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[Foreign Language] -- right hand of the screen, and pick your preferred language.
[Operator Instructions] Before we continue, we'd like to clarify that any 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 Odontoprev.
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 are materially differ from those expressed in such forward-looking statements.
Now I'll turn the conference over to José Roberto Pacheco to begin his presentation. Pacheco, you may begin.
Hello, good morning everyone. Welcome to our conference call to discuss the results of the third quarter and the first 9 months of 2022.
This is -- will be our last event during the year of 2022, a very challenging year for everyone. So it's very important for us to take this opportunity in this public meeting to share our expectations and opinions about the closing of 2022 and also the expectations for the coming year 2023.
So now to begin the presentation, the -- latest information disclosed by the ANS, you can see a continuous predictable growth of the dental plans. The industry has exceeded 30 million beneficiaries with net additions and almost 4 million new members in the dental plans since the end of 2020, which makes us very excited for the perspectives, and not only ending 2022, but also for the upcoming years.
The dynamic is very different than the healthcare plans as it's a more mature segment and still in 2022 they have the peak in achieving the beneficiaries or members -- excuse me.
So now moving on to specific data about the company and other market players. We can see that on the top part of the screen, we see the revenues last 12 months, not only in healthcare plans on the top, but also dental plans on the bottom part of the slide. The updated data is only for Odontoprev and the other companies, it's up to June.
On the top, we can see -- we can highlight Bradesco Saude with and annualized revenue that is much higher than the other companies. And on the bottom, updated with our figures up to September, we can also highlight us close to BRL 2 billion in revenues and other companies still have not achieved their first BRL 1 billion in revenues.
So on the next slide. We analyze the growth of revenues at quarterly levels. So we go back to 2020, the year where the pandemic began. It was a very challenging year, particularly in the first half of the year. Many SMEs failed and the corporate plans weren't renewed. So we had a significant impact to the revenues in that first half of 2020. And then you can see the recovery that takes place, as of then all quarters without an exception, have a resilient growth.
And so, our expectation is that, that is the vision that we wanted to share with you of continuous growth in the first line not just in volume, segment-to-segment, but also in the average ticket.
Now on our next slide, we can see the variations year-over-year, confirming what I've just mentioned. So that different year in 35 years of history, it really is an outlier in 2020. And then the recovery of 4% in 2021, 5% in the first half of 2022 and now at the rate of 6%.
So once again our expectation is the continuous increase of the top line and -- ending 2022 and beginning 2023, with of mix effect, a higher ticket that has been developed in exclusive channels of the company.
On our next slide, we have an evolution of the average ticket, and that's an important aspect. Here, we have the 3 company segments. The average ticket is going up in the corporate segment, be it for large companies or especially in SMEs, where the price increase is as a group. And here, you can see the average ticket of the individual plans.
They presented a path of reduction in the last 4 quarters. And that should start becoming stable and turnaround in the next quarters because of the plans that have a lower ticket, especially the plans from department stores to plans with higher added value in bank channels.
And that's important. You have been monitoring the continuous work in that portfolio to improve the quality of the portfolio and also the behavior in the SME plans in the next quarters.
In our next -- on our next slide, we specifically show the Bradesco Dental brand and the evolution in the 3 segments quarter-after-quarter in 2022. This is our biggest seller in 2022, bringing in new customers and individual plans and specifically in plans for SME as well as in the corporate segment.
It's a total of 267,000 new members in 2022 in the Bradesco Dental brand, making us very optimistic about the continuous share growth within their organization and connected to the channels in the retail bank, Bradesco Insurance and more recently in the digital world in their digital platforms in the Bradesco organization.
Now on our next slide, we can see, I believe, one of the most important aspects of our conversation today, which is the behavior of DLR. So we go back to 2016, and we have that annualized quarter-over-quarter. And since 2018, so even before the pandemic in 2020, the DLR was already at an annualized pattern and lower and more efficient than the historical levels, 47% back when we had the IPO in 2016.
