Hapvida Participações e Investimentos S.A. (HAPV3) Earnings Call Transcript & Summary

Welcome to Hapvida's fourth quarter 2024 earnings conference call. Joining us today are Mr. Jorge Pinheiro, CEO, and Mr. Luccas Adib, CFO. This event is being recorded and will be made available on the company's IR website along with the full results material. You can download the presentation by clicking on the check item. Please note the disclaimers at the end of the presentation. [Operator Instructions] I will now hand over to CEO, Jorge Pinheiro, who will begin the presentation. Jorge Pinheiro, please go ahead.

Good morning, everyone. Thank you very much for participating in the results call. [Foreign Language] As I said, we are ending a historic period of our company in the cycle that ends on December 31, '24. Almost 2 years ago, we invited the market and our investors to present a bold plan that involved initiatives in the operational, commercial, technological and corporate areas. And above all, the integration of all the acquired entities. I can say that our teams acted with discipline, strength and common sense, and we were able to finalize the execution of the entire plan, which was well detailed on that date. This closing of the cycle allowed us to start '25 at a very favorable time for us with integrated and unified operations with secure and solid controls. At the moment, we are moving our team's resources and efforts towards a new agenda with our beneficiaries always at the core of our actions. We will work on digitalizing our operations, expanding and qualifying our own network and expanding our activities. Our company has enormous executive capacity and now freed from the intense agenda that has consumed us over the last 2 years, we will be ready for a new cycle, a new journey. Turning now to '24. Before we get into the financial highlights, I'd like to give you an overview of the year. It was a period with many challenges and many achievements. At the beginning of the year, the region of Rio Grande do Sul went through a very difficult time with the floods. We set up a crisis committee with daily meetings, and our service network was fully operational. Our teams worked on extraordinary basis, and we were able to cope and provide care to the affected population, whether they were -- be that consumers or not. At the beginning of the year, we went through the biggest dengue epidemic in Brazil history during this period. The company invested heavily in opening specialized units and increased the number of medical professionals and beds fulfilling our mission. The volume of emergency outpatient care and tests related to dengue and other viruses, was well above our historical volume for the period. Even so, we managed to control claims. And this is the strength of our business model, which is verticalized and integrated. In the second half of the year, the issue of the excessive digitalization gained relevance and a significant focus of the whole health sector, both public and private. We have created several work fronts for this issue, which will be detailed below. On the achievement side, there were several in '24. We invested around BRL 300 million in system development preparing them for the final stages of our integration journey with NotreDame Intermédica. The final turnaround took place in December '24, and we now have a 100% systemically integrated company with significant gains in customer journey control and full visibility of our care quality indicators, which are essential to our management. Our observation in control center already monitors all of them more than 100 care quality indicators in real time, monitoring absolutely all of our company units, reaffirming what we have already mentioned in previous quarters, all stages of integrating care units and the operator were conducted diligently, ensuring that the customer's perception of quality of care remained unchanged and thus had no impact on churn. We also took advantage of this time of full integration of operational and corporate systems to review a series of internal control processes and policies. Several teams worked on this review process to ensure security and control of our information since now with a single standardized system, management can identify distortions more quickly and act more swiftly to correct them, bringing much more security, reliability and predictability to 2025. We invested around BRL 500 million in infrastructure to expand and improve our own network. More than 112,000 square meters were renovated, expanded or retrofitted. Throughout the year, we inaugurated 1 hospital, 2 emergency rooms, 32 medical clinics and 3 diagnostic and imaging units, totaling 38 medical and hospital units throughout the country. Speaking of our own network, the expansion of our health care infrastructure remains a priority for the next 2 years. Our verticalization strategy remains strong and should intensify after this intense period of integration. We will continue our process of expanding and upgrading various hospital units throughout Brazil. Last December, we announced our plans to invest around BRL 2 billion in infrastructure, and we are already starting to see this plan materialize. In Manaus, we inaugurated in December. The Nilton Lins Hospital, one of the largest in the city. In Fortaleza, in January '25, we inaugurated the Santa Maria Hospital, a super modern and complete hospital. This week, we will reinaugurate Jardim Anália Hospital [ in the ] Franco neighborhood, here in the capital of Sao Paulo. The expansion of the Layr Maia hospital in Belém, Pará is scheduled for completion in April. And Ariano Suassuna, our reference hospital in Racife Pernambuco is very close to its inauguration scheduled for May. Our 2 new hospitals in Sao Paulo and Rio de Janeiro are well underway at the design stage. Our efforts to continuously improve quality of care remain a priority. When we look at our quality of care indicators, satisfaction rate by operator have been improving consistently. Investments in quality have been perceived by our customers reflected in a downward trajectory complaints, which means that our overall complaints index, the consolidated IGR for all of the group's operators performed better than the sector throughout '24. We had a