Oncoclinicas do Brasil Servicos Medicos SA
BOVESPA:ONCO3
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
3.33
13
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Oncoclinicas do Brasil Servicos Medicos SA
Earnings Call Analysis
Summary
Q2-2024
In Q2 2024, Oncoclínicas delivered 16% revenue growth, reaching BRL 1.7 billion, driven by increased treatment volumes and higher average ticket prices. The company’s EBITDA improved to BRL 300 million, with a margin of 19.2%, up 270 basis points sequentially due to disciplined cost control. Net income grew 16% from the previous quarter to BRL 300 million. Despite challenges such as floods in Rio Grande do Sul, operational efficiency improved, cash operating expenses reduced, and leverage decreased to 2.5x EBITDA. The oncology market's annual growth of 13% positions Oncoclínicas for continued market share gains.
You don't have any saved screeners yet
[Interpreted] Good morning, and welcome to the earnings call for OncoclÃnicas. [Operator Instructions].
Now I would like to pass on the floor to Dr. Bruno Ferrari, Founder and CEO of OncoclÃnicas.
[Interpreted] Good morning, everyone, and thank you for attending our earnings call. During the second quarter of 2024, OncoclÃnicas once again delivered double-digit revenue growth, even despite a scenario that remains challenging for the health care industry as a whole. This re-affirms the resilience of the oncology segment. Before starting my comments on the quarter's results, I would like to highlight the significant reduction in the company's leverage in the last quarter, resulting not only from the capital increase of BRL 1.5 billion, but also the strong growth in the EBITDA, which reached BRL 300 million. OncoclÃnicas is in a very solid position when it comes to capital structure and the fundamentals of our business. It was a quarter of growth, margins increasing, deleveraging and an improvement in the working capital cycle. We do not think that the challenges in the sector are overcome, but we can say that there has been a very motivating evolution.
Moving on to the operating and financial results, I want to highlight, first of all, the 16% growth in our gross revenue, reaching BRL 1.7 billion in the period, assisted by the transfer of the average ticket and growth in the volume of treatments. It's important to mention that the oncology market has been growing at an average rate of 13% per year, which implies that we will continue to gain market share through a series of initiatives, including strategic partnerships with health plans and operators, attracting doctors to our clinical staff and a value proposition and cost effectiveness. In the last 12 months, our growth on the same store basis was 18%. One of the main highlights in the quarter was the recovery of our profitability within EBITDA Ex-PILP reaching BRL 300 million and a margin of 19.2%. This increase in our margin on a sequential basis is due to a lot of discipline in our cost and expense structure. This is ongoing work. In the last 12 months, our EBITDA Ex-PILP reached approximately BRL 1 billion.
Finally, I want to highlight the net income Ex-PILP, which remains solid. In the second quarter of 2024, it reached approximately BRL 300 million, an expansion of 16% compared to the first quarter of the year. In the last 12 months, our net accounting income reached BRL 275 million, a 20% growth over the same period in the year earlier. It is also worth remembering that this is the eighth consecutive quarter of the company's net income. Before moving on to Rodrigo Medeiros, I would like to thank all of our investors and market analysts who chose OncoclÃnicas as the best company in the health sector in several categories in the last evaluation cycle by the institutional investor voting process. This really gives us even more motivation to keep working hard to serve our patients and deliver results.
On our next page, we'll see the operational indicators on the graph on the right and we can see approximately 670,000 procedures performed for our patients in the 12-month period, which ended in the second quarter of 2024, through our 142 units spread across 39 cities in the country. We also want to highlight the company's average ticket, which grew 5.6% in the same basis for comparison.
On slide 5, we can observe the resilient organic growth in our gross revenue, reaching a level of BRL 1.7 billion in the second quarter of ‘24, a growth of 16% compared to the second quarter of '23 and more than 6% sequentially, driven by volume and ticket. When we compare the last 12 months ended in the second quarter of each year, the growth was 18.4%, reaching about BRL 6.5 billion. It's important to note that most of this growth in our gross revenue came from the increase in the number of procedures. Of the 18.4% growth, 12.4% came from volume, which reinforces once again that we have grown solidly and sustainably, providing more access to an increasing number of patients with better cost-effectiveness for operators and payers.
