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

The presentation is available at our website. Before we continue, like to say that statements on future events are subject to risks and uncertainties. So expectations might not come to fruition or might be different from expected. This is our opinions from the present moment. And the company is in no obligation fulfill them. [Operator Instructions] Now I'll hand the floor to Jose Henrique who will start the presentation.

Thank you very much. First of all, it's a pleasure to be here to talk about the results of the second quarter in 2025 from the Mater Dei network. Before we start, I have a few thanks I think it's important to highlight that whenever we see an evolution in the results, we are just spoke to people of the results to you, the investors who follow us. But of course, I have to as my gratitude to our employees, to our team, to our physicians who are important partners for us and to our partners, the health operators who are helping us build more sustainable activities in all regions. Mater Dei is present in the cities where we operate. And in every location, we were able to see units that truly represent the style, the way and forward we want to work with. I also want to express my gratitude to our Board. They have been very important partners in the progress we have achieved in this company. The second quarter of 2025 was a quarter to see a recovery of our results with important progress in several fundaments of our network. And today, we will be able to share some highlights with you. The figures we are presenting today may exclude the share of [ Fortodias ], except for the financial indicators for covenant purposes such as that debt and leverage. Later, I will give you more details on that. When we talk about revenue, it is important to highlight that for the first time, we were able to surpass the level of BRL 500 million getting close to BRL 550 million in the quarter, a very important milestone for Mater Dei. And this new level is not anchored, which is important to be remembered, it is not anchored in new events. We actually would like to deconstruct this idea that it is important to add more beds to generate revenue. And today, we will highlight what are the elements that are being implemented in Mater Dei so we can grow our revenue and achieve proper levels. But at the same time, promote the productivity of our operations. Our efforts are very much focused on improving our mix of procedures especially considering the relevant growth in our surgical and oncological departments. And also connected with better negotiations with health insurance operators, strengthening these relationships and showcasing to them how effective we are. And also, it is related to our ability to negotiate price adjustments in the correct time frame, respecting contract boundaries and also dealing with the price changes in appropriate deadlines. We are also going through a very important moment, especially in our younger units and the acquired units to promote a faster ramp-up of these units especially for the younger units and the acquired ones, we'll be able to give you more details later on this call. And we are also able to execute our strategies to grow our revenue outside hospital beds, especially focusing on diagnostic medicine and oncology. Oncology has been a very important strategy that we have been executing to grow our revenue and grow the level of complexity we provide in different units. Right now, we have a very big focus on bringing together medical teams that attract these more complex services, especially related to oncology. Now looking at costs and expenses. This growth in revenue gave us an important dilution on our costs in the different lines, but we also would like to highlight some elements that don't come only from this cost dilution that have received our focus and that are already demonstrating good results in this quarter. The first one is a greater control when it comes to adding new beds, so we can keep our occupancy rate above 80%. We are currently at 83% of occupancy rate is a testimony of how rigorous we are in the management of our units. Today, we are absolutely certain that all 9 units are mature in their ability to work with a higher occupancy rate. And when we look at this occupancy rate of 83%, is in levels that are comparable to the higher occupancy rates that we had, for example, in the first quarter of 2024. When we had a load of seasonal diseases, mostly caused by dengue fever. So now we can achieve a higher occupancy rate, even without the impact of physical diseases. And in this quarter or in these -- especially in the first 2 quarters, we made great efforts to have the proper sizing of our administrative team after the sale that we performed and concluded in the last year. Now when we look at our results, which are the consequence of the growth in revenue and the better control of cost expenses were able to demonstrate a very significant evolution. When we look at our EBITDA, this quarter, we delivered BRL 150 million of EBITDA, 32% higher than the same number from the second quarter of 2024, which also allowed us to grow 1.8 percentage points in comparison to what we had in the previous quarter, achieving 21.1% of EBITDA margin this quarter. In that sense, with this growth in our EBITDA, we were also able to achieve a higher cash generation in the quarter. When we look and the impact that, that