So the DLR, you have lower frequency in 2020 in 2021 because of the mix effect where once again, the company was able to bring in a new product portfolio with lower DLR. Until now, in 2022, where we've been consolidating the distribution of these products with a lower DLR making it have a stable behavior actually for 2.5 years at that level of 40%. Our expectations, is that levels should remain, and that's very important, that level should remain in the upcoming quarters.
Moving on to the next slide, we can see the details of the segments with -- in relation to the DLR behavior. Starting off with corporate. We can see a part that we -- it's back to the pre-pandemic levels, and that's not new in terms of frequency and pricing of that segment of what we've already seen. The average ticket start growing as the frequency already has the 12 months use. So you see it at the level of 50%.
And compared to other segments, such as SMEs and individual plans, you can see that both have a DLR that's converging to the levels of 30%. As these 2 levels have a similar share in the total portfolio, half with the share with a DLR of 50% and half with a DLR of 30% gives us an average, therefore, up 40%.
So we fundamentally expect that stability, it's counterintuitive. It's not the dynamics of the health industry, but does have a different characteristic in the Odontoprev model as we have had the possibility of being the pioneer in the growing share -- in the new market segments that have a lower DLR. So once again, it's a point for conversation and exchanging experiences in that as the insiders and managers here at the company.
Our mandate is sharing this expectation with the market of having been the pioneers in this activity in a moment in cycle of DLR -- so return for shareholders at higher levels than historical levels.
Moving forward, our next slide shows us the evolution of EBITDA. So you here see this pre-pandemic. So a third year, there, we have patterns of return that are much higher in the company history. So the company goes from a historical margin of 24%, 25% EBITDA and is exceeding 30% since 2020. And we don't expect any changes to those levels, not only in the end of year, but also in 2023.
Now on the next slide, we show some of the factors of the last of the bottom line that's being benefited by the higher financial revenues. And we have 0 debt and we've been extending our financial assets by buying government bonds, which in most part is indexed by the inflation.
As you know, there was deflation of the IPCA in the last month in Brazil. So specifically, in this third quarter, financial revenues were lower. And now in the next months and quarters, the financial revenues should get back to what we were observing in previous quarters.
On our next slide, we can see the evolution of net income. So the annual growth rate, the CAGR since 2019, pre-pandemic is 18%, very different than other companies in the healthcare industry and reaching an return on equity close to 40%, so its asset-light model the company bringing in return much higher compared to other models that operate in the industry.
And on the next slide, we have the cash flow of the first months in 2022. We ended last year at BRL 731 million net cash. Cash generation was approximately BRL 400 million in the first 9 months with a payment of dividends and buyback -- share buyback of approximately BRL 160 million, enabling us to end the month of September with a net position of approximately BRL 900 million.
On the next slide, we can see the company's shareholder base, which is globalized. Bradesco controlling shareholder with 51.4% of total shares, 2.7 in treasury. It's worth noting that these shares in treasury are annually canceled during the general assembly meeting that usually takes place in April, and it should be in April 2023, as well as these shareholders from over 30 countries that monitor our performance.
And our next and last slide, we're very happy to share with you all yet another award of the Top of Mind from HR managers and executives. So in 25 annual editions, we received an award. And in the last 9, we won them all consecutively. So once again, we are very happy about this being recognized by our customers and HR managers that hire our services. We are very proud of that. Thank you very much.
So that's the end of the first session. And now we're going to move on to the Q&A session. Thank you very much.
[Operator Instructions] Our first question is from Vinicius Figueiredo from ItaĂş BBA.
The first question about bad debt. We saw trend of that's lowering compared to the other quarter. And we'd like to know how you've been improving that and the channels are helping in that. So -- what are your perspectives for 2023?