small increase in complaints in January '25, reflecting the last stage of NDI Saúde systems turnaround, but this was to be expected for such a large integration. Thanks to the swift action of the integration team, the index has been converging towards healthier levels since February. I would like to thank -- to take this opportunity to thank the commitment of this army of employees and service providers who have been working on the assisted operation process. You are warriors. At the beginning of the fourth quarter, the company's risk rating was upgraded to stable, confirming Hapvida solidity. Shortly afterwards, we announced another capital market raising operation, our eighth debenture issue, raising BRL 2 billion. This also obtained the highest investment-grade rating, AAA. It's important to mention that our gradual and organic deleveraging process continues with our indicator close to 1x net debt over [ EBITDA ], a very thin and comfortable level. Not only that, the company ended the year with a strong cash position of around BRL 9 billion, which is important for navigating volatile periods such as the current one. Delving a little deeper into our financial results on Slide 2 of the presentation. The fourth quarter is marked by a historical claim rate at lower levels due to less volume of utilization when compared to other quarters. In the fourth quarter of '24, the cash loss ratio reached to 67.9%. And the audio once again. [Foreign Language] I'm talking a little bit about our financial results on Slide 2 of the presentation, The fourth quarter is marked by a historical claim rate at lower levels due to less volume of utilization when compared to other quarters. In the fourth quarter of '24, the cash loss ratio reached 67.9%, the best in the company's history combined. This is a significant improvement of 1.4 percentage points compared to the fourth quarter of '23, and a reduction of 2.5 percentage points compared to the third quarter of '24. For the year, the index was 69.2%, very close to our aspirational levels. Our own network has already become more representative in the composition of the total cost, not only because of the investment process in our own network that I mentioned, but also as a result of the process oxygenating the beneficiary portfolio, which in new sales receives more and more clients who opt for more vertical plans. An extraordinary factor that occurred in this quarter was the adherence to the agreement for the partial settlement of amounts related to reimbursement to SUS, the unified health system and fines imposed by the National Supplementary Health Agency, ANS, on the company's health operators. In this negotiation, the company obtained a benefit of BRL 470 million. And we have a positive outlook for '25. We remain firm in this new cycle with appropriate adjustments and a responsible and sustainable underwriting policy. Our adjusted EBITDA was just over BRL 1 billion in the 3 months, an increase of almost 20% compared to the same treatments of the previous year. Our adjusted net profit almost doubled in the same comparison. When we look at the closed years, '24 versus '23, our EBITDA grew by almost BRL 1 billion in 1 year. At the same time, as we had nonrecurring effects, which will be detailed later on, we also had pressure on legal contingency expenses, putting pressure on G&A. Will detail the digitalization issue later as well. But I can guarantee that the combination of technology allows us to be confident that we are following the right track. We've observed sequential improvements, which combined to contract readjustments will absorb totally these impacts by the end of '25, as we had already disseminated. Regarding the adjusted net profit, it's grown even more, just over 170%. We are very proud of the results. With the integration process completed, claims under control, leverage at comfortable levels, good cash generation, successive improvements in our customer satisfaction indices, a resumption of organic growth in the number of beneficiaries, we start '25 with some priority agendas. The first one is the expansion and upgrading of our own network, as mentioned earlier. Secondly, we will be very focused on technology. Now no longer on implementing systems, but on technological disruption by means of tens use of artificial intelligence. We have set up specific governance to monitor all the results of the AIs that are being worked on internally. We have dozens of projects, many of them being developed internally as well as others being developed in national and international partnerships for each of the specialties. Our current focus is on initiatives in the medical care areas, and there are also several projects in the back office. All of them have a high expected impact on improving the services provided as well as reducing costs and expenses. Finally, we believe that 2025 will be a year for capturing synergies given that we are reviewing all of our performance indicators now 100% integrated and standardized. Our focus is always on the customers. Our efforts are always aimed at placing our beneficiaries at the heart of the ecosystem to increase satisfaction level. Our quality indicators now position us at the top of the ranking among the country's major operators. We are at a new moment after all the achievements and changes of recent years and especially when we look ahead, that's why we saw the need to adopt a new corporate brand to ensure even more recognition standardization and performance of our business. A new brand, but our essence, we always been maintained. We remain focused and disciplined. All is guided by and confident in our business model with a very long-term vision. The results we are now delivering come from people. That's why I'm grateful for the commitment and dedication of this team of almost 70,000 employees and of our teams of doctors and other service providers who number almost 170,000 people. I'm also grateful for the contribution of our partners, brokers and suppliers and for the trust and very present performance of the Board of Directors and our shareholders. Above all, I'd like to thank our clients, the fundamental reason for our efforts. We reaffirm our commitment to serving Brazilians, taking care of their health, with quality and affordability.

