Oncoclinicas do Brasil Servicos Medicos SA
BOVESPA:ONCO3
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Oncoclinicas do Brasil Servicos Medicos SA
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Good morning, and welcome to Oncoclinicas audio conference. [Operator Instructions] This meeting is being recorded. I will pass the floor now to Dr. Bruno Ferrari, Founder and CEO of Oncoclinicas Group.
Good morning to everyone, and thank you so much for your presence in our earnings call. In the year of 2023, Oncoclinicas continued to deliver growth in revenue at the level of 2 digits even in a scenario that continues to be very challenging for the health sector as a whole. That reaffirms the resilience of the segment of oncological treatment.
Before we start talking about the summary of the operational and financial results, I think it is important to make an observation in order to get everyone in the context. So this quarter was marked not only by a moment in the health sector that was very adverse with the increase of claims, very high increase in claims, but also because of the nonrecurrent impact for transitionary impacts in our results, which I will summarize and that will be better detailed throughout the presentation.
First of all, I would like to highlight that our gross revenue was harmed in the first quarter of 2024 because of the strong incidence of the dengue in the cities of Barra da Tijuca where our cancer centers that still have a mix of non-oncological mix that was relevant, suffered with a deterioration of the average ticket and the gross margin.
Because of that, we had weaker revenue in this quarter than what we expected. The second impact is in relation to the process of transferring the beneficiaries of an important client to a new health operator. The operationalization of this transference generated an operational gap and has affected our income from this payer throughout the whole month of March.
This is also coincided with all of our operations of back office for Accenture, which has generated an impact of around 9 days and more for us to receive our earnings for that quarter. As a consequence, our cash generation, our operational cash generation was negatively affected during the quarter that has already been marked by its own challenges.
Finally, we made the decision to adhere to a program of self fiscal regulation. Because of many operations that we acquired over the last few years, generating the need to collect extra expenses at around BRL 12 million during -- in this quarter. This program has an adhesion window that would close at the end of the quarter and would offer very advantageous conditions for the company.
After this contextualization, I will get into the financial and operational highlights. We had approximately 665,000 procedures carried out for our patients in the last 12 months closed in the first quarter of '24 [ to ] 143 units covered in 38 cities of the countries. At the country here, we've verified BRL 1.6 billion in the first quarter of '24, 16% in comparison to the first -- Tier 3 of '23 and all organic.
Besides the points that I just highlighted, it is important to reinforce that we continue to provide assistance -- medical assistance that is sustainable where we do not need to majoritively have the variable -- the increase of average ticket in order to grow in our top line. Since we have become a reference and the cost effectiveness of the sector, the EBIT of the first quarter, excluding the noncash effects of the PILP was BRL 248 million with a margin of 16.5%.
Considering ex EBITDA in the last 12 months, finalized in 31st of March of 2024, we had [ $1.37 billion ] -- BRL 26.3 million higher than the same period in 2023. We've reached an exit base, BRL 25 million of net profit the first quarter of 2024. At a base of the last 12 months, the net profit, excluding Philip was BRL 336 million, more than 82% higher during the same period in comparison to 2023.
The growth of the company and the gains in efficiency, the internal gains in efficiency in the various fronts of management are the main factors behind these advances. The first quarter of 2024, we were able to close one more strategic partnership with Unimagifi to bring quality, cost-effective treatment to the inhabitants of that city throughout their entire journey of oncological treatment.
I will pass the floor now to Rodrigo Medeiros, who will give us more details on the performance on operational performance. Rodrigo, go ahead.
Good morning, everyone. Thank you, Bruno, for the introduction. Going on to the next slide on Page 4. We'd like to highlight an increase of procedures compared to the same period in 2023, BRL 168,000. If you look at the comparison of the period, in the first quarters of the end of last year, on the slide, we reached a growth of 26.9%.
Meanwhile, the average ticket had a growth of 6% especially associated to the increase in complexity and the inflation effects. Our growth has been very sustainable because we've had the increase of procedures. On the graph to the left, we have the growth, completing organic growth of 16% in gross revenue in the first quarter of '24 when compared to the same period of the last year, reaching the mark of BRL 1.6 billion.
