Diagnósticos da América S.A. (DASA3) Earnings Call Transcript & Summary

[Interpreted] Good afternoon, ladies and gentlemen. Welcome to Dasa's teleconference to discuss the results for the third quarter of '26. This teleconference is being recorded, and the replay may be accessed at the company's website at www.dasa3.com.br. The presentation will also be available for download. [Operator Instructions] We would like to emphasize that the information contained in this presentation and any statements that may be made during this event regarding Dasa's business outlook, projections and operating and financial targets reflect the beliefs and assumptions of the company's management as well as currently available information. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions as they relate to future events and therefore, depend on circumstances that may or not occur. Investors should understand that general economic conditions, market conditions and other operational factors may affect Dasa's future performance. I turn over to Mr. Rafael Lucchesi, who will begin the presentation. Mr. Lucchesi, please go ahead.

[Interpreted] Good afternoon, everyone, and thank you for being with us for another Dasa teleconference. I am here with Bossolani, our CFO; and [indiscernible]. I will start by highlighting the quarter, and then I will turn over to him for the financial results. In Slide 3, the main message I would like to share is the continuation of the consistent development of our strategy. The third quarter represents another event on Dasa's results, reflecting discipline that we have used in all of our actions. Our operations are more efficient, competitive and prepared to grow in a sustainable manner. We continue moving on with good efficiency, modernizing our infrastructure, simplifying processes and continuous productivity gains. The inauguration of the new terminal is one example of this strategy and expand our capacity, scale and operational efficiency. We also continue strengthening our financial position by means of disciplined capital management, consistent cash generation and very careful allocation of investments, thus strengthening our abilities to maintain the company's strategy. Regarding innovation and excellence in care, we continue with our portfolio of specialized tests, installing new imaging equipment with technology and AI, leading to gains in productivity and implementing new NTOs lines. 90% of these projects have been already carried out. We guarantee quality of care, productivity and prepare the company for the future. We also highlight the Americas network, which continues strengthening its mix and capturing efficiency. The maturity of the operation and the potential value generation is guaranteed for the next few years. Moving on to Slide 4. I will highlight some figures. In the quarter, we grew 18% on a very strong basis when compared to last year. Our investments go to 23%. In EBITDA, we advanced 5% in the third quarter, we had positive events such as the reduction. Our EBITDA margin was 20.5 -- I'm sorry, 25.6%. The net income grew 120%, reaching BRL 173 million, and we have generated BRL 456 million in operating cash generation. We reduced our debt, BRL 188 million when compared to the second quarter. And now I turn over to Bossolani. He will detail the financial and operational results. And after that, we will be available to clarify any concerns you may have.