Thank you, Jorge. Hello, everyone, and thank you for your participation. It's a great pleasure to be with you for another Hapvida results call. I would like to comment on the restatement of the financial statements, which came out in a material fact last night. In the context of the integration and turnaround of systems accentuated in the last 3 months of '24, an environment that provides us with a natural improvement of our internal controls based on the standardization of legacy system and the central ERP, we have comprehensively and pervasively reviewed our processes, teams, governance and methodologies. In addition, we had the issue of judicialization, which ended up taking us and the sector by surprise, which motivated us to improve and strengthen our processes. We'll talk more about this later, but after these 2 events, we've looked more deeply into a series of issues and the results of this work is what we're presenting here. I highlight and repeat. All the adjustments we identified were proactive. In other words, identified and diagnosed by us and taking to an independent auditor, PWC, carried out numerous additional tests and reviews on our financial statements and our controls, identifying the root causes that explains these adjustments and came to the same conclusions as us. In short, we've done and are doing our homework here, including strengthening our controls to prevent further adjustments from becoming necessary in the future. Our conclusions are based on the fact that these adjustments involved improving processes and the control environment, not anymore. In this regard, we've made the following accounting adjustments and corrections, which are duly reflected in the '24 financial statements that you have had access to. In line with the CPC23 through the restatement of comparative balances as at December 31, 2023 and the inclusion of balances prior '22, the company's shareholders' equity on Slide 3, we present these adjustments, which are immaterial in terms of balances, reflecting positive adjustments of 1% of equity under IFRS 17, the company's current official GAAP and negative adjustments of 0.4% of equity under IFRS 4. Now let's go through the adjustments. In the first one, we wrote off a tax liability calculated as a temporary difference on goodwill, which was allocated to the business combination carried out in 2016 by NDI and then some liabilities, including tax results that may affect this group of adjustments amounted to a positive BRL 310 million in equity. In the second bar on the screen, we write off assets and liabilities that are not expected to be realized in the future. We are talking about a write-off if indemnity assets in the context of an arbitration amounting to more than BRL 100 million. Individually, this was the most representative adjustment of all and leaves us in a completely comfortable and 100% provisioned in the event that we are unsuccessful in this arbitration. We have also written off liabilities related to the share grant plan, return to equity and an increase in the tax contingency included in the balance sheet of the companies for '21. These adjustments amounted to less than BRL 224 million, including BRL 100 million I mentioned from the arbitration process in the third group. We have the regularization of balances of judicial blocks and deposits that had already been released by the judicial authorities in previous years, but we're still on our balance sheet. Here, we have a link with the subject of judicialization, which I will detail later. It amounted to less than BRL 168 million between 2016 and 2023. Fourth items -- I'm sorry, concerns the correction and standardization of monetary updating policy for assets and liabilities. The adjustments in this group amount to less than BRL 100 million. And finally, there are 2 adjustments that impact the financial statement only under IFRS 17. The first is the recognition of deferred revenue from certain consolidated contracts in '22. Here, we had a positive impact of BRL 676 million. And the last item, a correction similar to that of the second group. Assets and liabilities not expect to be realized, totaling over BRL 29 million in turning the page on the subject. We have the internal controls agenda, and I will share our results with you. Moving on to the next slide, Slide #4. You can see that revenue totaled BRL 7.5 billion in the fourth quarter of '24 and BRL 29 billion in 2024, growth of 7.8% and 5.8% above the fourth quarter of '23 and '23, respectively, benefiting from the growth of the Health and Dental Plan business lines, the result of our successful policy over readjustments and financial balance of contracts. This strategy more than compensated for the reduction in revenue from medical and hospital services and the discontinuation of other businesses in line with other activities. And we have a positive outlook for '25 due to an expectation of average readjustments at lower levels than in '24, increasingly approaching the company's historical levels of readjustments in the pre-pandemic period. In Slide 5, we see a net growth of 20,000 lives in health insurance beneficiaries in the fourth quarter. In addition, unlike our vision at the beginning of '24, we ended the year with positive net growth. We lost less and gained more lives than we expected, and we believe that '25 will follow the same track. The results are evidenced in the control of the cancellations and new additions. Remember, that the first quarter is usually a seasonally more challenging quarter in addition to the natural effects of the turn of systems, but this does not affect our outlook for the year. In '23, we made significant and necessary changes to correct the levels of claim in our operations, including initiatives to optimize our portfolio and adjust the products we offer. Today, we can divide the regions where we operate into 3 large groups. The first group of more mature operations, such as the North, Northeast and Central West regions. They continue to grow sustainably and consistently with strong margins. The second group of acquisitions made by Hapvida, which needed to be corrected in recent years have already stopped losing lives on a net basis with some already returning to growth. This is the case of Rio de Janeiro and Brasilia. And finally, we have the southeast and south of Brazil, including states such as Rio Grande do Sul, Parana Minas Gerais in Sao Paulo, mostly NDI operations. These were the last regions to be adjusted with fiercer competitive environment and which have suffered from a higher volume of cancellations in recent years. These markets have been performing better quarter after quarter. On the bottom of the page, we can see the evolution of the average ticket, up 10.2% between the fourth quarter of '23 and '24. In this graph, we had an increase of 8.4%. In the net price, which takes into account the effect of increased verticalization and co-participation in existing contracts. In the second block mix, which represents the net difference between the average tickets of