had in the reduction of our net debt. We are talking about BRL 35 million with an opportunity that later Rafael will describe for you now the opportunity of investing more resources in our strategy to rebuy stocks because we are currently in a higher interest rate cycle. And this gives us an opportunity to focus on our own company, reacquiring stocks. It allows us to keep our leverage at [ 1.6 ], a very healthy level that demonstrates the sustainability of our financial results. In this quarter, the beginning of July, actually after the first quarter, it is important to highlight the conclusion of the exchange that was made the first issue of the Mater with the maintenance of BRL 700 million in volume, resulting in an important reduction of our rate of 50 bps, allocating the due dates to 32 sites, the possibility that Rafal was able to get in the negotiations of having 20 million anticipated in the next 12 months. So allowing us to pay part of this debt in an anticipated session, amounting to BRL 200 million, which makes us more comfortable to focus on the path of sustainability of our network and bringing proof of our financial discipline. Now perhaps giving you more details on every unit, so we can explore them later in questions. I would like to focus on our Salvador unit. In Salvador, we focus a lot of value to be created in our network for the coming years. Once again, Salvador gave us record net revenue, 25% above the second quarter of 2024, with a positive EBITDA result even with the seasonality of the month of June in the region because of the public holidays and parties that take place. And that happened with -- because we added you have insurance plans. The hospital has gained or it's more now in the different markets and by the medical teams with a better mix of procedures and a better ability to attract higher complexity cases. especially when we compare that with the second quarter of 2024. If we compare this quarter versus last year, we had an increase of 79% in the number of oncological patients and a 15% growth in the number of surgeries and another piece of data from Salvador that makes us really pleased is to realize how the patient satisfaction and the patient experience is being cared for. The customer satisfaction in that unit is giving us an NPS result above [ 75% ] at an excellent showing the maturity of this hospital, so we can provide the best care for our patients. So this unit has become the preferred choice, both for patients and for health insurance companies. And many other initiatives are happening right now as we speak. So we can better position this hospital as a reference hospital for the North and Northeast of Brazil. I also would like to highlight our Nova Lima unit. Nova Lima [indiscernible] has given us growth in the level of procedures added revenue. In the previous quarter, actually, we mentioned that Nova Lima had already achieved our operational breakeven. And in the second quarter, we have already observed a positive EBITDA at healthy levels, above 2 digits highlighting the surprising ramp-up of the hospital. This is a hospital that can has a higher average ticket because of the mix of health insurance companies we work with. And it is a hospital that benefits from the metropolitan area of the City of [ Balarezo ] with a very lean administrative team. So we have levels that help us dilute our fixed costs and dilute our administrative expenses in that market without the need of replicating them. And in the comparison with the first quarter of 2025, we saw an increase of 37% in net revenue and an increase of 23% in surgeries. We are very much focused valves we can grow the level of complexity provided in the hospital. And it has made an opportunity to bring new medical teams medical teams from strategic lines for the Mater Dei, such as cardiology, oncology, for example, one of the main medical teams from the CD is now part of our clinical staff. And we are implementing these changes in these expansions. At the same time, that we preserve our Mater Dei culture. And of course, we also have to mention all the advancements we saw in our acquired units or the units that we acquired after our M&A deals. We presented the highest net revenue for the quarter in this unit with a 5% growth in the number of surgical patients in comparison to the first quarter of 2025 even considering the more negative seasonality because of the months of June. In Uberlandia, where we have [indiscernible] and Mater Dei Santa Clara, these 2 units. So our hospitals are becoming the preferred choice more and more. We established a partnership with Unimed. And they are referring their lives to us. And we, on the other hand, in a sustainable way, are able to achieve the DRG targets, ensuring more efficient bad use. But we mentioned that in our view, revenue growth should not be connected to adding more meds. It's because we can manage the average hospitalization time, making them spend less time in the institution. So we don't necessarily need to add or be without adding more burden to the system. So the idea is to become more productive to generate more revenue, and this is what we have witnessed in Uberlandia. The sale, we are -- on August 21, 2025, we are opening our Mariana Medical Center. Mariana is a city in the metropolitan area of the Belerizonte and this is done in partnership with all so we can offer quality health care to the region. The region presents a huge