Hospital Mater Dei S.A. (MATD3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the earnings call for the first quarter of '25 for the Network Mater Dei Saude. I'm with Jose Henrique Salvador, our CEO; Rafael Cordeiro, our CFO and Director of Investor Relations. This video conference is being recorded and will be made available on the website for investors of the company after it's finished. To activate simultaneous translation, click on the icon of the globe on the bottom, all of the presentation will be available on our website under the section of Investor Relations. So any -- there is a disclaimer, any declarations that we have said in this call are related to uncertainties and situations that are unpredictable, things that are unexpected. So these things -- the things that we say are related to our -- what we see today on this moment in which we are having the call. So any questions and answers will be at the end of the meeting, and you can also send questions through chat. I'm going to pass the floor to Jose Saude to begin the presentation.

Good morning to all. It is a pleasure to be here with you today to be able to carry out the earnings results for the first quarter of 2025. This was a quarter of recovery in many elements and fundamentals of our company. We will have the opportunity to go over each one of these elements that helped us have a quarter that was much better and much better performance to the one we reported in relation to the results of the first quarter of 2024. Starting out with revenue during this quarter and the numbers that we will present here are all numbers that exclude the participation of the hospitals from the Network Mater Dei. In this quarter, we had the largest revenue -- net quarterly revenue, BRL 25.3 million in this quarter with a very healthy composition of revenue. In this quarter, we also presented the best average ticket from our historical series, BRL 2.6 million per bed, reflecting a better mix of specialties in our institutions and a better mix of operators and a better relationship -- demonstrating better relationships with the operators of the Network Mater Dei with the capacity to incorporate price transfers in our tickets, our average tickets and increasing our revenue through this pathway. This happened even through a period of unfavorable seasonality different than what happened in the first quarter of the year 2024. This was a quarter where we did not have the impact of breathing or airborne diseases. We didn't have the impact of dengue like we had a very strong impact in the first quarter of last year, reflecting the capacity of the company to advance in our revenues despite all of that and advance in surgeries, in our services to more complex patients and clinical patients and even with a high number of holidays, we had Carnival, we had Easter and increased the revenue during this time. We are going through more respiratory diseases in the end of April, beginning of May. Now we are seeing a higher impact of that in our regions. This is also a quarter where we were able to demonstrate our capacity to bring operational efficiency that was even better for our operations. We were able to maintain our hospitals at an occupation rate of 80%, incorporating the concept of GEA patients or day patients. With this, we were able to dilute our costs better. We started to present during this quarter a normalization, for example, of our costs with employees after the incorporation of the costs with the PL of nursery -- the nurses. And so now our capacities to dilute costs, be they with working force or inputs during this quarter, and we were also able to present a higher dilution of our costs and expenses, especially in the extensive and deep work that has been done after the exit of Porto Dias, we have brought the company and the size of the company to grow even without that hospital and the result of this work or the beginning of the result of this work, we are being able to present now in this last quarter. When we talk about the reflection of the revenue -- of this healthy revenue and the operational efficiency, it's also reflecting our margin results. It continues to be the same with -- even with an unfavorable seasonality, we had in this period, a growth of 3.4 percentage points in relation to the last quarter of last year. And this result was the best in 4 quarters and also the best over the average that was presented in 2024. In this sense, we have a few highlights that are very positive highlights. I would like to highlight mainly the maturing of some of our units. If we were to look at what has happened in Salvador, for example, Salvador has been able to present expressive growth, both for revenue as well as for margin, contributing positively for the margin of the company. There's 16% in the growth of net revenue in the quarter of '25 in relation to what was presented in Salvador in the first quarter of 2024. It's the largest EBITDA of the last 4 quarters and the best net revenue from Salvador. When we go into some acquired units, we also see results of the work being reflected in margins and being reflected in growth. For example, the hospital, Santa Genoveva in Uberlândia had the largest EBITDA ever since the second quarter of 2023. We also had the highest average ticket in the history of EMEC reflected in the reality of the hospital and a clear tendency with Santa Clara with the services of robotics. We started to implement robotic technology in Santa Clara, and then we had a record with the number of births. As was already mentioned in the previous quarter's call, it has been a very positive surprise for the Mater Dei network and it has been a unit that has contributed to the positive EBITDA for our institution. Besides that, I would like to highlight that in this quarter, we were able to demonstrate our capacity to improve the generation -- the cash generation. On one quarter, there we had a cash flow that was positive with important improvements in our working capital. Rafael is going to talk about that soon. Making it possible for us to buy back some shares in a healthy position -- cash flow position of the company and making the company more and more comfortable in terms of capital structure and also in terms of our debt. Moving forward, we also approved in the company, given the more comfortable cash scenario that we have, an extraordinary distribution of dividends. They were BRL 25.3 million to be distributed, which is around BRL 7.45 per share with a payment foreseen until the 31st of May in 2025. We are going to disclose more details on the distribution of the dividends as a way to value our shareholders and making it evident that we -- our company has financial health. Another point that is very important is that we also had during this period, the reaffirmation of the rating by Fitch, reaffirming our positive rating, showing our resilience in operational cash flow. But another point that is very important. This expectation and this maintenance of our network incorporates the expectation of maturing of our hospital assets. So through this reaffirmation, we see an external environment bringing the support on what has happened into our financial economic results in each of our units, especially the units that bring a disproportionate value to the company in the next few months. We also wanted to highlight the A3Data as a new solution of artificial intelligence. We released a case recently with the Group Elfa with direct contact of more than BRL 100 million from the group's revenue in the last 3 months. This has been an important partner in the Network Mater Dei in building products and solutions, which have helped the Network Mater Dei and also other companies and will definitely help us even more, especially when we look at our cycle, our financial cycle and everything that we can do to make the company more and more healthy and more and more ready for the next challenges. So it was a quarter in summary in which we are able to show the improvements of our results of quarter. We were able to show the expectations in relation to the maturing of each one of our units, and that's already reflected even though there was a period of lower seasonality, more unfavorable, we were able to present a positive results for the company. This is what I wanted to share, and I'll pass the floor to my colleague so he can talk about all of our financial indicators and how we were able to perform in this first quarter.