incoming contracts, gross sales and outgoing contracts, cancellations contributed with an increase of 1.8 percentage points, mainly as a result of revisions to the sales tables and the portfolio mix. Mix is no longer detracting from this composition for the second quarter running. On the next slide, Slide 6, we present a cash loss ratio of 76.9% for the quarter, a significant improvement of 140 bps. And that fourth quarter cash loss ratio reflects the segment's utilization levels for 4 quarters, with reduced demand for services in December due to the end of holidays. On the other hand, throughout the year, the company reinforced its own structure to reduce service times and increase the satisfaction level of its beneficiaries. Investments in quality of care took place all of the country, but especially in Sao Paulo and Rio de Janeiro after the system changes with adjustments needed to bring these locations into line with the same models and indicators of the mature region. In addition, a specific task force was implemented throughout '24, focused on decreasing deadlines for elective surgeries in the metropolitan region of Sao Paulo. We're delivering more health to our beneficiaries and the effects are evident. The NPS in the IGR per operator in churn, we are delivering all of this, putting our beneficiary is at the core of the ecosystem and dropping 270 basis points compared to last year, a robust, consistent and sustainable improvement in cost efficiency. I'm going to open 2 parenthesis here, going through 2 specific sessions before going on to the Q&A because there are 2 events that we have moved these lines a lot. We -- the first is very exciting news, which is a historic agreement with the federal government that pacified a substantial part of our SUS reimbursement and ANS fines balance, which are explained in yesterday's material factor. The second is a more in-depth update on judicialization. On Slide 7, regarding the first issue on December 31, we reached good terms through -- adhere to an agreement for the partial settlement of the amount released to reimbursement to SUS and Fines on to ANS. The conditions proposed by the agreement between us and brokered by the Federal Attorney General's office, made it possible to considerably reduce the amount under discussion. In this historic negotiation liabilities recorded in the active debt amounting to more than BRL 2.9 billion were a result for BRL 1.7 billion with a net impact on our results of BRL 470 million broken down into BRL 145 million in EBITDA and BRL 325 million in the financial result. On the positive side, BRL 866 million net reversal discount of re-SUS collections up to December '24 on a liability of BRL 2.5 billion divided into BRL 541 million of SUS provision costs and BRL 325 million of reversal of fine and interest in the financial results. On the other, we had a majority of BRL 250 million from the net recognition of contingent liabilities, and BRL 128 million in income from the surplus balance of the judicial deposit by the government without the possibility of using it in other processes or entities of the Hapvida Group. After all the reversals of re-SUS, an imperative of the rule that anchored the agreement. We still have BRL 187 million cash installment expected to be disbursed in the first half of '25. It has been provisioned. That's why anyone who access the individual operators' data in the ANS, DIA yesterday saw a very strong reversal in PSL SUS. It wasn't a typo, and it makes perfect sense since we resolved a large part of the liability linked to this provision. We will continue to discuss the issue of re-SUS since we believe we have a good right regarding the [indiscernible] , which increases the amount of reimbursement to SUS by 50%. We will start paying our fines in a more expedited manner with expressive discounts. Our work to reduce the impact of fines on our bottom line has been bearing fruit, and this is reflected in our reduction of more than 40% in NIPs over the course of '24. We will continue studying fastly on this journey of reducing in IPs for '25 and beyond. We already have the best among the major operators, but we want to keep improving here. It's also important to mention that ANS and AGU still have internal and operational procedures spending for the final conclusion of the agreement, but these do not have the capacity to modify the conditions that governed the presentation of the memberships in a material way. Slide 8. In December '24, we completed a review of the entire base of judicial deposits and revisited the need for civil provisions after all the necessary adjustments, the coverage ratio. In other words, provisions divided by blockages stood at 104% in the fourth quarter of '24. And looking at the pro forma period now adjusted for both deposits and provisions, we see that the coverage ratio has remained above 100% over the last 2 years. We identified a number of cases in which these deposits had already been released to beneficiaries over time, checking these amounts, which had historically being done manually in individually case by case, led to this mismatch. We were able to identify the date on which each deposit was released to beneficiaries. We were also able to identify and associate any leftovers from related provisions and write-off these balances. Thus, we had an opportunity to recalculate the actual amounts of each disbursement combined with the movement of the corresponding provision balance and determine what the respective balance of the asset and liability accounts should have been in '23 and '24, which is what you see on this slide. I highlight that we've also corrected practices in relation to the monetary restatement of assets and liabilities, impacting the accounts cumulatively in the quarter. In the rescheduled pro forma, we also made the appropriate adjustments to each of the accounts in the period. Thus, in the pro forma, we have a view of the adjusted effect quarter over quarter of how the balance of assets, liabilitie, and their transit and the results should have been seen over time. We also rescheduled a pro forma for total contingency expenses as a percentage of revenue at the bottom of the slide. When we look at the fourth quarter of '24, pro forma expenses totaled BRL 3.3 million of net revenue, a drop against the third quarter and a level closer to the expectation of the additional impact of the lawsuit that we shared with you at the end of the third quarter last year. In Slide 9, we show you the analysis of deposits and civil provisions pro forma for the second half of '24. In the first graph above, looking at the deposits comparing the movement in the fourth quarter '24 -- the third quarter of '24, we've seen a stability of new deposits, net of recoveries of around BRL 200 million. Disposals and expenses of BRL 94 million from the fourth quarter '24 itself against BRL 147 million in the third quarter of '24. In the graph below, looking at provisions, we see new provisions of BRL 93 million in the fourth quarter of '24 compared to BRL [ 