On the graph to the right, in the comparison of the last 12 months and the first quarters of the last few years, we were able to see an expansion of 25.6% in gross revenue, impacted not only by the organic growth, but also by the integrated operations, highlighting a CAGR of growth in revenue of ever since to 2021 of almost 38% per year.
Before passing the floor to Cristiano, I would like to also update you on an important operational advance, the company closed on the 11th of April the migration of its various back offices to the -- the shared control center to have shared services. In this process, there was a transference of more than 400 employees amongst them, human resources and payroll, accounting, fiscal and others.
So now our operation is more scalable, light and agile. And the objective is that Accenture can automatize our number of processes and procedures, allowing the company to focus on its core business. This initiative should increase even more the possibilities of gains and efficiency and scalability as the company continues to grow organically and inorganically. We believe that we will be able to gain more growth because of this strategic move. Now I pass the floor to [indiscernible] Cristiano, our Financial Director, to continue with the financial presentation.
Thank you, Rodrigo. Good morning, everyone. On Slide #6, we see the growth of net revenue, which was 12.8% in the comparison in the first quarter of 2024 and 2023, lower than the growth observed for gross revenue, which was 16.1% according to what was presented in the previous slide by Rodrigo.
This is because of the higher provisioning of PSLD, our provision for credit liquidity that is not clear PCLD and because of the self-regulation of the tax program, which we implemented in the first quarter of this year. On the subject of the provision for PC LG, we have a provisioning of 3.8% of growth revenue in the first quarter of 2024 because we still observed a trend in the increase in the wage of receivables and a dynamic that did not improve yet, and we did not believe that it would improve in the first quarter.
And since we operate with a policy provisions and is very conservative, it's important that indicator of PCLD will be higher during this phase where we are crossing a cycle in the health sector, but we continue to see this period as a transitionary moment. Anyhow, the provision -- the higher provision for PCLD does affect our results.
If we had operated with a PCLD of 2%, very close to the average of the year of 2022 before we observed the deterioration in the claim -- number of claims and in the problems with the health payers, the effect in the first quarter of 2024 would have been approximately BRL 30 million higher.
Taking into account the effect of the self-regulation of taxes. We are talking about more than BRL 35 million of the combined impact on the results before taxes. That is why we think it is important to have a normalized vision. And since we do not believe that this quarter is a representative quarter of the recurrent performance of the company.
On Slide 8, we highlight our gross margin, which was equally impacted by the same factors that affected net revenue, PCLD, more elevated and nonregulated taxes as also because of the dengue impacts in Barra da Tijuca, that was very acute in the first quarter.
If we adjust this number to the normalization of the effect of the provision of PCLD to 2%. And if we exclude the impact of self-regulation, the gross margin -- the normalized gross margin would have been 34.9% in the first quarter of 2024 compared to 35.9% during the same period of the previous year, as we can see in the red line on the graph.
Going on to the next slide. Number 9, we can observe that the gross revenue, which was lower than what we expected in the first quarter of 2024 brought us to a loss of operational leverage making the indicator on operational cash. Operational expenses went to 15.2%.
As -- although there has been a reduction of this indicator on a sequential basis. Now the long-term trend for gains in operational efficiencies continues to remain as we can see with -- in the graph with a longer historical period on the right. On Slide 10, we have analysis of the EBITDA ex top.
We were able to reach BRL 40.2 million in the first quarter of '21 with a margin of 16.5% and an impacted number above all by 4 factors. First of all, we had lower growth than we expected in net revenue, reducing the effect of the domination of operational expenses in the quarter. So there was less operational leverage.
Secondly, the gross margin was lower because of a less favorable mix in the first quarter of 2024 caused by the non-oncological procedures of lower complexity in the cancer centers of Barra da Tijuca. Thirdly, there was a provision for PCLD and a higher percentage. And fourth the nonrecurrent final effect of the regularization of our taxes, the EBITDA ex top margin normalized, excluding the provision for its self-regulation and taking on the DCLD normalized of 2% gross revenue would have been from 18.4%.