Thank you, Jose Henrique. Good morning, everyone. I'll start on the page on operational highlights, highlighting some of the fundamental anchors for us reaching our goals of the year that were fundamental for us to reach the results of this quarter. which is our occupation rate. We went back to having 80% considering the GEA patients, which is the goal number that we have. And of course, we can sometimes pass this new number. So we don't have full control over it since it's something that's very alive, but reaching these goals are very important for us to control our operational costs. This is the second number of the series of 5 quarters. It's the only one where we had a higher occupation rate. It was during the dengue period. And this quarter is a quarter where our occupation rate, we had an admission of 21 beds, but it was adequate to what we had in terms of demand in the quarter. Going below on the slide, we had a drop of 0.7% in the number of GEA's quarters, but we had a growth, a significant growth of 3.1% in the average ticket of the GEA patients. So from 7 to 17. So that compensated a lot. On the next page, highlighting the revenue, I'm going to continue talking about the ticket. It's the third quarter, the third quarter where we have expressive growth in the average ticket, growing 14% from and plus 3%, we were able to grow first 6%, and then we were able to grow 3%. For us to reach this result, which is a year-over-year increase of 14%, there was a lot of discipline that we had to have to make adjustments on the right dates. We've had a relationship with the operators that has been much better, which in the past was not so great, but now we have a relationship that always needs to be worked on every day, but we no longer are under that desperation that we had with the operators. So the new hospital in Nova Lima and Salvador are hospitals with higher average tickets, which are supporting us in the almost 4 million of used beds. In the first quarter, we're very -- we're paying a lot of attention to the access to surgeries, and we are working on this. So we still have possibilities of having much more recovery. And I would also like to highlight the focus of the company on revenues that don't include the beds. We have a lot of revenue from the patients that are doing imaging and cancer patients and these patients are fundamental for the growth of our revenue. Going to the revenue on the bottom of the right side of the graph, we had the best revenue, BRL 0.5 billion of net revenue in this quarter, growth of BRL 2 million against the last quarter, which represents a growth of 2%. All of that -- all of the improvements are reflected in this improvement of our revenue. In relation to cost and expenses, here, we have a lot of learning where we made -- we talked about this in the last call. It doesn't reflect -- we were not satisfied with the results from our last quarter, and we wanted to improve that. So things that happened immediately, we had to make a few top-down actions, and that was reducing our workforce, and that is now being resulted in this first quarter. But on the next quarter, we will see more results of the work that we made because in March and April, we are still carrying a bit of the cost of the emissions of the work that we did. Mater Dei had an important reduction in the new mix that the company has working in negotiating with suppliers. And so we had 71.2% with BRL 356 million and '25 is not better than the first year. In the first quarter of '24, we had 2 items that helped us in the results. At the time, there was a reversion of BRL 3 million in the PLL and the other was mainly for comparative issues. The first quarter of '25 has the full infirmary and 2024 was the composition of the first parcels and it was only BRL 3 million. So if we look at these differences in the first quarter against the second quarter of '25 is more expressive because of the numbers that we are showing here. In relation to the cost, operational costs, there was a reduction of 1.1% going to 14.9%, a number that is still high, but it's still very healthy. Here is a constant work of improvements that we have that dilutes with the entry of new quarters with higher occupation rates and higher use of our hospitals and more seasonality. These numbers will probably drop, but this number was a result of the work of cutting down some operational costs. So going to the next slide, our EBITDA slide, we have this classification as adjusted EBITDA because the third quarter of last year, we had an adjustment of several situations and of Nova Lima. So in order to make it comparable, we are using the terminology of adjusted EBITDA. But this year, there was no adjustment. We don't comment on that