Another thing that I would like to touch on is that we saw DLR picking up in the corporate segment even higher than what you say is the average for the pre-pandemic period? And with the price increase or ticket increase, would we have DLR closer to historical levels or do you think that the profile will be different, given that in SME can offset that, it should be lower than the pre-pandemic period?
Well, starting off with bad debt. In the past, it was greater than 4% some years ago. So basically, it comes from the individual plans. And 4 or 5 years ago, the individual portfolio was strongly based on partnerships with department stores, retail stores, and that's changing and changing for the better.
So why is, has it been dropping year-after-year because of the continuous bankarization of the sale of individual plans. The bank channels are extremely more efficient in reading the credit risk of their customers. So that's the competitive advantage that's inherent to those channels -- distribution channels. And Odontoprev is been benefiting from that in that risk reading that they have.
We believe that, that bad debt level is barely higher than 2%, so much more efficient than the previous one, 4.5%. And believe it's here to stay. The continuous bankarization of the sale of individual plans is one of the company's strategic pillars in the next periods. We are very aware of the risk behavior of individual plans because structurally, they do have a much higher risk than the SME plans and much higher than corporate plans. So we take a lot of care in servicing that type of consumer.
We found a very positive path in that new type of clients that is part of our medium-term strategy to increase that portfolio even more.
For the second part of your question, Vinicius, is about DLR and corporate specifically. Well the first point is that there is a seasonal component. Usually, the second and third quarter, people use it more. So historically, the DLR in those 2 quarters is usually higher.
What we also see that in the fourth quarter and the first, even in corporate, it's lower. So we do believe that, that level of 50% is structural. It's easy to identify that in our financials for over 10 years now. So as a one-off, it was a bit higher in the third quarter.
But given -- and this is very important, given the recovery of the gradual -- the gradual recovery in corporate and the percentage of inflation quarter-after-quarter and also by maintaining a management of the network, we believe that there is important reasons for that DLR should remain behaved in corporate around the 50% that we mentioned.
Our next question is from Yan Cesquim from BTG Pactual.
On my side, I only have a question for the average ticket. We see that there was a growth even though it's modest in the average ticket. And you also mentioned about the trend of a recovery, especially the individual tickets. So could you break that down a little more about which components we should see in that to make up the ticket?
And do you imagine a relevant increase of the ticket in the short and medium term. So like you just mentioned, corporate, right? You have the contracts individual has a change in the product -- in the portfolio mix. SME has advanced well. So I'd like to know what you're looking at in each one of those segments and concerning average ticket?
I'll start off with some comments. So the average ticket at Odontoprev has been positive, it has been growing. And that's the opposite of what's seen in the industry that have been losing in the average ticket. It's been dropping. And why? Well, there are 2 things in it.
First of all, the ability to partially transfer the company's inflation and not the IPCA. We're not really connected to the market inflation indexes. And we're more connected to the cost items -- company's cost items.
So we do expect that in the upcoming quarters, we will have the capability, given the higher frequency of that, and that's a characteristic that we see in the past 12 months, especially in corporate of having a ticket that is nominally increasing.
Second point, in the other market segment, in SMEs, where the increase is based on the group, so given that we mainly distribute that through banks, we should naturally expect and what has happened in the last -- latest years, a higher average ticket. We see favorable elasticity in terms of price in that specific segment.
And then lastly, and very important and thinking of the dynamics for the next year is the change in the profile of the individual plan portfolio. So to be more specific, some retail channels have an average ticket of 35% to 37%. And on average, in bank distribution, we see tickets of 45% to 50% in some products. So as there's a clear transition in that mix, in which the bank channels have been having a higher growth, so an ability to attract new customers that mix effect should be seen in the next quarters -- upcoming quarters.
So once again, thinking of 2023, the average ticket of individual plans is one of the most important metrics in the intuition that we want to give you of revenues that go from one middle digit to high digits, maybe 2. So one of the aspects in that is to recover the average ticket and specifically in the individual segment. Rodrigo, go ahead.