[Interpreted] Well, thank you, Lucchesi. Good afternoon, and thank you for participating in our teleconference for the third quarter of '26. Our strategic vision and the main highlights in the period and our results sustain our performance. We have combined growth, operational progress and a very disciplined management of the company's cash. We have improved our results throughout the year, focusing on the operational results of the company. I would like to start by our main operation. We had consistent growth when compared to the third quarter of '25 with a comparable scope reaching BRL 2.4 billion. This growth is led by the increase in volume, home care and the B2B channel. Also, the number of tests in the quarter increased 4.4% and the average ticket increased 3.1%. For profitability, the adjusted EBITDA also improved 1.6%. In the graph, you can see 3 factors. The accounting reallocation, including costs and expenses aligned to our new organizational structure, and this was informed in our conference for the second quarter. We centered our investments with higher energy expenses. And then we had the modernization of the network, expansion of technology in our NTOs and new models to hire -- these are projects that are maturating. Efficiency gain and scale gains will be captured gradually. Also, we have the mix effect of the company with increasing B2B share. This channel has a smaller percentage share, but it contributes to nominal profit, helping us, and it's a very efficient vector for growth. We grew 1.6% in the quarter. It's important to reinforce that we remain focused on constant productivity gains so that we can grow in a sustainable manner with efficiency and attractive return to our operations. And now moving on to Slide 6 with the results for hospital and oncology in the Northeast here represented by the hospital in Bahia and [indiscernible]. Network, the gross revenue presented a growth of 7.1% for BRL 231 million indicating business discipline and a higher volume in high complexity procedures with oncology growing 10%. In terms of profitability, the adjusted gross margin was 31.2%, a reduction of 0.4 percentage points when compared to our annual results. The adjusted gross profit grew 6%. The mild reduction in the margin reflects less absorption of the fixed costs, which grew more than our revenue. In the accumulated for the past 6 months, we grew to 31.7%. It's important to reinforce that in hospital operations, we continue advancing in operational efficiency. In the Bahia Hospital, occupation grew 0.8% and the average ticket also grew. In oncology, we are restructuring the operators, improving profitability. So more than accelerating growth at any cost, our focus is to grow with discipline and better results. We can see this in this quarter, and that is also combined to an expansion of our services. Looking at the Rede Americas results. The joint venture had an increase of revenues in the order of 8%, reaching BRL 3.4 billion. This growth was the result of the expansion of the oncology sector. Among others, the adjusted EBITDA had a margin of 3.2% and a reduction of 0.7% in the annual comparison. But it's important to highlight that this suffered a significant impact of extraordinary effects in both periods. In the third quarter of last year, we had BRL 206 million of positive nonrecurring effects, especially related to the reimbursement of expenses and changes in leasing contracts. This quarter, we had BRL 365 million of negative extraordinary impacts related to the sales of the Santaluz Hospital and also our receivables portfolio. The EBITDA, excluding nonrecurring effects, would represent a growth of 37% when compared to the adjusted base of the third quarter of '25. And therefore, even though we had a decrease, we can see a very positive result of profitability. The Rede America operation continues evolving with a higher participation of high complexity procedures in addition to the operational efficiency initiatives. We also continue advancing with structuring initiatives to improve the digital journey of the patients, review business contracts and combine that to the revenue cycle for Dasa. Rede Americas result in the quarter, the joint venture had a net result of BRL 45 million and this quarter, we have a participation -- actually, we have a participation of 50%. The operating cash generation was BRL 367 million, reaching BRL 108 million this year. And we had a reduction of BRL 150 million when compared to the previous quarter, and the financial leverage was 1.8x compared to the 1.81x in the same quarter last year, but the variation was 0.07x less. Now moving on to Slide #8 and expenses. We had a reduction of 3.9% in the quarter, going from BRL 284 million to BRL 273 million. In the year, we had a reduction of 7.9% going from BRL 909 million to BRL 837 million. This is a result of the simplification of our structure, better discipline in cost management and efficiency gains. I would also like to highlight that part of this evolution is related to changes in the allocation of costs and actions that were implemented in the third quarter of this year. Another very important aspect I would like to highlight was the behavior of expenses with loss of accounts receivable, the PDD, where we have an expense of -- with a positive balance of BRL 1 million in the third quarter of '25, which had been benefited by credit recoveries that had been provisioned. In the accumulated for the 9 months, these losses represent a reduction. Other operational expenses, we