Now I'll pass the phone to Cristiano Camargo. He'll provide more details about the financial performance.
Slide 6 shows the growth in our net revenue, which was 15.3% in the comparison between the second quarters of '24 and '23. It was lower than the growth observed for our gross revenue, which was 16.1% as presented in the previous slide by Rodrigo. This is due to the higher provision for PCLD on this year when compared with last year. However, when we look at the sequential comparison, the second quarter of '24 compared to the first quarter of '24, there was a growth of 7.5% in the net revenue, higher than the gross revenue on the same basis of comparison because there was an improvement in the PCLD.
Now going a little deeper into this PCLD topic, on slide #7, we noticed there was a provision of 3.1% of our gross revenue in the second quarter of 2024, an improvement of 70 basis points compared to the first observations in the first quarter of '24, due to an improvement in the aging of the company's accounts receivable. Although it is maybe too early to say that the most challenging period in the health sector is behind us, the fact that we recorded the lowest PCLD in the last 4 quarters points to an encouraging evolution.
On slide 8, we highlight our gross margin, which is positively impacted by 3 main factors. The improvement in our PCLD in a sequential comparison, price transfers to payers and cost management initiatives, all of these factors combined, led the company to increase its gross margin by 60 basis points when compared to the first quarter of '24. We were able to reach 33.9% in accounting terms and 34.7% if we normalize a PCLD of 2%, which is more in line with the company's long-term history, as shown in the chart on the left. In the chart on the right, the resilience of the company's gross margin is clear when we compare 12-month periods, reaching 35.4% at normalized levels, compared to 35.9% also at normalized levels for the same period in the previous year.
Now moving on to the next slide, #9, we can notice the evolution of our operating expenses as a percentage of our net revenue. Even though we were impacted by revenue below what we expected for the second quarter of '24 due to factors such as the floods in Rio Grande do Sul, we continued to optimize expenses in this period, reaching BRL 230 million in cash operating expenses, compared to BRL 245 million in the immediately previous quarter, which dropped the cash operating expenses indicator as a percentage of the net revenue to 14.7% compared to 16.8% in the previous quarter. Initiatives like this are ongoing, and we believe we have not yet reached the full potential of efficiency in our spendings.
On slide 10, we will move over to the analysis of our Ex-PILP EBITDA. We reached BRL 300 million in the second quarter, with a margin of 19.2%, which was an improvement of 270 basis points sequentially. This improvement was mainly the result of 4 factors, price pass-throughs, improvement in PCLD, cost controls and efficiency in our expenses.
If we consider the analysis with the normalized PCLD at 2% of our gross revenue, the Ex-PILP EBITDA margin would have been 20.2%, a level of profitability that is identical to the previous year. On the following slide #11, in the middle chart, we report a net income, Ex-PILP of about BRL 317 million in the 12-month period, which ended by the second quarter of '24 compared to a profit of BRL 252 million in the same period of the previous year, over 25% higher, mainly due to the growth in our operations and the increase in the company's operating profitability and initiatives to unleash value in the last slide.
Addressing tax inefficiencies that historically were offending to our net income, it is worth mentioning that this performance happened even despite financial expenses being a lot higher in the last year. Our net income Ex-PILP from the controlling shareholder, excluding the minority earnings, grew 41% in the 12-month period, which ended in the second quarter of '24 compared to the same period in the previous year, which ended at BRL 235 million.
On slide 12, we detail the behavior of the company's working capital cycle. The second quarter of '24 was marked by a sequential improvement in the average term of receivables, when we excluded the effect of the renegotiation of some receivables carried out with an important client that the company had. Excluding this effect, accounts receivable improved from 118 days in the last quarter to 101 days in the second quarter. Our average payment term with suppliers remained at 82 days. The same is applied to the average inventory term, which remained in line with what was observed in the first quarter of '24. The combination of all these factors led to a reduction in our net working capital days, which totaled 42 days in the second quarter compared to 59 days in the first quarter of '24.