1 51 million ] in the third quarter '24, payments of BRL 47 million compared to BRL 56 million in the third quarter, monetary restatement of BRL 12 million. We have stronger control and governance than in the past. We've hired consultants and data scientists, automated processes and embedded the right technology to build the dashboard of indicators needed to manage this issue more safely. Today, we have a daily view of every block that arrives in every deposit that leaves. Jorge and I monitor these balances on a daily basis. The working groups we created and discussed with you in the last quarter are gaining traction, and we are increasingly convinced that they will deliver results. In a few weeks time, we'll release our results for the fourth quarter when we hope to bring you more details. We're struggling and this means a significant advance. Now let's turn to SG&A., Slide 10. On cash and selling, administrative expenses, we can see that the percentage of administrative expenses in relation to the revenue reached 17.2%, impacted by the 2 issues I just mentioned, of which 5.3% arose from the settlement of contingency liabilities for ANS fines and 1.5% from write-offs of civil judicial deposits for the first 9 months of '24. And now the word nonrecurring, excluding these events, the percentage of administrative expenses over net revenue would have been 10.4%, 0.7 percentage points higher than in the fourth quarter of '23, but 1% lower than in the third quarter of '24, reflecting the impact of judicialization, notably in the last 2 quarters and the system integration efforts, whose expenses had a seasonal concentration in the fourth quarter with the turnaround in December. I reinforce our confidence that not only will we have room for savings after the assisted operation of the integration is completed, but that we have spent a lot of time in the company's long-term planning, looking at automation initiatives, digitalization, the use of AI, training for back-office team, et cetera. '25 as will be the year of Hapvida's digital transformation. '26 will be the year of applied preventive medicine with a lot of embedded technology. There are so many projects and initiatives that unfortunately don't fit here, but we're going to start populating our communications with tangible elements about this over the next few quarters. Jorge has already given a spoiler about some of these initiatives. And we've also made a bridge to make it easier to understand the breakdown of what impacted contingency expenses. We have one-off events of prior quarters and half of the year. Selling expenses on the right upper corner reached 7.4% in the fourth quarter '25, 50 bps higher than in the third quarter of '24 due to the concentration of advertising campaigns. Commissions and PDD expenses have remained fairly stable. In Slide 11, our adjusted EBITDA was BRL 1.63 billion in the quarter, EBITDA for the year was BRL 3.8 billion, an increase of almost 35% compared to '23 due to all the effects that we've seen thus far. It's naturally a more pressured result as it reflects the impact of the lawsuit on the result of '24. It's a strong result, which reflects the resilience of our operation and demonstrates that we are on the right track. I also note that our adjusted net income under IFRS 4 went from BRL 680 million in '23 to BRL 1.8 billion in '24, up BRL 170 million year-over-year. As with G&A here, we too did the pro forma exercise, excluding the effect of the ANS fines agreement and re-SUS reversal and redistributing the expenditure of BRL 113 million to its proper competencies. On Slide 12, cash flow. In '24, we had an increase in net cash of BRL 1.4 billion, of which BRL 1.5 billion was generated as free cash flow and BRL 0.4 billion from financial activities, which was partially consumed by the negative result of BRL 0.5 billion in M&A. In the free cash flow, BRL 163 million from the re-SUS agreement and ANS fines, which have a positive effect on EBITDA but no cash effect. BRL 255 million re-SUS judicial deposit necessary for the company to carry out its judicial defense without the incidence of late payment fines and BRL 123 million in net taxes to be recovered and collected due to the mismatch between calculation and disbursement. BRL 115 million in trade receivables and we also had BRL 251 million in income tax and social security companies -- contributions. To help you understand, we've provided this graph below to help you reconcile cash tax with current tax. Throughout the year, the company makes monthly payments under the real annual profit system as well as withholding taxes. The company reverts part of the current tax and is credited with BRL 202 million disbursed in advents throughout the year, which will be offset during '25. Throughout '25 to cash in the cash rate, we expect to make monthly JCPs to mitigate the impact of the charge on tax compensation, which should reduce the volatility of the effect rate in a high Selic scenario. CapEx for the year was BRL 835 million. This figure includes the company's disbursement of BRL 158 million for the purchase of property for 1 of our new hospitals in Sao Paulo. As we have signed BTS memorandums of understanding for this hospital, we should be reimbursed this amount throughout the year. We generated operating cash of BRL 2.6 billion or 68.6%. We want to continue improving. In Slide 13, M&A activities consumed around BRL 515 million in '24, BRL 270 million from the release of the retained portion of the acquisition of Grupo São Francisco, BRL 180 million corresponding to the agreement with the seller of NotreDame Intermédica, an operation that took place in 2014 and BRL 109 million in amortization of retained portions of other acquisitions. As to financial activities, we had a generation of BRL 366 million, BRL 78 million in financial income, yielding 9.5% on the company's average cash, slightly below the CDI rate for the period, mainly due to the market-to-market of some assets in our funds, and BRL 222 million from share buybacks. We ended the year with a net debt of 1.06x the EBITDA, a reduction since the end of '23 and a slight increase on the previous quarter due to the share buyback and other factors mentioned above. In addition to the net debt, we also improved our debt profile going from a weighted cost of CDI plus 1.56% at the end of '23 to CDI plus 1.36% at the end of '24 moving from a duration of 3.4 years to 3.3 years in '24. We're still evaluating opportunities to buy back our bonds. We've generated more cash, we have leveraged the company and resumed a stronger pace with adequate methodologies. We have grown the number of lives in a very challenging year. We concluded the consolidation and also an important agreement involving with SUS and ANS fines. In short, many victories. Once again, thank you for your patience. It wasn't a trivial result for the company. We had specific explanations and topics to deal with, and I hope that these details have been useful to you. We now open the floor for the Q&A session. Thank you very much.