can see a positive result of BRL 31 million when compared to the same period last year. And so in general, we continue advancing with the simplification of our structure, discipline, focusing on sustainable gains for productivity even in face of the increase of our operation. And moving on to Slide 9, we have the EBITDA. And if we exclude the equity method, we had a growth of approximately 5% when compared to the third quarter of '25. The margin reached 25.6%, a reduction of 0.9 percentage points. The comparison is influenced by the reversal of the provisions and the pressure on the gross margin is offset by efficiency gains and reduction of administrative expenses. In the first 9 months, the EBITDA equity method reached 23.9%. This performance reflects a combination of the growth of the operations, simplification of the structure and productivity and efficiency gains, which have contributed for the gradual improvement of our results. The consolidated EBITDA reached BRL 640 million with a margin of 26.9%. And in the annual comparison, we had a reduction of 1.7%, indicating a better contribution of the equity method. And now looking below the EBITDA, the net financial result was negative in BRL 230 million this quarter, representing an improvement of 39.5% in the annual comparison and was favored by less debt and also because of the debt protection mechanism in addition to a reduction of the interest rate. With that, our net profit added BRL 663 million, more than the double of what we had in the third quarter of '25. And in the first BRL 9 million, we reverted a loss when compared to the same period last year. And therefore, we continue improving with a consistent evolution in the year, and we have captured efficiency and expanded our margins. And now moving on to Slide #10 of investments. Because -- as we had anticipated, we have normalized our results over the year. The investments totaled BRL 92 million, an increase of 52%, including the inauguration of the Brasilia NTO. And in the accrued for the 9 months, CapEx reached BRL 167 million, a growth of 25.1%. So even with this normalization, we have a very selective allocation of resources, investing in projects that provide a better return and the quality of services as well. The resources were directed especially to technology in the maintenance of the operational infrastructure with BRL 63 million. These are initiatives that improve productivity and improve the experience of our patients. The logic remains the same. We invest selectively, prioritizing operational efficiency, productivity, value generation and always preserving the level of services of our businesses. And now moving on to Slide 11, free cash flow. In the quarter, we had BRL 415 million when compared to BRL 481 million. This was influenced by the loss of assets that were removed and also adjusted operating cash because of the operation of the Americas network. The evolution in the first 9 months is significant. We reached BRL 824 million, a growth greater than 60% when compared to the previous period and indicates operational efficiency and also more efficient operating cash management. We continue improving our processes. And when we look at the free cash flow, we had a positive result compared to BRL 416 million in the third quarter of '25. And this has to do with CapEx investments. Our free cash flow reached BRL 666 million compared to the BRL 300 million we had in the past year. This is sustained by a very efficient operational model with a lot of investments in discipline, leading to better cash results. Here, we connect the operational evolution and cash generation. The net financial debt after acquisitions payable and advances of receivables closed the quarter with a reduction of BRL 368 million when compared to the previous quarter and approximately BRL 1.2 billion when we compare it to the previous year. This evolution is also reflected on our leverage when we analyze the results of the company. And we understand that -- this indicates the evolution of the company. We have had a continued improvement, closing the quarter 2.76x when compared to 3.3x in the beginning of the year. Now in the reported results, the leverage was 3.5x, and it's basically stable when compared to the previous quarter. And this is a difference that results from the effects of the asset composition in the last 12 months impacted by the results of the hospitals and investments made. For covenant purposes, we had -- we closed the quarter with 3.4x below the 4x that was our limit. We continue advancing with an active management of our liabilities and the profile of our payments due. The debentures were last paid in July. We had already informed that in the previous quarter, and that was related to the 16th issuance, which led to a reduction of the concentration of payments to be made, reinforcing the predictability of our structure. So at the end of the period, our cash position and applications totaled BRL 1.2 billion, maintaining a very good an adequate liquidity position, as I have just mentioned. To conclude, we continue advancing based on 3 pillars, growth with profitability, better cash generation. I have just mentioned that. The results for the first 9 months of the year show very consistent evolution in this regard. And we still have very important opportunities ahead of us, but we are developing a base which is increasingly more solid to generate cash in the future. With this, we end our presentation and move on to the Q&A session. Thank you very much.