No Pacheco, I believe that you mentioned that well. We haven't had any price increases for 4 or 5 years. So that's pretty much expected. You may give him, a complete response complete answer. Thank you, Yan.
Next question is from Estela Strano, JPMorgan.
My question is about net adds. Can you explore that breakdown per segment also considering the partnership with Bradesco. And going a little bit beyond that, looking at individual, what can we expect for the next quarter given that we had a decrease in the next one?
Let's explore segment-to-segment. And we're very optimistic, not only in changing the year. In 2023, starting with corporate, there's the 2 big brands, Odontoprev and Bradesco both bringing in net adds in a consistent way. So in the Odontoprev brand, so we have open enrollment, so it's the corporate accounts where the employees pay. Those are contracts that have been closed by the company years ago.
And we have new employees that adhere to that benefit that join -- so that portfolio is half of the total approximately 6.7 million, 6.8 million beneficiaries or members in corporate contacts and half of them are in open enrollment. And in that open enrollment, the growth is inertial. It grows regardless of the competition. So it's new employees that were there, for instance, but didn't have the information of the benefit that was being offered.
So that dynamic brings in over 100,000 members per year. So we shouldn't expect any changes in that even for the upcoming year. The growth dynamic in corporate plans also offers the possibility in the Bradesco brand. For us to be close to the bank channel to the insurer channel that we can work on together with the healthcare segment and the other activities that the Bradesco organization has.
Then moving on to SMEs so, in Bradesco Dental, we have an extremely important channel that already accounts for 80% of that portfolio. And our expectation and the Bradesco expectation is to continuously bring in more share given the large number of customers in the SMEs.
Bradesco has had this -- an interesting dialogue with these SMEs instead of the normal conversation that the brokers have and they've been very successful. So you can see that the net adds in SME have been highlighting this year of 2022. We don't think that will change for 2023. So yes, we do expect very positive added work and pioneer in the market to bring in that type of incremental revenue and net adds.
And finally in the last segment in individual plans, it's what we mentioned 2 blocks or distribution segments that we have basically of 1 million beneficiaries. Half of them come through department stores and the other half through bank channels. So we've seen a growing share in new sales, especially in bank channels. And that's a higher ticket, lower cost of acquisition and minimum bad debt, so that it's natural for that to be the trend in the upcoming quarters.
As in sense there's a low net addition, given that the growth of the portfolio has to be equal to the drop in the other. I believe there is an upside there in individual plans as the company is always looking to open new distribution channels. And the fact that the company is exclusively dental enables us to create alliances and distribution, be it in the physical or virtual world with partners that some of our competition would have difficulty in attracting. So we're very optimistic about individual plans even in fee ticket.
Estela, just to add a little about corporate, Pacheco give you the entire background, the success and victorious strategy. And the fact is, in the last 21 quarters, we were positive in growing the -- portfolio positively and 19 of them. So that has to do with what Pacheco mentioned about the profile of the portfolio of being competitive, and we received the Top of Mind award. It's most well known in dental, and that's directly related to the corporate segment.
And out of the 2 own -- the 2 quarters that we didn't have a positive -- it was the second quarter of 2020 because of the pandemic. And Pacheco already mentioned that we're doing a good job in corporate. And this competitive environment encourages us to develop, to have other products to be more present, to pursue excellence in talking to our customers and HR.
So you can see this, positive results, except for the period of the pandemic. And in SMEs, like we mentioned in other calls, we want to treat them differently when they have 150 members compared to the SMEs with 5 members. So we're reaping that, the fruits of that strategy in terms of pricing, network.
And as you can see what Pacheco mentioned, you can also see the role -- big role that Bradesco was playing where they know how to do business in a different way, not just once a week, once a year, excuse me, they're present in their day-to-day. So we have the SMEs in all our brands, and that has proved to be a winning strategy, not only in the Bradesco channel, but also in the other brands, and we see a huge potential there.
