Odontoprev SA

BOVESPA:ODPV3

Earnings Call Transcript 2021-Q4

[Stella Hong, executive]

Good morning, ladies and gentlemen, and thank you for holding. Welcome to the Odontoprev conference call to discuss the earnings of the fourth quarter and the year of 2021. I'm Stella Hong, IR Supervisor. And today, we have with us Mr. Rodrigo Bacellar, CEO; and Jose Roberto Pacheco, CFO and IR Officer of Odontoprev.

This webcast is being recorded and streamed online. The link is available at the company on our website at ri.odontoprev.com.br, where the respective presentation is also available on the company's YouTube channel.

This video conference has simultaneous translation. To activate, click on the interpretation button, the globe icon at the bottom right of your screen and choose the preferred language, Portuguese or English. You may also click on mute original audio.

Next, we'll start the Q&A session. To enter the queue, enter your name and company via the Q&A button at the bottom of the spring. The questions will be answered in the order they are received, and when announced a pop-up to unmute your microphone will appear on this screen. We suggest that your questions be asked all at once.

It's important to note that submitting questions is only allowed for participants on the webcast platform. The aforementioned instructions are also available in the chat as well as the presentation of this webcast.

Before proceeding, let me mention that statements made during this 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 to materially differ from those expressed in such forward-looking statements.

Now I'd like to turn the conference over to Mr. Pacheco who will begin the presentation. You may begin.

[Jose Robert Pacheco, executive]

Hello. Good morning, everyone. Welcome, and thank you very much for your interest and trust. We are Odontoprev. I would like to thank you for attending this company event to present the performance of the fourth quarter and the year of 2021.

Well, now to begin our presentation on Slide #3, we can see data from ANS since 2006, where dental plans on the right-hand side of the screen, continue presenting continuous growth regardless of the macroeconomic scenario or job generation, exceeding 29 million members with net additions of 2.6 million new customers in dental plans in 2021.

Now according to our next Slide #4, we can see comparison metrics for the main insurance health and dental plan operator players in Brazil. We've demonstrated the competitive advantages of the unique Odontoprev business model with a premium ticket greater number of customers present throughout the country, the lowest consolidated cost of services from proprietary technology, and which as a result, in the past 5 years has -- gave us a much higher return on equity than the industry and expressive and frequent distribution of cash generation to minority shareholders in the form of dividends, cash dividends and share buybacks.

On Slide #5, we can see the organic net additions in 2021, totaling 410,000 new members, the best commercial performance since 2012.

On our next Slide #6, we can see the quarterly evolution of revenues with the sequential growth and in the annual variation after the harsh impacts of the pandemic during the second and third quarters of 2020.

On Slide #7, we demonstrate the execution of the long-term strategy. We can see that the Corporate segment revenues has increased 18% since 2014. On the other hand, the revenues of the noncorporate segment and SMEs and individual plans went from BRL 284 million in 2014 to BRL 786 million in 2021, a 16% growth per year in the period.

On our next Slide #8, we can see the annual DLR per segment in 2021. The consolidated dental loss ratio was lower than in 2020 and lower than in 2019, the period before the pandemic, mainly resulting from the frequency in noncorporate plans, meaning SMEs and individual plans, but still below historical levels.

Moving on to our next Slide #9, we address cash generation. We demonstrate that with a lower DLR, continuous improvement in bad debt and efficiency gains in SG&A, the EBITDA margin achieved a record of 32% in 2021.

Next, on Slide #10, we can see the evolution of the EBITDA since 2017 with an average annual growth of 13%.

On our next Slide #11, we highlight the new profile of the financial revenues benefited by moving part of the current assets portfolio in 2021 to long-term government bonds during the year with higher post and prefixed interest rates, which are very attractive and having the same credit risk profile. It's interesting because the new instruments are accounted for in the curve, mitigating the volatility of the consolidated portfolio and will be held until maturity.

On our next Slide #12, we can see the net income achieved BRL 380 million in the year, 5% higher than 2020 with a record net margin of 21% and ROE of 33%.

On our next Slide #13, we can see that company CapEx achieved BRL 52 million in 2021, 49% higher than 2020, with a total of 94% in technology-related investments.

On our next Slide #14, we demonstrate that the company ended the quarter with a net cash of BRL 730 million with no debt.