On the Slide #11, we report ex-cost profit of EUR 225 million in the first quarter of '24 compared to a profit of BRL 184 million in the same period of the previous year, more than 80% higher, especially fruits of the growth of the operations, the increase in the profitability, the company's operational profitability and of the initiatives to unleash on the last line, more benefits addressing the fiscal issues that were historically offensive to our gross profit.
On Slide 12, we detail the behavior of this cycle of the company's cash working capital. The first quarter of '24 was marked by a worsening of our receivables, which went from 108 days to 118 days on the first quarter. So this was very impacted by the temporary interruption of the receivables of one client during the month of March because of operational issues.
Later, there has been a movement of normalization. If we exclude this effect, the average deadline for receivables that have closed the quarter in 109 days. In order to mitigate, at least partially, this increase in the average deadline of receivables, we continue to work with our suppliers looking for commercial conditions that are more favorable, which were translated in an increase of 5 days of the average debt line for payments to suppliers closing the quarter in 82 days an important evolution in relation to the quarter previous quarter immediately quarter.
Our stocks continued in line with the observed on the first quarter of '23. The combination of these factors resulted in an increase of the net days for working capital, which totaled 190 days in the first quarter of '24 against 49 days and the fourth quarter of 2023.
On Slide 13, the cash flow as a consequence of the scenario that is still adverse and intensive in terms of working capital, we had an increase in operational cash consumption in the first quarter of BRL 53 million. There has also been an important disimbursement to the payment of Unimas for the first installment for closing the deal of BRL 168 million in a payment of around BRL 100,000 relation to the long-term contracts for the cancer center future building agreements.
On Slide 14, we comment on our net debt and leverage, which increased in the quarter because of the organic cash flow reserved above because of the payments to Unimed-Rio disimbursement related to the cancer centers. Because of these factors, the leverage closed at 3.9x.
This level is not acceptable for administration. Our focus continues to be reducing the debt. On the next slide, we have our updated amortization of debt program, which is well distributed. So with this, we finalize the earnings call of the first quarter of 24, and I would like to open now for the questions-and-answer session.
[Operator Instructions] Our first question is from Filipe Amanzi from Itau BBA.
There has been a delay in the receivables. So what I wanted to understand is if given that there were some changes in the relationship with the buyers and also because of the new average to get established.
This is Rodrigo speaking . Well, starting with your first question. Actually, we did not see a specific problem in any of the other payers. We saw that a few payers increase their deadline for payments There, I can also reference the Accenture, which usually pay in the end of the semester or the end of the year. So they are starting already to increase their deadline for receivables in the first quarter.
So that's one point that is important to mention. But the large suspects to use, the normal -- the usual suspects had an improvement in relation to the first quarter. And on the escrow account, we had a normalization in the escrow account in the month of April. It's been a better scenario than what we saw during the month of March.
And then answering your question about the relationship with Unimed Fergie, I'll pass the word to Cristiano, but initially, everything or all of the contractual obligations that we hadn't with Unimed-Rio now go to Unimed Fergie. So Cristiano can comment.
Yes, Philip, everything continues -- from the point of view of contracts, everything continues exactly the same as it was for Unimed-Rio. So all of the contracts remain in force and only imagine strategy became the counterpart, the counterparty of these contracts. However, the transition of what happened, especially during the month of March, which was a period before the key turn there were some operational precautions or effects. And as Isaac mentioned ended up only normalizing in April. So the relationship continues to be business as usual now into the future.
Our next question comes from Mr. Kai will [indiscernible] .
Two questions on my end. How do you see the growth in revenue in the first few days of the second quarter, what would you like to conquer? Maybe could you give us a better explanation on the payments related to DP? How does that work because there are new stores that are going to be inaugurated. So just wanted to understand better how that works. And if we should expect other payments in the next quarter to [indiscernible]
I'm going to start with a question on growth and then I'll pass the from to Cristiano on BTS on growth. We made a disclosure, a different disclosure right now in the first quarter to show you the monthly growth. When we look at January and February, we had the growth of 22% in our revenue year-over-year.