On slide 13, we have the cash flow. In this quarter, we had an improvement in our operating cash flow, which had been negative in the previous quarter. The operating cash flow was positive by BRL 35.2 million compared to a negative amount of BRL 54.3 million in the first quarter of '24. The payment of interest and the outflow of cash with [ judicial ] deposits related to the self-regulation of taxes payment program, which is a one-off effect, added up to BRL 183.9 million and BRL 47.6 million, respectively. In addition to the improvement in the working capital flow, it is important to highlight the inflow of BRL 1.5 billion due to the capital increase, which contributed strongly to the cash position of BRL 2.3 billion at the end of the quarter.
On slide 14, we've discussed our net debt and leverage, which dropped in the quarter due to the capital increase of BRL 1.5 billion, combined with a significant increase in the company's profitability during the quarter. That's why in addition to the capital increase, it's worth mentioning that there was also an organic deleveraging in the period. As a result, we ended the quarter with 2.5x leverage rate [ to EBITDA ] and remained , and we have a very focused goal of having 2x on our debt rate by the end of '25.
On the next slide, we share our updated amortization schedule, which is really well distributed. With that. We'll finish up our presentation here for the earnings in the second quarter of '24. And now we want to take advantage to answer your questions in our Q&A session. Thank you all.
[Interpreted] Thank you. Ladies and gentlemen, we will now begin our Q&A session. [Operator Instructions]
Our first question comes from Gustavo Miele from Goldman Sachs.
[Interpreted] I wanted to highlight two points. When you consider, we add up the amount of receivables, if we look at the basis, we have a bit of a sequential pressure and my question upon this is to understand that the scenario of the receivables is really including the guidance in the company that was presented three months ago? So when we take a look at the guidance of [ 2x ] for the end of the year, I wanted to understand if there's any revision of the amount that should be achieved for the leverage, if there's any process we're going to review, what's the route to get there? If you could maybe talk about possible sales of assets that could be maybe a possibility for the company to deleverage a little quicker? That's my first question. The second question is more in the D&A front, that's really sequential. Well, we ought to understand at which point of the agenda and the rationalization we're at, right? So how much this would already consider this reduction or how much we should expect as incremental dilution in the next quarters? These are the 2 points.
[interpreted] The first point on the receivables, the renegotiation, we can see this as a very positive evolution for the company. This was a quick shift really and it sets end of a scenario that had been moving along for quite a while. We have a debt structure that is legally enforceable, so this considered adding on interest and additional fees on this outstanding history that has been fulfilled regularly by customers, and it really places the company in a situation that is a lot more solid than the uncertainties in the era we had been experiencing for many quarters, so we see this as a very positive evolution. Despite this, we can still see like a gradual reduction or a modest reduction in pressure on receivables. Excluding this effect of this payer, and this is really clear due to the FCO, right? Which we will consider was negative, about BRL 55 million of cash consumption, and we already saw that shift to BRL 35 million in the second quarter. We can see the swing of about BRL 85 million, BRL 90 million from one quarter to another from an operational cash generation perspective.
This scenario for receivables was already considered in the guidance that was disclosed by the company a while back. We can see this evolution of the EBITDA, which is, we also see this advancing in the second quarter, and we can see this guidance already considering this and it remains. In regards to expenses, there's still potential for this to be optimized, but we must remember that in the second quarter, there was a frustration in the revenue, considering the events that took place in Rio Grande do Sul and we had about 4% to 4.5% of our revenue coming from Rio Grande do Sul state. There was a disruption that was quite significant in our operations during the second quarter. This contributed what we expected. When we look at the operational expenses on revenue, we still don't really have reasons to believe that it could maybe get even better.
[Interpreted] Cris, if you'd allow me to add on, the cash flow in the second quarter is -- well, despite the strong revenue in April, was affected. So April was affected because we were only able to adjust the cash flow really with this customer from May onwards, so there's still like a tail that affected the second quarter in April, and that will be finally regular adjusted in May or so. So, it's not happening already in the third quarter, so, it's already adjusted ever since the first month. And this leads to an important effect, right?