potential -- it has a great mining activity with major mining companies present. And we are getting to the region with the support of Vale, but also with the possibility of extending our prediction. So we can place the seed in the region and add even more value to Market Day in such an important region. I also like to highlight that on July 31, we published our sustainability report for sharing in a very transparent way our ESG indicators. So I would like to invite you all to go on our website, so you can access the sustainability report 2024. And of course, we have to talk about the certifications and the quality indicators for the Mater Dei network. We mentioned this several times, having an international quality certification is a very important element for us. And between July 31 and August 1, MatorDay was recertified in the fourth cycle by JCI, and we also had Mater Dei Santa Clara reaccreditated by Cemento. And this is connected to another very important indicator, which is our network's NPS. When we mentioned that we have put an important stage of the integration behind us. Today, we can understand that our hospitals are working in the network, providing an excellent service to our patients. The overall NPS for the network is [ 73 ]. So the year-to-date is [ 73 ]. And if we just focus on the metropolitan region of Balarezo in Salvador, we can achieve results above [ 70 ] or even [ 80 ] depending on the unit levels that are comparable to the biggest benchmarks in the industry and way above what we have in the average for the industry. So before handing the floor to Rafael, so he can give you more details on the financial results, I would like to reinforce that we are focusing on improving our results. We are still not satisfied with the evolution that we have achieved so far, but with a lot of clarity that is going to be a very fruitful year, and all the actions that we have been implementing together with our directors, managers and leaders are reaping results. So Rafal, the floor is yours.

Thank you, Jose Enrique. Good afternoon, everyone. Good afternoon to our investors and shareholders. We are very happy to have showcased these results showing how we have strengthened our strategy that was developed in the second half of last year and is now generating results. So we are very happy to see that these results will be able to support us for the coming years. So on this first slide, we have the average of operational beds to start with some operational highlights. We are at 83% of occupancy rate with our Dei hospital, 78% in our hospitalized patients. These are record results for the Mater Dei network, as highlighted by our previous speakers. And they are essential so we can achieve significant dilutions both in staff as well as administrative expenses. We saw a growth in beds from 65 beds over quarter. But on the next slide, you will see that the revenue growth was almost double the growth we had in the amount of beds, highlighting the important management work that was done, so we could achieve this dilution and achieve the EBITDA results we had in this quarter. Now at the bottom of the slide, we see that we grew 12.3% on the hospital patients, achieving 87,369 patients versus 77,813 from the previous quarter with BRL 6,980 per patient day. On the next slide, we see a drop on the average ticket mostly related to seasonality and the mix of hospitals and medical specialties in the network. This is not a loss due to lack of price adjustment. It's much more connected to the use of the hospital in the period. And when I talk about the cost, you will see that's why this change happens. So it's a little bit of the balance that we have between the use of our network hospitals with the growth of the acquired units, and it's an expected recovery that hits the acquisitions. And sometimes we see this variation on the average ticket, which is not connected to price adjustments. Just to give you an idea, when we were between the first and second quarters last year, we had 120 house in transplant in the [indiscernible] we have less than 1/4 of negotiations. And we and the health insurance lines are working together to help us build this average ticket. Our revenue grew 9%, achieving BRL 546 million in net revenue. The first time since the integration adding this new hospital composition, we have surpassed BRL 0.5 million. Now on costs and expenses in the next slide, we also are very happy to see we are operating at below 70% of cost. That has always been a model for us, and we were varying between [ 72, 73 ], and we were able to achieve a 1.4 percentage point reduction. We had already a 2 percentage points reduction from the fourth quarter of last year to the first quarter of this year, and we continue on the same trend. Remembering that in 2025, we have the impact of the new law of nursing salaries. And when we compare that to the previous year, some units is still hadn't applied that change completely. So in some negotiations with trade units, we have been able to operate readjustments below the inflation, so we can deliver results that are more balanced to our industry considered what happened last year. So BRL 381 million in costs. And when it comes to operational expenses, we also had a percentage point dilution going from [ 14.9 to 14.1 ], mostly due to our growth in revenue and the work that we highlighted in the first quarter of controlling costs and staff. We removed a couple of layers