On the next Slide #15, we see the update of the share buyback programs. The total buyback was BRL 15.8 million now in January 2022 at an average price of BRL 12.79, representing an investment of over BRL 202 million.

On the next Slide #16, we can see that compensation to shareholders, which went from BRL 270 million in 2020 to BRL 431 million in 2021, which includes the dividend flow, interest on equity capital and share buyback.

At the annual meeting to be held next April, we propose this statutory supplementary distribution of dividends in the amount of BRL 41 million, the cancellation of 14.5 million shares currently in treasury. And after that, a reverse stock split with a 1:10 share consolidation.

With great satisfaction, we'd also like to inform the appointment of Dr. Thais Jorge de Oliveira e Silva to take on the position of a member of the Board. Dr. Thais will be the first senior representative on our highest governance body.

Now moving on towards the end of this very brief presentation. According to Slide, next, 17, in our recent highlights and acknowledgments, Odontoprev is part of the Great Place to Work portfolio an ESG Index created by B3 in partnership with Great Place to Work. It's also worth noting that for the third consecutive year, Odontoprev was chosen to be a part of the Bloomberg GEI, the Global Index of listed companies committed to supporting gender equality by developing policies, [ agency ] and transparency.

On Slide 18, we see our globalized investor base with an approximate free float of 86% with investors from over 30 countries. Once again, we would like to thank you all for your interest and trust in Odontoprev.

Now we'll move on to the Q&A session in our common practice of a 45-minute earnings conference call. Thank you all.

[Operator]

[Operator Instructions] The first is from Renan Prata from Citi.

[Renan Prata, analyst]

Just a follow-up, I'd like to understand the use of the network in the beginning of the year given the COVID scenario that we've been going through. And we can see that DLR is still lower than 2019, so obviously, affected by the pandemic as well. But look, going forward, should we expect levels going back to normal at the 2019 levels or should they be lower than 2019, given all the efficiencies and work that you've been doing in that sense?

[Jose Robert Pacheco, executive]

Actually, in dental, we see a different type of DLR behavior compared to what we normally see in healthcare. The second point is that in the Odontoprev customer portfolio, we see 2 different profiles in terms of frequency. One is corporate that accounts for approximately 60% of the total number of customers and the rest, the 40% of SME and individual plans.

So the first finding is that DLR in corporate has -- is already back to normal. As you can see our reports in 2020 -- in the second half of 2020 and across 2021, the DLR in corporate was gradually coming back to normal levels and now it is at normal or historical levels. But it's important to note that almost half of the Odontoprev portfolio is comprised of SMEs and individual plans. And in that case, the priority in use by individuals or SMEs is completely different than the big employers. That's why we've seen DLR patterns based on the frequency that's even still lower than 2019 in those 2 market segments.

Though we are highly interested in those 2 segments, they've been growing their share in the total portfolio of Odontoprev. That's why we do see a possibility of having yet another year of a different DLR compared to historical levels, meaning before 2019.

2020 and 2021, cost of services were more appealing, but based on the commercial mix and the specific behavior of this type of customer in 2022, we believe that the cost of services and experience would be different. Go ahead, Rodrigo?

[Rodrigo Bacellar, executive]

No, I think you touched on what I wanted to say. But we're monitoring that. And I'd just like to stress that we've been investing in technology to bring in more efficiency to the chain to make it easier -- to make the operations easier between Odontoprev and dentists.

And there's also the benefits of lower costs after or because of the interoperability between us and the dentists. So there is frequency like Pacheco mentioned, but there's still the agility and efficiency in the relationship we have with dentists, which also helps in the DLR rates.

[Operator]

Next question is from Joseph Giordano from JPMorgan.

[Joseph Giordano, analyst]

I'd like to explore a more strategic theme, the growth in the industry, related to these great moments of consolidation that has been -- that have been going on. So I'd like to see your vision, how do you see Odontoprev in that environment of major competitive changes? We've also seen Odontoprev looking at M&A, which was dormant for a while. So now I'd like to know if it makes sense for you to consider potential acceleration because when we look at the movements of consolidation that we've been seeing, part of the synergies have been mentioned in the dental industry.