[Interpreted] Yes, great point. I think it's worth mentioning, Very, very good point. But anyways, this turnaround when it comes to customers and debt conditions, took place during the month of April. So May comes in with in this kind of back to normal regime, and we can normalize the current cash flow and start receiving the installments of this debt condition so that would lead to another factor. We weren't able to count on a cash flow that would be normalized from this customer in April, that started from May onwards. So that's how we feel very confident that we finally shifted this scenario and now the company from an exposure and credit risk perspective is really in a situation that's a lot better than what we had in the first quarter, so no doubt. Now we have like an actual executive title, yes. If there's any delay in an installment that means an anticipated maturity date basically.
[Interpreted] Our next question comes from Vinicius Figueiredo.
[Interpreted] I want to start off with a follow-up on Miele's question here. We also considered that this payment may be at a more normalized level, but this happens due to those points that should already be at 100% by now in June where you -- another part we also want to explore is the conversion of the cash flow conversion cycle. I think there was an anticipation of the [indiscernible] and some other partnerships that had some installments in the second quarter, but if you could talk about the schedule for these payments and these partnerships or even if there's any other BPS anticipation and also, if you guys could talk about other levers that could improve the operational cash flow besides the financial results, that would be great?
[Interpreted] I'm going to start off here and then I'll also ask [indiscernible] to address the second part of the question. About the payments made by [indiscernible], they've been happening before we had to access the escrow account. That's another reason why we've been really considering this when it comes to exposure versus credit risk, and it seems there was an upgrade on this topic, which actually has been leading to this escrow account, maybe not even having to be accessed.
[Interpreted] About the schedule for the amortization and the partnerships here really in line with the indications you've already had with a CapEx, with a cash flow in the next periods, we have 68 to pay for acquisitions and 18 [indiscernible] in the [ third quarter and in 2026, BRL 39 million and 12 ], BRL 1 million. Basically, we are looking into an outflow percentage in our cash attrition for acquisitions, reducing our revenue compared to when we look at the last period, specifically and the last two years where the company has been expanding inorganically into acquisitions, and these were already mainly paid almost entirely. If you look at the debt due to the acquisitions we have in the end of the second quarter, it's about BRL 320 million, so it's an amount that's lower than the previous year. As we all know, the payments are more sparsed out for the acquisitions, and the same is also applied to the anticipations for BTS contract. So we had a major concentration in the last three quarters, especially and now we have this residual amount that takes place in the third quarter and then we'll see these payments, which basically phase out. We already go through the most intense cycle for CapEx payments when it comes to expansion and the payment for acquisitions made in the past. Well, I'm getting into the strategy perspective here. One point that is very generic is, yes, the company has been studying partnerships that are strategic with its assets.
[Interpreted] Our next question is from Mr. Leandro Bastos from Citibank.
[Interpreted] I have two questions. The first one is about growth. In this quarter, you saw that there is revenue growing that has been impacting this as well and you mentioned this effect as well, but I wanted to understand this volume and... [ Sorry. Unfortunately, the audio is very bad at this moment from the participants, so we are having a hard time to translate this ].
[Interpreted] Leandro, sorry to interrupt you, it's just that we can't hear you. The sound is very distant and your voice is really difficult to understand. Could you please repeat?
[Interpreted] The first one is I wanted to explore the revenue. In the beginning of the year, I think in January and February, you showed us some information with revenue growing, then there was an impact in March and now in the second quarter, we had this impact. I wanted to go up ahead in the second quarter, those 22 would maybe start off with a better proxy for revenue. That's the first question. The second question is on the renegotiation of receivables. We have two here. The first one we want to understand if the 120 installments are also protected by the escrow? And it's more of a technicality now, the second part of my question is what's the level of provisions for these receivables? And how you guys have been handling this? Just so we can get a feel of how this has been launched?