[Interpreted] [Operator Instructions] Our first question comes from Gustavo Tiseo from XP.

[Interpreted] I have 2 questions. This is something that you've mentioned, but I wanted to better understand where is the turnaround because we see some units being closed, the margin is positive, followed by cash generation. But when you look at the company and look ahead, what has to be aligned so that the margin expands more also that you continue expanding. I also wanted to explore Rede Americas a little bit more because different adjustments have been made. It's a new company, but I wanted to understand what is happening. The adjustments are made in the receivables. So I wanted to better understand what's going on and what makes sense for us to look into the future.

[Interpreted] Thank you for your question. This is Lucchesi. So I will tell you how the structuring of the company has advanced. I don't know if we can set a date for the turnaround. Of course, in the first quarters, we accelerated a significant number of initiatives. We had a very clear view of how much we would be able to increase our margins with productivity gains, and we've been doing that. So what is our vision now? Because this is something that we want to do by the end of the year, but we also have plans for next year. This agenda, and I've mentioned it before, we are not going to make any abrupt movements with decreases of expenses because we work as a team, we have to respect people. And also, we are committed with innovation, and therefore, we gain productivity and reduce expenses. But with a very smart approach, we use automation, digitalization, and that helps us with progressive gains. And so what I can tell you the following, the effort of the turnaround is higher, but we will continue looking closely to possible gains of productivity. And we do see opportunities to increase our margin. We have a series of initiatives that have been mapped. Another important aspect, we have the mix. We grow more in B2B than in B2C. In B2B, we have some pressure on the margin. But for the company as a whole, in terms of the nominal EBITDA that we deliver and the cash that is generated, that could be very positive in addition to other opportunities. So whenever we have an opportunity, we can do that regardless of making more pressure. I will turn over to Bossolani.

[Interpreted] Thank you for your question. You mentioned that the company is relatively new. The company is going through an integration process. It has evolved gradually. So it's natural to have process adjustments, accounting adjustments. We had to also harmonize our practices in the past. This is a natural process of a merger. So what's important here is for us to separate the historic view and the effects that are related to the business cycle. We advanced significantly in our accounts receivable. This is part of a broader process. And we have improved our actions need a better discipline, but this is part of a very important evolution in terms of the company's evolution. So most of the review work that we have to do, this allows us to have a clear view of the results. We have this disclosure of what is recurring and not. It doesn't mean a lack of additional facts, but we advanced significantly in terms of integration. And then finally, the quality of the control processes has evolved. We have a better integration of invoicing, account auditing and also management of charges, inventory denials. And so this review has been a very important step in our financial management to generate value here in the company.

[Interpreted] Our next question comes from Mr. Olavo Arthuzo from UBS.

[Interpreted] I have 2 questions, one about receivables and the other one on capital increase in Rede Americas. The first one regarding the receivables, we can see that this range of 161 to 360 days has almost doubled since December. And so my point here is, could you share with us if there is any specific concentration of any payers just for us to have a better idea and for us to understand. Also how much of the free revenue that we saw this quarter resulted from the recovery of claim denials? Also, there was an increase that you mentioned, a capital increase that was concluded now in September. So could you let us know if it was pro rata or anything like that or if there was any capitalization of existing credit? Because when I look at the rates here, we do not see any payments. So the participation, is it still 50-50? Or do you anticipate to have new rounds? I wanted to better understand what happened.

[Interpreted] Olavo, I will start with the second one. This BRL 100 million that we mentioned was not due to capital increase. It was a banking operation, strengthening of our operating capital, it was a loan to strengthen our operating capital, and it's very important to make it clear that since Rede Americas was created, it's self-sustainable. We like to reinforce this. And so it was a traditional banking operation without any unilateral characteristics between Rede Americas and a specific bank. Number two, talking about receivables. We do not see a structural deterioration of our portfolio, quite the other way around. We have made good negotiations with the main operators. We have a process of receivable management, which is very disciplined. We have methods and policies in place. And we have evolved, I would say, in a very positive manner in our capacity to manage not only receivables but operating cash as a whole, and that has an impact on the cash flow of the company. We can have some variations from one quarter to the other. And then we also have the analysis and adjustments, but they are only natural, and we do not see any deterioration of our portfolio whatsoever. It's all very well balanced.

[Interpreted] Our next question is from Gustavo Miele, Goldman Sachs.