from the company, both in cost, but also most importantly the administrative department because we had a very elevated number the fourth quarter, we were above 16%. Right now, we are at 14.1%, BRL 77 million of expenses. We have some recoveries from the M&A contracts, expenses that sort of transfer to the results of the acquired companies that later can be recovered at MDS or Mater Dei through the settlement because of the contract guarantees. On this line, we also have all the expect contingencies and attorney fees. And we also have an important element that is connected to this revenue cycle, which is the PDD. And again, we are working strongly to balance this revenue cycle inside today. On the next slide, now talking about our adjusted EBITDA. So because we were able to operate below 70% in cost. Now we have an EBITDA above 20%. The result was 21.1%, giving us in the year an average that's above 20%. And like we have mentioned before, this is our goal to navigate at this level of with a growing path for the year. It is a challenge, but it is what we have added to our plan. So we were able to see these results happening in the first half of the year. And we hope that in the second half of the year will see even a greater result of our EBITDA. So EBITDA was BRL 150 million in nominal values, we saw a significant growth of BRL 18 million more a month on average, a very significant growth for us. So besides the growth in margin, we also saw a growth in absolute numbers. Now looking at net profit. Last year, we would do an adjustment on net profit versus the portal. So we have the dotted line until last year, in which we would adjust, which was -- so we wouldn't pay income tax, it can give us some greater margin. But if we consider the adjustment that we have today, we achieved one of the better results from the past 18 months. 5% of net margin with a net profit of BRL 27 million for the quarter, BRL 47 million for the first half of the year. Now on the right-hand side of the slide, we see a little bit on our working capital. We had a variation on the terms for receivables. We had BRL 10 million to be received or that was received on the first and second of July, if that money has come in the right date. So it's not day issue of default. It's a matter of only 2 or 3 days. But 65% of the difference between the this quarter and last quarter is explained by this 2- or 3-day difference because the balances are on a fixed date. We cannot make this adjustment, but we have shared this later with you. This is not a point of concern. We don't see a growth in this line. Of course, we still have a lot of work to do. It's always a balance between us and the health insurance operator, so we can control this results. When it comes to stock at average payment term remained constant quarter-over-quarter. Now talking about cash flow and debt. We talked a lot about the economic side. Now talking about cash flow. We saw a reduction of the net debt 2 numbers from this net debt. On adjusted by the dividends and the repurchase of stocks, dividends we received BRL 10 million, the sale of [ Portodias ], and we paid BRL 25 million to our shareholders, adding the net dividends plus the BRL 11 million, we had BRL 26 million, that would give us [ BRL 664 million ] cash flow a way to pay the shareholders from them. So considering [ BRL 664 million ] of cash we would have a decrease of BRL 35 million in our debt profit. If we would not consider the payment to shareholders. This would be BRL 9 million. So it's the second quarter in a row that showcased this reduction, highlighting the moment of the company. So we can take advantage and use all the CapEx that we had at very high levels in the previous year. Now we have a very strong payback control inside our units. And for this year, the perspective is to deliver what we did in the first half of the year and not see a significant increase for the second half of the year. And with the results we have been achieving in the different units. We believe that next year, we will be able to make some investments with our discuss. In terms of covenants that we have entire our debentures, we have remained stable, flat in 1.6x. We have a total debt of [ 10,410 ] with [ 772 ] of debt and [ 638 ] of cash. Also a very comfortable level for us. It doesn't mean that the Mater Dei network wants to be a leverage -- a highly leveraged company because we do have the effect of high interest rates, and we believe that rebuy stocks, the biggest investment that we can make is actually this one to rebuy our old stocks so we could achieve the best return. Now talking about that level, like highlighted by Jose Henrique, we ended July, the renegotiation of the first issue. The first issue had CDI plus [ 1.60 ]. Now we have CDI plus [ 1.1 ], which allows to our CDI debt to CDI minus 0.95. So today, our cash is being paid above our debt. And as a consequence with the elevation from [ 27 28 ] for the BRL 700 million debentures. Now it's [ 31, 32 ]. So we go from [ 3.9 ] of average term of amortization to [ 5.8 ] of the debt from the Mater Dei network is above 5 years, which makes us very comfortable to navigate tougher times so we can make the best decisions in the operational side and also related to the care we provide. So this is by the end of my share of the presentation, and I'll hand the floor back to Tadeo, so we can start the Q&A session you might have on the results. Thank you very much.