And in the month of March, it was more -- it was jeopardized. So in March of last year, our growth was over the average. And in March of this year, although we've had good revenue and good growth. We've had the impacts of a lower average ticket because of the use -- because of Dengue in some of our hospitals. So we add up these 2 effects in the month of March.
When we look at the second quarter, we start to observe the second quarter at the level of the months of January and February, we have the expectation of sequential growth in the second quarter and it's very strong in line with the first few months of the year of '24.
On the payments, for the future BTSs. The way they were negotiated contemplate some payments made in an anticipatory way anticipated. So not only during the negotiation was there an adequation of specifications of the project. And also this consideration, the rental price per square meter that was negotiated.
So during the negotiation because of a price per square meter that was more favorable in the first ramp-up years of the operation, those payments in the financial equation of the value to be paid came in as the counterpart, so that could be beneficial for the company in the future in the sense of alleviating cash flows with paying rents in a while the BPS are in a ramp-up period.
So that payment was made this quarter and the expectation is that there will be more in residual payments that will come out during the second quarter. And then the idea is that we phase out these payments. Given the leverage, are you able to make all of the payments that you need to do in the future? Or is there any concern?
Well, Kio,we have alternatives, and we've been working on them. So we have a plan to address these issues, which really works with the operational side of the company. If we look at leverage, we have to take into consideration that, first of all, the EBITDA of the first quarter ends up impacting the TLTM accounts. It's an atypical number. It's a number that clearly is not normal if we look at what it could have been or what would be the normalized numbers.
And besides that, the first quarter we've had is the first quarter, which usually includes cash burn -- burning cash. So we had FCO last year, for example, of approximately minus BRL 340 million. And even if we remove the payments of that risk operation which was made in the first quarter of last year, the USC was around minus BRL 160 million.
We're talking about minus BRL 160 million in the first part of 24. So the first quarter is not an indicator of the performance of the company for the whole year. Last year, the cash generation started catching up over the following quarters. We do it in the first quarter because of the characteristic of cash assumption, the leverage can to demonstrate a peaking movement, but the company has made many internal initiatives to make sure the operation can respond to all of these needs.
Our next question comes from Mr. Gustavo Miele from Goldman Sachs.
I would like to ask 2 questions. The first of them is similar to the previous question, but it's more about the cash flow. And the company's cash flow position, I understand. And in the first quarter, we've had many effects that were not positive. This probably not be recurrent because you are making partnerships and you increase your expenses because you're doing the transfer to the shared service, but it seems like things get tighter and tighter as time goes on.
So I'd like to ask if you know of any other alternatives to support the cash flow situation of the company. Besides the very high leverage or debt level of the company, I think it would be interesting to look into alternatives. This is what we've been seeing in the market.
A more strategic question. I would like to know how you are discussing new models, new commercial models with the payers. Is that something that we can think about in the medium term or in the long term, something that can be more modern with a longer period in mind, that's so much for the short term.
Thank you, Miele. On the first point, if we look at our cash position in the end of the first quarter, we do not consider that the issuance that the company made in April of debentures of the long-term debt of BRL 800 million. So we have the situation of the cash position versus the expiry or maturity day or the need for refunding for 2024 as very well balanced.
We do not think it is a problem in the company focus is the operation that we can come back to reaping the ideal performance of the company from previous quarters. We are looking at a specific quarter, which was a weak quarter in the point of view of revenue and that ended up impacting the operational deleveraging. And then if we add that to a higher PCLD, there is a relevant impact in the EBITDA vis-a-vis what it should have been.
But if this is normalized, once this is normalized, we naturally will see the indicators converging. On new compensation model, this is a constant conversation Oncoclinicas, specifically because we have this leadership position in the area of oncology in the segment and scale from the clinical body point of view as well as in the supply of inputs.
We have always been innovative with new models and alternatives of compensation. What we have seen, however, is that this kind of discussion increased and intensified in the last quarters because we've seen health plan payers looking for solutions actively in order to control the level of claims on all fronts, especially with oncology, it's no different.