anymore. But within the BRL 97 million, there was an expense of stock options of a program, which probably will not be executed again because of the incidence of the program, but it is accounted for, and it's also important to remember that we do not adjust this in our results. So we had BRL 97 million, a growth of 3.4 percentage points, which comes from the reduction of costs and expenses that I mentioned and the historical series, it just shows how in the first quarter of last year, we had the seasonality of dengue, we didn't have the infirmary yet. If we were to look at the average of the year of 2024 in our EBITDA margin, the company did 18.6%. So we are 0.6 points better in this year, higher than the average of last year, which puts us in a position of a possibility to improve the results over the year. Going on to the next page, working capital and net profit, we can highlight 2 images with the adjustments because now we do not have this adjustment anymore. So we would like to show what is the margin of the company just considering the premium. So looking at the full numbers, we had 4% of profit of BRL 12 million higher than the fourth quarter that had a margin when compared to the margin of the last year of 4%, it was 1.7%. We had a higher margin than the second quarter of '24. So this is a recovery that we had. We are halfway to recover this margin, which is one of our main objectives for this year. And the reflective of cash, it was 20.9%. Since we don't have the premium anymore, there are very actions that we will carry out over the year for us to diminish this because the controller and payer of debt if we do not have these mechanisms. So as these other controls, we will have more work. So we are working very hard on this. It's an important point in order for us to reach better cash flow. The MR, PMPM and PME, we had an anticipated purchase of some medications. So this is affecting our stock for a short period. And over time, this will normalize, and there is an increase of the time with our suppliers for the same reason. In the PME, we had an average of 4 days half of them because of the growth of the suppliers in the fourth -- in the first quarter and the others are occurrences that we received. We received 2 anticipated deals because of regulatory issues that they had, and we were -- that was able to help the results of December. And the comparison is not so good because of that, but we noticed more stability in our cycle of revenue. We have a cycle that's much more mature in which we'll be able to control the working capital much better. Going on to the next page, cash flow and debt. Here, we have a good news. We were very satisfied with these results. We were able to lower our net debt in BRL 1 million if we lower the purchase of shares, which was BRL 11 million. But when we rebought them, we had BRL 1 million positive. This shows cash control or cash generation and working capital that is one of the focuses of the management at this time. We had working capital of consumption of BRL 19 million. It's the second best number of our series of the last 5 quarters. This shows strong work on all points on stock and inputs and the flow of payments. Another line to highlight, and it's important to mention is the control of CapEx. We had BRL 32 million -- BRL 34 million in investments, BRL 13 million were from investments that we normally have in maintenance and expansion. In this case, ours are more intangible because they're maintenance. So we have a lot of investment that is paralyzed to bring in new revenue. We did Nova Lima, Salvador. So this is the year of making the company profitable and spending more in CapEx. The other line that was very important to highlight was the issue of the tax -- income tax, which we paid BRL 3 million, is much lower than is our usual amount. So we had a rate of 23% instead of 24%. And so our cash flow closed with BRL 7 million which was on the higher part of the page, we have BRL 1.6 billion of net debt for the last 12 months. The debt, as I mentioned, of BRL 1.64 billion with a cash of BRL 260 million, which brings a net revenue of BRL 781 million. Program of payments, we continue with a comfortable schedule with the average time line of 4 years with lower rates of CDI. So the financial situation of the company is a situation that has been improving. It's already a situation with -- in which our sector in the Brazilian market is very comfortable, but we did not remove and it will be the focus along with the increase of profitability of the company. We will work very hard with cash flow to generate cash and control costs and control investments. That's the end of my presentation. We will open to answers and questions. Thank you very much.