[Rodrigo Bacellar, executive]

Joseph, thank you for your question. Wow, that's a provocative question. So what we've been seeing in the healthcare industry overall is the reflex of the profit pool that it represents in the market. So one of the most interesting sectors for growth in the next 10 and 20 years is this industry, the population is getting older and you have to treat that population and we have new technologies that are being used in the industry and by the players.

So the attractiveness of this industry brings on the movement that you just mentioned. So although this is more clear now, I'd say that in the 34 years of Odontoprev, this year we'll celebrate 35 years, every year was a different story. So first, we had the direct competition of players just like Odontoprev 34 years ago. And then we had the healthcare players that we're starting to play the dental game.

And then we had -- every now and then we see this big guy that would threaten us and then there were mergers and acquisitions. But now that we're in the spotlight -- even though we're in the spotlight now, I'd say this has been happening forever. So 20 years, we had like 800 dental operators, and now we have approximately 450 dental operators. So those 300 part of them died, part of them were incorporated.

So we always have an active industry and it's active because there is a potential for growth, and there is the need to treat the population not only in dental but also in health care. That's why you use what you said is happening. In our activities in this evolving market, we had 2 acquisitions in the past 4 years. The first one was Odonto System. And more recently, we acquired Mogidonto with 60-some-thousand members.

And my standard answer is that we're always looking for opportunities. We're always looking at the industry and other players in a very respectful manner and very diligently and see if we can build something, maybe create a strategic alliance or something of this sort. And to be very honest, because this is how things work.

Eventually like I mentioned, technology assisting us in DLR, not just the frequency, I think that it's not just the dental players, we also have to look at the dental pain overall, Odontoprev in the back, so it's no different than what we did in the past. So we have partnership with Fleury, with an acquisition in oral radiology. We have a company that developed what the systems called Brasildental. Now we have a small startup that really helps us in terms of image. So we also have the dental partner program. We have BoaConsulta, which is the scheduling.

So the work we do by looking at an industry that's evolving. And even what Pacheco showed us about the increase in players, it gives us a 14% share, and we still think we can grow that. We can sell many dental plans for Brazilian population. So the industry is great. It has great prospectus, and we not only have to look at dental as we already do, the company acquired 2 companies in the past 4 years and had bought 10 companies in the other 20 years before that.

So we need to look at the rest of the chain. We're always observing and analyzing so we can bring in more value into the dental chain. Thank you for your questions. I hope we answered that.

[Jose Robert Pacheco, executive]

Just a few words Joseph about strategy and Odontoprev's positioning. In a moment that we -- what we've been seeing in the past few years and the growth in healthcare plans, new players coming in the capital market, and we have a unique model that is connected and dedicated to dental. So it gains value, and it grows in importance.

We are dedicated and independent in dental. So it's a national calling that Odontoprev has to build alliances with players from other areas, even in healthcare. The first example is Unimed from Belo Horizonte that really stands out in the country with excellence in service and has been our exclusive partner for over 10 years. And through Unimed in Belo Horizonte, the company has an interesting share in the Minas Gerais region.

Another thing important in this model and in the cycle is to see how the company is a pioneer in implementing new business model with more appealing and low tickets, which is the Odonto System rollout that has been year-after-year working, as Rodrigo mentioned, that's another important differential with very relevant net additions in the past years.

Not to mention the size of the opportunity that we have with Banco do Brasil and Bradesco, the company's shareholders, which enables us to diversify the customer profile year-after-year servicing SMEs that represent an addressable market that's even higher than the traditional corporate market. So we've been trying to demonstrate here -- a number of different possibilities that the company has to build strategic alliances with a bias in technology that's very hard to be replicated by the competition and has a different strategic calling, which is normally focused on medical or traditional healthcare programs and plans.

And that's very interesting in terms of strategy for the company to analyze not just the traditional acquisitions of smaller companies with a similar business model. But also build alliances in the value chain in distributing new commercial partnerships in-person or digital all over the country. It's very hard to find an operation with the scale that Odontoprev has and proprietary technologies that we have, which leaves us very optimistic for the years to come.

[Operator]

[Operator Instructions] If we have no further questions, the Q&A session is now over. I'd like to hand over to Pacheco for his final comments.

[Jose Robert Pacheco, executive]

We would like to thank everyone for your participation for the fourth quarter and 2021 results. In 2 months from now, we'll be back to comment on the first quarter of 2022. Have a great day. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]