And we have more duration, lower DLR in that. And in the first part of Pacheco's presentation, you saw those details. So that corroborates and helps in the mix of that new level of DLR that we've been seeing.
Next question is from Mauricio Cepeda from Crédit Suisse.
About DLR, I can see that you have a per capita DLR much lower than you had in the past, especially if we correct that based on inflation. So I'd like to understand why it dropped so much in actual terms. If people aren't using it, if there's a worsening of the mix, meaning there's plans are more simple without that much coverage or of compensation of dentists decreased? And also coverage of procedures depending on the people that use the plan in the absolute plan? How do you see that going forward?
Second question is about channels. I understand that bancassurance and Bradesco is increasingly more important to you, but certainly to know the development of other channels in addition to that one?
And I also see that there was an impact in expenses in this quarter, especially in rent and third-party services. So I'd like to know what's going on. And if you believe that you're stable now in productivity gains in SG&A?
I'll start with the second one first. So in the past years, the company delivered a dilution that's very significant of SG&A. It's getting harder and harder to look for more, but we're -- the game is not over yet so the continuous robotization of processes.
Today, we have less, employees than we used to. We have a new headquarters here in Alphaville with a 10-year contract based on the IPCA instead of based on the IGPM that we had. And we're still close by lower expenses with travel and post mail. So that's continuous, right, that never stops. And that's one of the main reasons why we are investing more in technology.
We've had more than doubled the investments in technology in the past 2 years. So they have a maturity up to 23%, 24%, and then they start to lower from 24% to 25% because there's a CapEx structure that at this time is higher than historical.
But in 18, 24 months, it should go back to BRL 30 million to BRL 40 million compared to what we have today, BRL 70 million to BRL 80 million.
About the 2 -- your 2 first comments, first, about DLR. That's probably the most important sense in our conversation today. Structurally, we've been giving a new customer structure. We have lower DLR than we had before, previous years. And that's given the correct pricing of those higher risks. We can say that the SMEs are higher risk than the larger companies and individual plans even higher.
So be it on the side of delinquency or adverse selection or potential cancellation of products. So the strategy is conservative. We are learning more and more about consumer behavior and service provider. So to-date, we have 2 blocks of DLR, 1 at 50% on average in corporate. And the other on -- the average of 30% for SMEs and individual plans. And in the consolidated, we have that level of 40%, which, in our opinion, does not change and should behave itself in a very similar way in the upcoming quarters and potentially in 2023 as well.
So once again, that shows the careful management of the expressive growth of the revenues in SMEs that given the behavior of this customer and the pricing that enables us to have DLR that's significantly lower than the historical in the corporate segment.
So managing the portfolio of the 3 segments that gives us that beauty of the consolidated DLR and we're, understanding the risk and the individual plan so we can offer quality solutions at the right price with excellent providers all around the country. It's very complex to be done. It's being done year after year. And we're still focused on value in developing all these 3 business segments.
I understand that, that answers the issue about DLR because you included the -- that in the math. But now the per capita ticket is 8% or 9%. So why is the per capita that low? Because I understand that you're pricing higher risks, but that's ticket. So why would the per capita be dropping?
That goes through the AI that we launched here. We're using that in clinical and operational audit that enables us to control treatment even better and the quality of treatment, the frequency, the number of procedures. So now we're even closer to the dentist share than we were in the past, directly connected to our ability to be closer to that. And another aspect -- when there's the waiting period and when we deliver the service, it's definitely not the same.
And one of the elements is the waiting period in being able to use the services. So the risk of individual plans has to be well understood and planned out. Otherwise, you may have negative results. So the -- if you think of it, many individual plans, healthcare plans are no longer being sold for 10 years now in Brazil. And so we're very much aware of that and looking at the customization of that risk profile.
Our next question is from Gustavo Miele from Goldman Sachs.