[Interpreted] As we move on to your second part of your question, on the accounting aspects behind or backing up this [indiscernible] values, what happened from an accounting perspective is that we removed this from the short-term accounts receivable due to the timing for this negotiation, which moves on to the non-current value, and then we have the accounts receivable in the non-current value. This will be there, of course, dropping as we recognize the receipts and payments for this agreement by 120 months. From a perspective of the distribution of accounts maturing, which leaves my ageing of accounts receivable. Now on the revenue, we, in this quarter, as I mentioned, had a [ frustration ] that was one-off because it was related to the events in Rio Grande do Sul where we have a relevant presence. We don't see the second quarter as the quarter that should be extrapolated when we look at revenue growth for the rest of the year, but it should be more in line with what we've seen in other quarters.
Well, in regards to guarantee for the receivables, the best solution, and I'm not a lawyer here, but I want to pretend I'm a lawyer here and say now we have an executive title. If you delay one installment, you have the anticipated maturity and the Central Bank will block your account, so you don't need an escrow or anything else that. There was like an upgrade from a credit perspective of this title, this bond compared to a conventional bump. To wrap it up here, once again, when we talk about the revenue, it's worth mentioning as well that and we should highlight this that the oncology market, according to our estimates, has been growing at about 9% and 13% every year. And when we grow 16% in the first semester, really indicates a growth with market share gains. Actually, just to highlight this, the main vector for growth that we've noticed in the first semester is volume. We continue to have extremely strong volumes in our units around Brazil, and these have been growing tickets sustainably and reasonably in regards to the market. 2/3 of this growth approximately came from volume.
[Interpreted] Our next question comes from Mr. Yan Cesquim from BTG.
[Interpreted] I wanted to mention two points [indiscernible] said, first, CapEx and then price. The first question is just to understand a bit more about the breakdown for the organic CapEx in the semester and when you look at the BRL 149 million, and we can see this anticipation of the BTS, we had BRL 77 million and BRL 26 million. I wanted to know if you guys could maybe give us a little more input on what went on here in this organic part and if we should expect a CapEx level up ahead, that's a little bit higher than what we had seen in this last part? That's the first question. The second part is about the pricing, right? When you look at the results, we can notice that big ticket becomes a bit more accelerated, and I wanted to understand if looking up ahead, you would also expect a pass-through of the higher ticket or if we should consider this as a basis.
[Interpreted] On the CapEx, when we show the numbers that appear in our cash flow on slide 13 in our presentation, the BRL 76 million in CapEx, we're seeing are mostly still expansion CapEx amounts. Basically, items like a new unit clinic where that we're wrapping up or finishing up for purchase [indiscernible] also the expansion of our cancer center, partnering with HSE, in Salvador and the CapEx also from the integrated medical center in Augusta. So mainly expansion CapEx, but this is why where we say that this CapEx will eventually phase out throughout the next quarters and then will be co-existing with a number that's a lot closer to our maintenance CapEx. This is a number we have been saying is probably the lowest part of this number that we've seen in the second quarter. As we phase out the projects, the trend is pretty much this.
[Interpreted] Well, about the ticket, we saw an advance of the 3.5%, and this is mainly due to some contracts that were already adjusted throughout the quarter. But I want to remind you all that we're in a year-over-year comparison of 5.5% to 6% of the average ticket and this year, we have a lower inflation compared to previous year. It's an inflation that's closer to 4% to 4.5%. The trend is that we'll have the company up ahead, always operating with ticket expansions that are in line with inflation. As we always mentioned, our efforts here are really to keep the cost effectiveness in the treatment for the patients, as an important sustainable link or provider to our patients and customers. This is our main guideline. Well, just to give you some more info on the CapEx, most of the expansion mentioned by Cristian, have a schedule to be finishing, wrapping up practically entirely by this year still.
[Interpreted] If I can just add one more follow-up to confirm my understanding here, but when we look at the ageing receivables, the amount that's close to about BRL 400 million that was reclassified as non-current receivables are out of the breakdown from the receivables. Is this understanding correct?
[Interpreted] Yes, it is.
Our next question is from Mr. Caio Moscardini from Santander.