The first question is from Gustavo Miele.

First, we would like to talk about the perspective of margins. You already said that there are several factors that you are working on to improve. What is your perspective for the end of the year or over the year? And what are the main lines? You talked about workforce. You talked about dilution of the impact of the infirmaries. But if you could give us a time line for us to understand a bit better. And the other point on the operational beds. So since you removed some from Porto Dias, it has been dropping no matter how many assets that you have that are ramping up. It's just to understand if you're focusing on profitability or what is against you there? Are they the new acquisitions that you are closing because last year, you were closing some beds or there are mature beds that are offsetting Nova Lima or Betim-Contagem and Salvador. Just so we can try to understand this dynamic a bit better.

Thank you much. Thank you for those questions. I'm going to start with your second question. In relation to the operational beds, what we have done in our work here at the company, and this is something that we bring every quarter, quarter-over-quarter because this is an important point for us to work on in our profitability. The maintenance of our occupation rate is a work that we do also to reduce the average rate of permanency of the Network Mater Dei, so we can bring more reduction of costs and a relation that is much more healthy with the operators. So it's for us to be able to work and make more efficient our diverse hospitals so that the hospitals can be profitable, so they can grow with sustainability, and they can also be healthy. We have tried to more and more share this with you and unanchor the growth of revenue or perspective of growth of volume to other variables that interfere with that, such as the mix of services, complexities, readjustments as well revenues that are complementary services such as the emergency services. So what explains better what's happening in terms of the number of beds is especially this vision and this efficiency that we want to give to the company so that we can reach and improve our margin numbers more and more. And then we get into your first question. As I said previously, we started the year in January with a negative seasonality. So it was a month in which we had the impact of movement that impacted our margin, and then we had a February and a March that were very affected by all this positive work that we've done. So it's an expressive improvement in the margin. And we hope that this continues month-over-month with a very clear vision on what are the bases and foundations that include costs and expenses in the company, a very detailed control in each one of our hospitals for all of these variables and also a capacity of incorporating more revenue in each one of our new units. All the units of the Network Mater Dei have been able to grow their revenue in a normal way without any seasonal events that appear. So this brings to the company a capacity to increase margins quarter-over-quarter, reaching the end of the year with those margin levels that we presented in the past with a very good perspective of improvements also through the growth of our new units.

Next question from Vinicius Figueiredo, Itaú Bank.