We are now going to start the Q&A session for investors and analysts. [Operator Instructions] The first question is from Vinicius [ Avere ] analyst, Itau.

Good morning, everyone, and thank you for taking my question. I would like to start with Slide #9. We can see on the graph above that expenses and deposit in the fourth quarter was less than in the third quarter. It was BRL 177 million and now it was BRL 94 million. How much of this reduction has to do with the seasonality or any external fact? And what should be the company after the agreements? This question here is the BRL 200 million that came in the third quarter, and what came in the fourth quarter. When you look at what in fact was taken into account, easier to lower because we have this time mismatch, which makes it difficult to consolidate things. But this BRL 200 million, will they become an expense in '25? Another question about Slide 8. You mentioned the pro forma contingencies of 3.3% of the revenue. With all of the blocks you have for '25, along with the internalization of some of the processes that would no longer be in contingencies, the final impact on the margin regarding digitalization for '25, would it be 3.3% of the revenue already taking it into account? Thank you very much.

Thank you very much for your questions. I will start answering then turn over to Luccas. In the fourth quarter, we can already see some good news. And when you invited us to talk about this, we showed you that the work groups, we're already providing results. The first one was about the blocks that had already been made. Once we identify a block, even if we do it right, but evaluating that the procedure would have a lower cost when performed at our own network because we already have fixed expenses. When done in our own network, the cost would be much lower than when we pay for an accredited network. And so this group started working very actively around October and November and gained impact in this period. And in case the company can have all of these blocks referring patients to its own network, we will be able and will be able, we already have these gains reflected in the fourth quarter in expenses with less expenses. And when we have a block and we issue the form, this has to do with costs, which are reflected on the cost for the fourth quarter. So the expenses that we avoided were already reflected on the fourth quarter.