[Interpreted] We have 2 here, if you could show us a bit of the perspectives for new clinics opening throughout the next quarters in the next year, that would help us a lot. If you could also talk about that makes the different procedures when it comes to physiotherapy, radiotherapy and how these two procedures have been evolving when it comes to over the time and what do you expect for the next quarters as well?
[Interpreted] What we have for schedule to open up new units in the cancer center at the [indiscernible] as Bruno mentioned, should be wrapping up this year, still the cancer center for HSE [indiscernible] medical center that should be opening up by the end of the year and beginning of next year and a clinic and in [ Zonoashi ] with a partnership through [indiscernible] and some examples where over time -- we actually two units are very close to each other. Basically, we've been working on having more operational efficiency, managing costs, centralized drugstore and basically we'll continue to be focused in this direction, right? We could assume this is ongoing work, but -- and this would be a proportional ratio. We also have a franchisee program and the first one will be opening in [ Uberaba ]. We have about a dozen targets that can be complete in the next weeks.
To finish up on your second question about the procedures mix, and then, of course, Bruno, you may help me, but over time, what we've been observing is that more and more patients really need treatments for more time, which is like the chronification of cancer. Patients treat their cancers for a longer period of time with more quality, with better complexity levels and improvements also in the survival rates of these patients. There's not much of a difference in the mix in the short term. What we've seen as long-term trends is that patients will continue to live longer during the treatment and more treatments per patient, per active patient basically.
[Interpreted] Our next question comes from Mr. Marcio from Bradesco BBI.
[Interpreted] I have 2 questions here. The first one is, in the revenue front, if you could give us an overview about if there was a drop in the revenue from the biggest payer you have in the second quarter in regards to the first quarter? If you could also talk about the profits from minority shareholders and why there was such a significant increase of BRL 10 million in the first 16 in the second? If there's any other impact from maybe [ Porto Seguro ], also when it comes to revenue and also the levels we've seen in the second quarter would be recurring if we look up ahead?
[Interpreted] Starting off with your second question, what we've seen in our results for minority shareholders and our profit balance was, as you mentioned, an increase of profitability for partners such as Porto Seguro, but not only. We've seen an increase in profitability happening in these operations that are ramping up. On the other hand, it's worth mentioning that a good part of our debts are in operations where we have 100%. We also co-existed in the second quarter with an impact of high debt levels and financial results as well in these operations where we have 100%. Naturally a capital increase, which also, on the other hand, comes into the holding where we have 100%. This should improve over the next periods. On your first question, what we are able to state here is that this was a percentage issue. The main payers continue to grow, the revenues continue to grow, the amount of patients continues to grow and what happens is basically, we have an initiative for the diversification of revenues and then we dilute the total revenue in the company between the top payers or top customers. What you see is actually like a percentage issue.
[Interpreted] Okay, Isaac, just to clarify here, there was not a drop in revenue from the biggest payer, from the first quarter to the second. When it comes to minority shareholders, is there any aspect that's seasonal between the quarter to justify this increase in minorities? So basically, these are the two factors Isaac mentioned, with an important highlight for the volume of financial expenses in the second quarter, which was high and really generated a disproportional cost on the profits for the controller, which is a situation which changes from the moment when you have the benefit of the financial revenue and this additional cash position. But the company didn't really reap the benefits of this deleveraging process from a P&L impact when you look at the financial revenues, which is a situation that shifts from the third quarter onwards. Basically, I didn't hear that well, but in the JV, is there a net debt for these companies? Well, no, normally not. What could happen, the investments at the JV could be working on but generally speaking, that's not usual.
[Interpreted] We ended the Q&A session. I would like to pass on the word to Mr. Bruno Ferrari.
[Interpreted] Once again, I want to thank you all for your presence in our earnings call and for your questions. With this, we've reached the end of our earnings call, and we remain available to clarify any further questions. Have a great day.
[Interpreted] Thank you so much. The earnings call for OncoclÃnicas is officially ended. We want to thank you all for your participation, and have a great day, and thank you so much for using [ voxcom ].