to teledentistry, we launched an app for our members. It has embedded intelligence. So they start to list their symptoms. There is a decision tree in the app that calculates the probability of what type of problem or disease that person has and feels. And at the end, the app recommends a dentist close to the area where the member is through geolocation. So they'll recommend a dentist from our accredited network that's close to them, and that's a specialist in that specific issue based on what the embedded technology said would be -- could be the problem. So in the digital world and behavior, we'll have that more interaction of the members with their phone.
So in the past, they would call a call center or use the booklet that looks like a catalog with all those dentists. Just by answering 4 or 5 questions now in the app, they can have a suggestion already recommending someone close to them or close to their work or close to their home, and also that specialty and the times that the dentist is available. So that side about putting our customer at the core and thinking of a customer's journey is something that's very important in developing solutions, given that they're more likely to use their phones to seek anything. That's good. So COVID will bring in some good things and the bad things. And the good is about how we can evolve faster. That's what I had to say.
Just going back to operations and COVID. There's a relevant aspect about what's not happening in terms of procedure today or the elective procedures and maintenance, right? And when we look at the recent downturns, we had the moral hazard. And the dentist was doing more services than the average per visit, right? So I'd like to understand from you, what's the percentage of services that were postponed? And we should see again in the next 6 or 12 months to understand the dentists' behavior in the network that the frequency generated more procedures. So I'd like to understand how that's going to change the dynamic of the cost of ticket moving forward.
So in medicine, this is a bit different because many interventions and surgeries in medicine could be postponed, and some aren't again. So orthodontics. You have 1 monthly maintenance. And in these 2 months that it wasn't done, you're not going to get 3 maintenances in the future in 1 single month, right? So as that one, we'll see other aspects like that. So some things that didn't happen will not happen. And even the loss ratio doesn't allow that. You can't have 2 orthodontics maintenance per month, just 1, among other things that cannot take place under 7 days, for instance. Plus there's the schedule, the appointments. So let's say, I was scheduled at 9, you were at 10 and Pacheco at 11. When things come back, that time is no longer good for Pacheco. So he's going to miss his, and then you might get his. So there's also the capacity and the logistics to be able to allocate that in the schedule. So we've never had a crisis this big. We've had strikes, and the strikes helped us to learn how these things work, what types of measures we take, the contingencies. We have a contingencies plan. So some experience in the past with similar moments we already had and that gave us the path. So in just 2 weeks, we were able to service those 1,090 cities. But now we've never had anything like this. So I'd say that 100% of the procedures will not be done, will not come back. Many of them will not be allowed according to dental loss ratio regulation. So -- and other things that haven't been done will be done.
Our next question is from Mr. Samuel Alves from BTG.
Just 2 quick questions. First, a follow-up relating to the provisions and the individual plans. I'd like to understand if there's a prospective factor in terms of the magnitude of the provision. Pacheco mentioned that the provision was related to the procedures that were still under analysis in January and February. So my question is, if not the coronavirus scenario, will the provision for the first quarter be higher? That's my first question. And the second one is if you can give us some flavor about April. Rodrigo mentioned the commercial environment and frequency in the receivables. Is the company's receivables flow normal? Do you have any significant changes?
Samuel, great points. About the provision, COVID didn't impact 1Q at all. So just to remind you, the social isolation started in São Paulo and in Brazil. Actually, first in São Paulo, and then in Brazil later. Our operations in the Northeast, the isolation started 2 weeks after having started in São Paulo. And even in São Paulo, it started on March 23. Some companies on the 20th and some on the 26th. We stopped on the 23rd. So -- and then we had a cutoff date. So dentists asked for approval, authorization to perform treatments. And then after a certain while, the 23rd, 25th, depending on if it's a Saturday, Sunday or whenever, you have a cut-off date to process. It's a normal closing date for any operational process. That cutoff date is usually on the 25th. We were still operating full time. So there were -- there was no COVID influence. And I'd like to say again that, that is absolutely in line with the model that we did in September last year, and it's what we expected. It's very well-behaved based on what our predictive model was stating. So once again, this process will be -- have been fully diluted by June or July. And not all free choice processes were bad. It was a group of 12 products, and we had 4 problematic that we canceled. We changed the price list in others. So a number of restrictive measures that were implemented way back in August, September last year. So that's very much in line with the expected and behaving as we had predicted. So that's about the provisions.