So these discussions are recurrent. And we think it is natural that the market will evolve into new models. And they will probably coexist with the free-for-service model on our conventional service. And the search from our cost effectiveness is something else, which we've seen from everyone, which may be designed from the need of new contracts or new clients or new partnerships besides the ones we already have.
Our next question comes from Mr. Yan Cesquim from BTG Pactual.
My first question is a follow-up on the first question from Alcon the working capital. We understand that the migration into a more specific portfolio brought on additional debt the accounts from March were paid later. So I would like to understand if the normalization of this effect has already been complete after April or if we are still waiting for some sort of payment from the accounts in the last few months. Because if we do then we had tried to start normalizing that in the first quarter.
That's the first question. And the second question is about the receivables and the increase in the deadline we've seen an increase in accounts receivable higher than 90 days, which is not positive for the market. And how are you preparing yourself at this to deal with this in the next quarters?
Well, I'm going to start with your second question on the provisions. We understand that our level of conservatism is very high although we were punished in terms of our earnings in some of the quarters as was the case of the last 2 quarters specifically. We understand that it is still the best way to work in the operational and financial management of the company.
As you know, once we receive an account, we already provisioned 25% of that invoice to more than 180 days. If it is not accepted, then it's for 100% provision. In relation to accounts receivable, our provisions already starts with 90 days. So we do believe that this is the best way forward is not necessarily market practice. We are more conservative than the market on the provisions. But anyway, we have been working on this for many years, and we've been doing it in this more conservative way. I pass the floor now to Cristiano.
Yes, on the first point, we started to see the normalization in April. We expect that it closes soon over the quarter, we also need to observe the dynamic with the other payers. Our expectation is that in general this normalization in the average deadline for receivables is gradual. We do not have any expectation that it will happen in 1 or 2 quarters. This will be a long process for recovery and then on the sector.
This is an issue of normalization of the sector. So just to add as a way to mitigate the effect, the longer effect in the recovery of these receivables. We have been working very hard with our main suppliers to increase the payables from suppliers. In the first quarter, we are ready were able to have an advance from 18 to 19 days. And this trend in improvement should continue.
Once again, as a way to mitigate the longer-term effect, which we, in the worst of [indiscernible]. So as a buffer, we have this other mechanism. Just to make it clear, we're not sitting down with our hands tied waiting for -- the average normalization, the average term for the naturally, we know that it's a long and gradual process.
These initiatives in-house with our chain of supply, increasing the deadline of payments so that we can reduce the loss of a working capital will continue, and it will continue for as long as it is necessary until we begin to see a change in the direction from the point of view of the term for accounts receivables.
Our next question comes from Mr. Leandro Bastos from Citibank.
My first question again upon the receivables that you are working on the normalization that it's a gradual process, but do you think you can see that because of the migration of an important payer affected this? And could you -- could it be that it will gradually normalize since it was affected by a specific event? That's a question. What's your impression on that?
And then if you could talk a little bit about the escrow account with the new operators, where there is a new window for readjustments in this affects us segment. Could you talk about how your perspectives are for the next year?
Leandro, this is Isaac. I'm going to answer both questions. Starting with the first one, we believe so that the first quarter has been affected by several peaks, especially because of the migration, which jeopardize our receivables as a whole, combining that to a growth in revenue, which was not as much as we expected as much as in the previous quarter. So usually, that generates these effects.
So now in the future, we can already say that we have a normalization with this player combined with the revenue is closer to the trend, which will probably gain more traction in the next few months. So we do believe we'll see a gradual improvement happening over the semesters.
On your second point, the average ticket, traditionally our main clients have long-term contracts. They traditionally make their readjustments, price adjustments between April and May. So the adjustment the annual adjustment will probably appear in the second quarter. That's the expectation, at least and besides that.
All of the other health plans that have their contracts expiring over the second semester and the beginning of the third semester. So we'll probably already see an index of more price transfers happening over the next quarter and also the third quarter.