Thank you for the opportunity to explain this topic. When we look at the fourth quarter, when we make the pro forma adjustments I talked about, we are 1.5% above the average. And when we compare to what we've seen in '24, why are we still in doubt? Because in the third quarter, we'd already told you that we had a provision for the third quarter and fourth quarter. But we can see that when I make the pro forma adjustments, we have BRL 37 million in contingency and now it is BRL 249 million. So the third quarter was a little bit worse. In the fourth quarter, a little bit better. We do not expect this to be maintained like this for contingency over net revenue. Today, when you look at the fourth quarter, this is what the 1.5 percentage means.

Okay. So it's clear. So as we can see, all of the measures of the work group, along with the internalization of the agreement, which may render new deposits to accelerate. So the new deposits, at the end of the day, we will have this figure going down from this 3.3%. I just want to clarify this.

Yes, perfect for this perspective, this is what we have to do. We had a first group started in November. We wanted to guarantee the expenses for the blockade. And then we didn't want that amount to be released to the counterpart. We capped some of this in the fourth quarter. And then we had another group we tried to hold this blockade and the contribution of new blocks is flat because we didn't have a lot of action, but we will see it for the first and second quarters of '25. But in the fourth quarter, we already had the impact of the activities carried out by the work group. If we are successful throughout the year, both in terms of expenses and the control of new blocks, this margin is likely to go down, but we have to wait and see.

Our next question is from Mauricio.

Thank you for the opportunities. Regarding the judicialization, I would like to remind you that this is a lot stronger in regulating in terms of claims control, but what is it -- or how is it going to work this year? I see that you are very optimistic that the year is going to be good. I wanted to better understand what you see in this competitive environment. What are the key success factors for this year and all of the key factors leading to business success this year? And also going back to judicialization, now that you have evolved a lot with legal support, will it be possible for you to provide more frequent monitoring of what's going on to the market? And the nature of these mitigations are more related to patient care. Could you classify it as claim? How would you align these claims with ANS gap?

Thank you very much for your questions. We are very enthusiastic for 2025. '24 was a very intense period looking at the company internally. In the second half, we reviewed the portfolios. We had a process that involves a lot of our teams, including the business team and after sales. And we have a team, which is visiting clients. Another one was reviewing processes with us, making system implementation, tests with information entered in the database. As we conclude this task and release our teams, I would say that over 30% of our time was dedicated to this judicialization process, given its size, now that they are released, they will be able to help us have a better performance, including the new products that were launched. And then at the end of April, we -- it will be running throughout Brazil with more accessible results. And we also had reviews in half of our base and HMO, also the PPO cap. We are developing a series of new platforms and technologies for online sales. We are increasing the volume of online sales. And in combination to that, with more capabilities in our cost structure and good control of claims, we will be more competitive, and this indicates that we're going to have a profitable year, except for the third quarter because we know that it's never a very strong one. We are very positive looking at the second quarter on and this is what our sales pipeline indicates. Corporate is doing well. Cancellations are at lowest historical levels at the company. Retail, if it works as we expect, we will have a very successful year.