About the receivables. On the corporate side, SMEs and the corporate segment, the bigger companies, we don't have bad debt yet. We have requests to -- for extension. So the -- even one that asked to pay the bill in April instead of March, it was paid. So the volume isn't concerning us yet. And second, it's not the actual bad debt. It's not like, "Oh, okay, I owe you, but I'm not going to pay." First, it's like, "Oh, can you give me 30, 60 days extra to pay?" And then we have done that for these companies that, in fact, need that as they are our partners.
For individuals, we've seen a growth in bad debt, especially because our distribution channel are banks and retail shops. Since the stores are closed, it's very hard because even though they can pay with a payment order or pay at a supermarket, pay their bills, most -- in most part, they pay their bills at the stores. They buy something new, ask for more credit and pay their -- and make their payments. So we have seen an increase in bad debt in individuals; in corporate, no. And in SMEs, it was good that you reminded me because I was going to comment that in the previous question. We have a package. We've done this through clusters. So we have clusters of how long they've been in contract time, some indicators that show what kind of conditions we can give these customers based on the cluster they are a part of. So that's something that we considered and was implemented about 4 weeks ago, and we've been continuing. So yes, individuals, it does increase a little. SME is not yet. And corporate, they've asked us to -- more time for payment.
Our next question is from Mr. Ricardo Boiati from Safra Bank.
I have a quick question about DLR in corporate. In the past 3 quarters, we've had an increase. And in previous calls, you said that, that could be related to moral hazard because of the rates of unemployment. I'd like to understand if that is still your understanding, if that's correct. If that slight increase in DLR is related to frequency or could that -- is that a resulting impact that the increase in the corporate wasn't enough as a result of the increase in the prices of the treatment?
So thank you for your question. Actually, in corporate DLR, it's both factors. On one side, you have a higher frequency and the moral hazard, meaning that concern with unemployment exists. Since mid-last year, we've been seeing that, and it's no different now in the beginning of the year. On the other hand, this portfolio is based on long-term relationships, many years providing services. So it's natural that the cost is very stable. Therefore, there's no reason for you to increase the ticket in that contract, given that the margin is very stable. So the ticket actually varies very little. But what's at stake here is the pricing strategy for corporate vis-Ã -vis its annual relationship and not take that -- consider that annual inflation indicator to its maximum. That's one of the characteristics with OdontoPrev, having a ticket that reflect the cost of service. As the cost of service is very stable, you don't see many ups and downs of the average ticket. And lastly, as you mentioned, frequency is the main reason. Since mid-last year, given the moral hazard, that's all true.
Our next question is from Mr. Mauricio Cepeda from Crédit Suisse.
I know that you want to end the conference to maintain your 45-minute practice, but I'll be quick. I'd like to insist on the hot topic of the individual plans and the provisions and in a certain washout of the DLR, so I have 3 questions relating to that. Why now? What was the trigger? And how many members are we still talking about? So the order of magnitude. And why do you expect that it would come back to normal in June in terms of DLR? And the other side, on the transformational side, what's planned for the commercial channels given that market shock, the shock in retail and banks are limited, and you were already looking for other channels. So what are you thinking moving forward in terms of your selling channels?