The first topic that I wanted to explore is about accounts payable. If you can explore what has been done in relation to that. We observed that after Porto Dias, you had some relief. But when we look at the dynamic from the fourth quarter to the first quarter, we would imagine that there would even be more expressive improvement because of the mix of payers. So maybe you could explain a little bit more what we should expect looking into the future on this specific line, if it should be something that will help the cycle of conversion over the year? And then another point that I think you even explored a bit, it's important that you put the disclosure on the release in relation to the growth of the Salvador hospital specifically. But if you could speak specifically on how this has evolved in relation to management and the ticket and how much this evolution of that ticket is composed of volume and how much is of ticket? And if you could give us a better idea if this will already be a detractor in the margin. I think this will help us understand better.

How are you? Well, about accounts payable, we have -- accounts receivable, we have been discussing this for some quarters. We suffered initially a lot with the change in the dynamic. We had the operators making them work much harder than we made them work last year with some mechanisms. And what we noticed on our end, which we are operating in these 2 fronts. The first is to not let the discussions on gross accumulate so much when we are discussing more distant periods when there are clients that leave the base and then the loss comes into the discussion, and it's a discussion that's not so great, and this process is fundamental, and we have re-adequated our way of working with this way of approaching the operators. The second issue was an issue that took a little longer, but that we are almost finalizing in this aspect, which was to regularize some contracts and understandings and the way that the day-to-day relationship with the operators is built. And this is one part like GEA in which we have clarified some points, especially with new markets being open, even if they are the same operators, they have different rules, but we were applying the same rules. So we have worked on that. There is also the growth of the unit in Salvador and Nova Lima. So there is an increase of working capital from those units. So the composition of our revenue also changed a bit, and there is that extension. We had these purchases, these purchases that were bought in advance that unbalances things a bit. But it's not a loss in the quality of our accounts receivable. What we have this year are a few important agreements, which we made with the operators of things of the past, which we believe will be reflected more towards the end of the year and part of that we had in the first quarter, but most of it will appear in the next quarters, which will improve these numbers for us to finalize accounts payable to even impress our final numbers. All of this is in the strategy of our company, and we hope to have improvement in all of those lines.

I'll answer the rest, Vinicius. In order to also talk about Salvador and your question about Salvador. We had in Salvador, last year, we brought this news in other conversations on results, but also in our conference calls, some updates that were important in Salvador, especially those related to credentials. So we had large operators in the cities that sent -- that registered some products, and this has supported the company in a positive way, improving our mix of partnerships in the units. But the main focus of the action in Salvador, which is something that we have also repeated a lot is our capacity to evolve more and more in the quality of the operation and the structure is something differential that we have in the city. The quality of the units have only improved when we look at our indexes of satisfaction of our clients, especially the NPS of the units have been excellent NPSs, which we have compared to our more mature units. So the indexes and the perspectives of excellence within the categories of NPS and also a lot of work for relationship and attracting reference medical teams in the markets. These are teams coming in from other institutions, and they are reinforcing the medical body of our units. And with that, they are making sure that the unit can be more preferential for the operators, which understand our model, once again, as a win-win situation, a sustainable model, which has sent more patients to their units and also doctors that recognize the quality of those teams have also incorporated our clinical bodies of the units. This has reflected a higher number of patients, a higher search for patients, even notorious patients to look for units more and more, and this has reflected in the unproportionate growth of revenue and a positive incorporation of margin. When I said January was a month that was also seasonal for Salvador. We see these numbers also reflected from Carnival, which we know also has seasonality, but we are very content with the way Salvador started the year of 2025. With the margin that was already reported by the unit. By the level of revenue that this unit is representing, I have no doubt that 2025 will be an even more transformational year, of even more growth of revenue and margin for that unit.

The next question is from Mr. Samuel Alves from BTG.

Here, we have 2 questions. The first is if you could comment a little more on occupation volumetry from April and May. Jose Henrique ended up commenting on how April and March had better performance than January. It's just to know if May is going to follow in the same capacity. And you commented in the last session, but just for us to look at this in more detail, when we look at the acquisitions this quarter, there was a zeroed RE you were commenting on that because you left Porto Dias for some time and the balance, you were still able to offset the premium. Did the tax understanding change? We saw these lines as zeroed. So just to have better clarity on that.