[Interpreted] I have 2 questions, too. The first one is a little bit more direct in terms of diagnosis. And we have the mix effect, reallocation of costs and expenses, the NTO effect. But I wanted to ask your help to quantify these impacts or at least to be able to make a list and try to reconciliate it and have a better modeling for the next quarters. So this would be my first question. And the second one is regarding growth in B2C and diagnosis, more specifically about the discussion that the market has been having and what has led to this increase in frequency by client, including all of the diagnosis networks. I wanted to discuss a possibility regarding wellness that you mentioned and -- so I would like to know if you have any KPIs with the prescriptions of different categories that may corroborate that you have a little bit more frequency resulting from this category. And if you think that makes any sense to explain this. So this is it.

[Interpreted] Gustavo, thank you for your question. I will start with the first one. It is more direct. We -- in the diagnosis business, you saw 260 bps. I will try to include the 3 factors. The accounting reallocations between costs and expenses, reflecting the new organizational structure represented more or less 120 bps of variation. And then I would like to remind you that there has been a change in the geography and no impact of the tax it's just the P&L. We also have the operational costs with infrastructure, energy and so on and so forth, which corresponds to 80 basis points and that is translated into the modernization of the operational structure, the expansion of our equipment park and a mix representing close to 60 basis points in the 2 combined fronts. So this is more or less the distribution of these bps that we mentioned.

[Interpreted] Well, Gustavo, we had a growth in B2C and Alpha. It's a combination of trends. We have really grown consistently in A. We had a good asset with good investments made in the past with a good capacity of occupation. We also have a growth in response to the level of service and the loyalty of clients. We have trends in GLP-1. We created specific products for wellness. We have seen this in the specific products and checkups. It's still small with a small basis, but in the total of frequency and regarding doctors that have been with patients for a very long time. We can't say exactly what the impact is, but preventive testing and longevity do have an impact. And so the brands capture a little bit more. There's also resilience in the amount of people and also the aging of the population. And naturally, that leads to increased frequency. All of this combined to a good number of new patients that we see on a daily basis. We have the frequency of individuals that already use it and a good capture of new patients so that the growth rate is well above our B2C average, and we are very optimistic looking into the future.

[Interpreted] Our next question is from Flavio Yoshida, Bank of America.

[Interpreted] This is Yoshida. I have 2 questions here. The first one has to do with the CapEx, and I wanted to understand the scenario of higher interest rates and how you look at CapEx, especially when we think about expansion in the short and midterm? Are you evaluating it? And has the return for new projects increased? Or what you had mapped are still -- or is this still what you're using. Also, I would like to know what impact you can see and what alternatives you see to contain eventual increases in costs and expenses.

[Interpreted] Thank you for your question. This is Lucchesi. Talking about CapEx. Well, we were very conservative in our outlook for interest rates. And so we do not have a significant impact on projections if the interest rates remain with a higher rate for a while because this had been anticipated by the market. We continue very careful when approving new investments. The issue is that we have seen good opportunities with very high returns and are very confident to see how our past business plans are delivering good growth with profitability and capital return. So we have accelerated this quarter. We have good projects to continue investing in. Our bar for the approval of new investments is very high, but we also see good projects, which will likely give us good opportunities for '27. I had already mentioned in the previous call that we will have some acceleration and expansion of services and potentially in some new units, but we will be very careful. The oscillation we had in the past few weeks changes very little our plan, and we continue capturing opportunities. 6x1 scale. Our team is focused on that. We've been working on it for a while. And because the date is not defined and also the specific rules, it would be hard to say what the impact will be. But I can tell you that we've been analyzing how we can minimize impact. We have a review of the work journeys. We have new people being hired. We have something in operation hours. We will remain open in some times and maybe make some adjustments in specific days. We have worked hard to minimize possible impacts. And if they happen, we believe that they will be seen in the first or second quarter and with this management, we can minimize impact for the long run. It's hard to tell you the amount, but we are paying close attention when we implement them, we want the mitigation actions to be ongoing.

[Interpreted] Our next question comes from Leandro Bastos, Citi.