Cepeda, so the trigger, as mentioned, in the first 2 months of the year, we saw more paperwork coming in for these products, for these plans. Since they're high-income procedures, usually, they're more complex. And as they're more complex, they require an in-depth analysis. And not only from the technical side, but also the admin side as they're extended coverage plans. Therefore, they require more understanding. There are many different categories in the plan with more coverage, and they were focused on high-income customers. So there are very detailed analysis that haven't been concluded. But given this -- it's different than the previous ones. And to be conservative, we decided to register that in this quarter, and once again, in cost of services. But they were not events, the indemnifiable claims. So it's not likely that, that would happen again. First of all, it's a residual portfolio, less than 20,000 members. And secondly, when these procedures are done, they discontinue the plan, given that the ticket is very high. So there's no economic reason for them to remain in that type of plan. That's why we believe that, as Rodrigo mentioned, and since the third quarter last year, we've been mentioning this process will end in the middle of the year of 2020. That's the reason why, the atypical reason why we had more interest, and they were submitting their paperwork and their records in the beginning of the year until mid-March.
I'm going to hand over to Rodrigo so he can talk about the distribution and expansion aspects that you mentioned, Cepeda.
Cepeda, 3 years ago, speaking of other distribution channels, we always have to think of all those different plates that we have to juggle around and consider the potential members so we can offer quality dentistry to more and more Brazilians. So an important aspect of the story is that we have very specific distribution channels that are very powerful. We have a strong partnership with brokers, with bank channels, with retail, call centers. And then a very important aspect in that, that we started to improve years ago is the -- 3 years ago is -- in digital is the e-commerce. So we've started to sell through e-commerce. We've been measuring which sites customers access, which ones they leave, which ones they assess the service, which ones they buy. So we have localized campaigns, we had campaigns on radio and even TV in the back -- in the past measuring the impact to digital. So we've been growing our knowledge in digital distribution. And relating to banks, that's one of the questions that came up on the webcast. I'll answer it now.
We already have product available in Next. It's the Bradesco digital bank. So we have a number of different options, studies. We're always advancing in digital distribution and remote to increase our range of distribution channels. Another one that we've tested and will probably come back soon, it's you buy a card, you scrape it off and it gives you information about the plan. So we go into one, go into the other and try to understand how consumers will consume a dental product digitally. So that's some of the experiences that we've been having, and we are present in the digital bank, which is Next.
Our next question is from [ Mariana ] from [ Electro Financial ].
It's relating to the first quarter, since you didn't have an impact of the coronavirus, I'd like to understand why you had a drop in revenues growth. Is it because of the average ticket? And will that get worse given that the expensive -- corporate expenses have an impact on that? I know you already mentioned the average ticket, but I want to understand what happened specifically in the quarter.
[ Mariana ], typically, in the first quarter, the number of additions is lower. If we consider the last 10 first quarters, the summers, in Brazil, it grows less and the industry grows less because it's less corporate contracts that are signed, a lot of people are on vacation. So DLR falls as well. So it's a specific thing related to the first quarter. In this case, we had many simultaneous events. We had smaller portfolios in the individual plans, not only in the bank channel, but also in the stores channel. That's an important segment in incremental revenues, which wasn't the case now. The growth of the SMEs was relevant. That was supported in volume and also in the average ticket that is mainly a bank portfolio. And finally, the highlight came from new additions, 77,000 members in the corporate segment. That was the highlight for the first quarter.
There were no significant losses in -- from any contract. Quite on the contrary, we brought in new contracts, and we also grew our share in open enrollment. So it was a significant quarter. It was strong in volume, the best in the past 8 years. But I agree with you. Revenues also involves the ticket effect, and that didn't happen. So we have a very cautious vision for 2020. I believe it will be a year in which the cash flow will be the highlight. The generation and margin increase in 2020 -- and this is rare to hear in the capitals market conversation, I believe, currently, but it's extremely likely that, that will happen at OdontoPrev.
I would like to thank -- we're running 15 minutes over our time. I know there are still some questions coming through the webcast. I would like to thank you if you could -- or ask you please to send them by e-mail.
So once again, thank you. And now we're ending this conference call relating to the first quarter. Thank you for your participation. Good morning. Thank you very much.
The OdontoPrev conference call has now ended. Thank you for your participation. Have a great day, and thank you for using Chorus Call.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]