Thank you for your question. I will start with the most difficult one because it's always better to start with the more difficult one. The communication strategy and a more frequent one. I think it's important for us to have an idea of how incipient the discussion is, not only for the section, but also for the company and the impact of what we're doing internally will be captured during a certain period of time. Jorge talked about November, which is very recent, we were able to note that we needed to have intelligence, not only from a legal point of view, but also a statistic data for us to be capable of negotiating of the actions that we've taken throughout the fourth quarter can be seen now in the first quarter of '25. As we evolve and as we are more confident about this, we can discuss a more -- or a better communication strategy. We understand that this is one of the main lines followed by the market, and it's right. So as we can show you that it's been controlled, it's been addressed properly. And looking ahead, it is stable. We will not have to be talking about these issues. And so I think that this is something that according to logic should and in the near future, we are spending a lot of energy to deal with this. Once we conclude these activities, it will no longer be necessary. And then we will be able to evaluate other types of communication. I'm talking to you aloud. I haven't discussed it with my boss, but this is the concept that makes sense. Regarding ANS, how can we communicate this better? And what is the discussion like? Historically, the company never included the discussion that included amount spent with coverage. We commented this with you, and it's now part of our G&A. As of January 1, 2025, we reallocate this part of judicialization expenses, which will move to cost. And because it's clear expense related to the coverage of the company, it will be included in cost and this will be considered as a claim, be it in our own network or in the accredited network. We are well prepared so that we can work with this and we will send it to ANS and also take into account our corporate readjustments. This will be part of the company expenses, which will help us for the future years. These are amounts that will be included in costs as of '25. I hope it was clear.

Our next question is from Leandro Bastos, Citi's Analyst.

I have two questions. The first one regarding the deposits, linking to the comment made that in '25, you've already seen a more dynamic understanding of these new deposits, I wanted to understand whether there is any seasonality component that we should pay attention to? Or whether perhaps this is a better reference for us to consider 2025. Also, could you comment a little about the new deposits in the second half of '24. There was over BRL 700 million of net deposits. Could you give us an idea for '25 so that we can reconciliate? And also on this topic, I would like to ask about the integration of NDI. You commented that you are stabilizing the system. I wanted to understand how this is going and when you expect to end it so that we can work in a more integrated manner as a whole. Thank you very much.

Thank you for your question, Leandro. Regarding seasonality, if you think that they are going to benefit the period, the nature of these demands churn or help the vacation time by the judiciary system not affect us. What eventually reduces it are procedures that have a less important volume in this type of demand. And we have -- for example, if we have an emergency procedure when the patient has not gone through, it's time to be able to use it. These issues are solved faster. Regarding the integration, we're doing well. This is the largest and most successful integration of all we've had. But in the past years, we have been trying to develop new functionalities in the system to meet the demand. We expect that by the end of March, the vast majority of the activities will be concluded. And then we will have residual issues to tackle in the second quarter, but they will not have a significant impact. We are really very close to overcoming this phase and move ahead. I cannot tell you with words how this enables us to look ahead. The quality of information we have here will allow us to be more efficient on the day-to-day. And Luccas will answer your second question, Leandro.

I will talk to you about the composition of new net deposits. In the second quarter, we had additional BRL 152 million, which results from this methodology in the second quarter. In the first quarter, it was around BRL 111 million. It's escalated throughout the year.

Our next question is from Flavio Yoshida, sell-side analyst.

Hello, good morning, everyone. Thank you for the opportunity to ask questions. I have two. The first one is regarding the deposits. You mentioned that in the fourth quarter, you converted to a 100% ratio for deposits and provision. I wanted to better understand how we should consider this dynamic from now on and if it will remain at this level. My question because you seem very enthusiastic with integration, and it indeed seems to be very important for the company. But I wanted to know if you're still running with assistant operations or if this will end by the end of March, or if you have any cost for the system, and the gains in efficiency with this operation, how and how much will it be?

I will start with the integration. We no longer have legacy systems. They are all running in our systems, invoicing, patient care, call center, everything is already running in the new system. We are still working on assisted operations, but only for a very few weeks. I now turn over to Luccas.

Thank you for your question, Flavio. We had a technical problem with the microphone. When we were in the third quarter and we recounted that 96 and then we analyzed it, our vision was that looking to our historical series.

Well, we can hear. The sound is not excellent, but we can hear.

So in our vision, looking ahead, I would like to remind you that we should evaluate it with our lawyers, be them our internal lawyers or hired lawyers. And this is done to analyze the evolution curve of the results if we have any adjustments that are required. What I can tell you is that we've made a series of tests, the provisions comply with what we've seen and our risk perception in our provisions of liabilities. The idea is that we will not go under 100%.

The Q&A session is now over. With this, the event for the fourth quarter of '24 for Hapvida is now over. The IR area remains available to eventual questions. I'm sorry, I've received new instructions from the company, and we will have one more question. I'm sorry. The Q&A session of Hapvida for the fourth quarter is now over. The IR team remains available for eventual questions. I thank you all for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]