I'll start, Sam. Well, thank you for the question. Thank you for your participation. I will start talking about occupation. We had in the month of March, high occupation, as we mentioned. And it's natural that we have growth month-over-month when we leave the first quarter. We always have the second, third quarter that are stronger as well. And it's what we start to observe. We had an April of high occupation, high volume and May also is a month that has started well. In terms of demand as once again, the components of respiratory diseases for this period. I don't know if that has happened in -- something that's happening in the entire country of Brazil. So we have a lot of discipline to maintain these occupation rates also with opening more beds in this period because of the increase in volume, and we are accompanying this very closely so that we can do everything to keep the company growing as it must. With that, I will pass to Rafael for the second question. Rafael?

Thank you for that question. Let's just go back a bit. Last year, until the third quarter, we were using the premium 100% of it, we would take advantage of it every month and would be adjusted, in the last quarter, we changed that. So the loss of the year was not taken into account. So we -- because of the exit of Porto Dias, we would use it as also 100%. This year, what has happened? The loss of Porto Dias or the sale of Porto Dias generated a fiscal loss to us. So within the rate that we paid of BRL 3 million, which we disclosed in our cash flow, we generated a 30% indebtedness. We generated that fiscal loss. So we had -- we were able to take advantage of 30% of the profit. So we're going to use the profit of BRL 105 million, and we're going to use other things in the company to change. So nothing has changed before we would take advantage of 100%. And now we have a more limited use of that premium.

Next question is from [ Thallis Sanki from JPMorgan ].

The first one is for -- is about Nova Lima. Maybe if you can talk about the ramp-up of that? And how are the conversations going with the payers in relation to credentials and also the clinical bodies? Another point that I wanted to explore is the agreement with Unimed Uberlândia that you announced in the second quarter. Do you believe that there will be an incremental growth like you saw in the first quarter? And what are the expectations from now and for the rest of the year?

Thank you so much for that question. Starting with Nova Lima in relation to what we have seen in the unit, as we said, it was one of the units that in Rede Mater Dei had a faster operational breakeven that improved our margin with growing revenue, but the margin grew month-over-month mainly because it is a unit that concentrates an average ticket that is higher because of the mix of operators that are there and also because the mix of the unit. It's a unit that is eminently surgical that has a quick turnover like in Belo Horizonte, we were able to have a smaller support -- administrative support, which helps us to dilute the fixed cost that exists here in the metropolitan region of Belo Horizonte. It has been very important as well in this sense, besides bringing in a new concept of service, a concept that is being very well accepted by that population. The credentials evolved very quickly. We have in the -- with the credentials of the main operators, which we seek after in order to credential them in the unit. We are missing just one operator that has a number of expressive lives here in the metropolitan region with high management. We are finalizing this credential the credentials with them for them to be part of Mater Dei Network. That's something that we've been working with them. The clinical body is the same. We have been very strategic in the kind and -- profile of the doctors that we are attracting to this unit, taking advantage of opportunities to bring in new doctors and teams that we always wanted. And so that when we have a new unit, we always present a new opportunity of building new relationships with some of the teams, maintaining those more strategic ones for the Rede Dei Network. In relation to Uberlândia, as we mentioned here in the beginning of our speech, we had the growth of revenue and margin in both of our units. We incorporated technology and we incorporated new services in the units of Uberlândia, and that was anchored on an agreement that was made, reinforcing our relationship with the main local operator, and they also saw us as preferential. So the first quarter is still very recent in relation to the period in which we signed the agreement, but already with signs of some new patients in the child and mother section. And if you remember what we presented, we are contemplated as a reference hospital for the children's line in [indiscernible]. We also are reference for the elderly. We've received more patients, oncological patients through this partnership. So what we see there is a positive perspective that this operational agreement will bring to it still in the beginning, but it will incorporate more revenue and margin for the network.