My question is about ticket, but now focused on the competitive environment. So let's even focus on SME, so for the second quarter consecutive quarter, healthy performance in the ticket. So I like you to breakdown that the mix effect, which you already mentioned a lot during the call. And what would be a pricing copper effect? Do you think that there is room for transferring price even more to the same products and even removing the mix effect of the analysis? And how do you see the competition in that? Do they have more aggressive policies, more conservative to preserve their share? It would be great to see your update in how the main competition is acting in contract pricing?
I'll start, so when we talk about pricing, we have to consider the average ticket that the portfolio has as a result of many things. The strategy that I just mentioned in the previous question to treat it differently -- 2 different types of SMEs differently, like a big one with 150 employees or another one with 5. If that plan is connected to their healthcare plan, so many things that we analyze.
And there's the pricing of all these variables, because we come from an environment when they were using it less because of the pandemic so people weren't really using it, low DLR, so we couldn't talk about price. And now things are normalized, and we are at absolutely normal levels in SME and individual plans as of the second quarter this year.
So what we see is a mixed effect of what channel we're selling at. And so it makes us feel comfortable as we have this recent experience that transferring the price and increasing the ticket nowadays is on everybody's radar now.
And looking at our report of DLR people are more sensitive, and they do understand that there will be price increases. And there's all the data that we have for the last 120 days, and we talk to our customers that price is something that we can work on as and increment, and we can also expect lower levels than the pandemic. Pacheco?
No, just about the SMEs obviously, there's a strategy that has the support of Bradesco Dental. The banking distribution is very important, and that accounts for 80% of the portfolio. So this ticket has evolved, as you mentioned, Gustavo, and the scenario in the studies that we've been developing shows that, that ticket that is adjusted according to the group and not individually.
So we have a relevant volume of SME customers in the bank channel with adequate tickets, which enables the company given its scale and its management tools to have margins that are much higher than the industry. So we have -- should have an increase in the top line for 2023 once again.
Next question is from Caio Moscardini from Santander.
2 questions, one about DLR and the other about CapEx and the cost and materials. Obviously, the frequency of use is coming back. And about cost of materials, so what's going on and happening with those costs?
So you see very high CapEx in investment in technology and Rodrigo mentioned artificial intelligence and helping in that DLR. But I'd like to see some more flavor about the projects and how that's been helping and operationally and how we should observe the stabilization of that at levels that are before?
Caio, I'll start off with CapEx and then Rodrigo can add. So CapEx is historically higher. We have BRL 33 million of the annualized number and probably much the double of those levels now. And now we're going to implement the new ERP, and that's pretty much half of that investment in technology that unfolds.
So that's mid '23 -- in 2023 and mid-2024, that should go back to BRL 35 million, BRL 40 million a year. So that's the dynamic. And that's the investment in technology -- in the historical levels that's my first comment.
So about material costs, not just material and control and frequency in use. So we have a very good stance and correct stance with the dentists. I'm not sure if you remember everything that we've been working on with dentists, donating the PPEs, for instance, and being more generous in their price list. Because dentists were going through tougher times and few patients to see so in a part of that material reduction, we did that.
And we took advantage of having lower DLR at that time. So I'd say that, that higher pressure, be it in the labor hours or cost of material that's in the past. Now we're normal our day-to-day with dentists are normal, no pressure on one side or the other.
The snapshot that we have today is already showing the reality that we have here as a service provider and a company that gives them their customers, so nothing new in that sense. Quite on the contrary, when there was an imbalance because dentists were frail because of the pandemic, we were helping in them. And now we're just at cruise control speed.
We have no further questions. So the Q&A session is over Pacheco for your final remarks.
Well, this is our last event for 2022. And I hope you have an excellent year and Merry Christmas, I'm sure we'll have market events. And I have to share our excitement and optimism for the next conversation. Have a great weekend, everyone.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]