So you are correct in your reading of those 2 on durations. The first one, just to reinforce, we do believe that with the normalization of the specific clients plus the gradual improvement that is already happening already beginning to happen with the main health plans in terms of the claims. We believe that this improvement will come actually in the next quarters and the price will also be corrected, and this will begin to happen in the next quarter.
Just to add to what Isaac said, Leandro, with the initiative with the initiatives that we have in the supply chain, this will also generate positive FX from the point of view of cash generation. And remembering that our EBITDA has come -- has been much lower than what we would all have liked in the first quarter.
So of course, our leverage account is still affected by that we are seeing this peak in our leverage also in the first quarter.
And on the issue of the supply chain, do you have any counter party with higher discounts or something of the sort.
Our discussions are strictly in relation to deadline and within a context in which -- this moment is a transtionary moment. If it does not prove to be a temporary moment then we'll have to come back to the table, and we will have to re-accommodate, the entire sector and the entire chain of supply.
But at this -- in this context, right now, the discussion is along the lines of that this is a temporary moment in terms of our receivables. I cannot be the only buffer in this equation. I need you my supplier to participate as well and contribute with longer deadlines or longer terms, at least for as long as this movement lasts? Or while this dynamic does not give away, we will be looking for longer terms but without any price increases.
Next question from Joseph Giordano from JPMorgan.
How do we see the CapEx of the company, taking into account the fact that most of the partnerships have been finalized and most of the integrations have finished. So how do you see CapEx in the next few years? If you could tell us how you think the evolution of the JV with Portegoros has been doing. It's one of the largest JVs in the sector. How has the acceptance been with different products, for example?
And finally, if you could talk a generate the escrow accounts because maybe it could have helped buffer the problem that you face with the receivables?
Well, addressing your first question on CapEx. How do we see this? We have seen -- and the first quarter has showed this review this to us disimbursement that were made because of investment decisions made back then. Some have some decisions more than a year ago, at least some quarters in which we are talking about construction works that are advancing where the company still has commitments and partners in these initiatives.
So there are few margins for us to change anything in terms of CapEx. And so we still have to make these payments. At some point, we will have a phaseout and once we're able to get to the phase out, we'll have a maintenance CapEx, which is a much more normal CapEx number or more common CapEx number or percentage of revenue something that does not burden our cash generation as much as it has been around half -- 0.5% of revenue.
So the trend is that we will converge to that throughout the next quarters. On the issue of Port Seguro, we continue to see this JV ramping up in a -- according to our expectations according to our business plan, everything is running very smoothly, and it is bringing cost effectiveness solution for them. So it is a partnership that we are very content with and they are too.
So it is a template for new models and partnerships, similar partnerships that can be done also with other possible payers. I think there was a third question, Joe, I forgot. Could you repeat it?
Oh yes, about the escrow. How does the escrow accounts work for Unimed?
Well, they work as a rule in the following way. There is a calculation running average, looking at the last 3 months of revenue with every operator specifically. And a payer needs to honor a coverage that is equivalent to the average revenue over the last 3 months. So it changes every 3 months, registering receivables on one end of the escrow.
So whatever is liquid settled after 30 days of receivables, which needs to cover or needs to be equivalent to the coverage index. We did not start with 100% because the operators many times need a term or needed some time to do the ramp-up, so they usually start with 50% of the average index and after a year, it reaches 100%.
So that is basically how it works, that is a situation that we have is what was negotiated with Unimed-Rio, we are still not in a position where they are covering 100% of the receivables because there is still the -- we are still in the ramp-up period. In any way, there are very few Unimed that have this escrow arrangement with us.
So given what's happened in this operational glitch that happened in March evolving the operation of unimagined and also because of non-improvement and even deterioration in our margins but the term of our accounts receivable with other payers in general. The other escrows that existed would not have been enough to change the numbers anyway.
Thank you. We have closed at this moment our questions-and-answer session. I would like to pass the floor now to the final comments. Please go ahead.
Thank you, everyone, so much for your participation in the call, and I would like to wish you all an excellent day. Thank you.
Our teleconference for Oncoclinicas has now closed. Thank you so much for your participation, and we wish you all a wonderful day.