The first question is from Felipe Amalsi from Itau.

I have 2 on my side. The first one is about the asset ramp up. As a result, we saw a strong performance in Salvador and some other KPIs from the acquired units. I know that you have mentioned this at the beginning of the presentation, but maybe if you could give us more color on how you see the evolution of these assets in the beginning of the third quarter and your expectation for the second half of the year? That would be very helpful. And my second question has to be with cash generation. We saw that there has been an improvement in this quarter. But I wanted to see if you see any additional improvements besides the reduction in CapEx of the year, maybe through working capital or some other initiatives to improve with further cash generation for the year.

I think I can start, and then I'll hand the floor to Rafal. Thank you for your question, Felipe. So regarding the ramp-up of the different units, we are very excited with what happened in the units. And the ramp-ups they experienced, especially talking about the acquired units first. We saw that any acquired companies, we found the past we found the path to sustainability. So they could grow in a sustainable way. For example, the deal we made with Unimed Overland still at the early stages, we still have an experience the best to come from the deal. In Guyana, we saw also a relevant growth in revenue [indiscernible] also with important growth. So in the acquired units were able to perform with having the right people in the right places. The leadership is much more in line with the strategic plan that was defined and all the leverage actions were quite clear. So that's why we saw this positive result in terms of ramp-up. For younger units like Salvador and Nova Lima, we also had several projects that started mostly in the second -- that will start mostly in the second half of the year. Changes in oncology and other medical specialties that were defined. I would say that the second big cycle after what happened last year of attractive medical teams, especially in Salvador. We are about to see an equally strong second cycle that will also give us a reported benefit for that unit with more mature operational elements. And Nova Lima has been a very pleasant surprise for us considering the ramp-up. We have see there. Again, we already see signs of that in the beginning of the third quarter. Things are pretty much on track to continue that trend.

Just adding to that, it's important to Filipe and Jose Henrique highlighted that in the beginning. We have a strategy, so we can have a conversation not only based on number of beds. Many of the opportunities our opportunities to grow our revenue, which is growing at a double-digit without adding beds at the same rate at a double-digit rate. So besides the ramp-up, because, again, U.S. from the perspective of additional beds to be opened with a low CapEx that, that could give us a big return. That's a strategy that was mentioned by Jose Henrique. But we also have a strategy of providing a complete health care. So by adding image in oncology, so we don't have the growth of the number of beds and the growth of revenue happening on the same range. The average ticket grew 11% year-over-year, which is proof of this strategy. That has been the way actually reinforcing the growth I'll just focus on cash generation for a moment here. We have noticed very big opportunity in our hospitals. And we are maturing our digitization strategies more and more having stronger controls with big support from free data and artificial intelligence agents to improve our revenue cycle. We are already seeing these results actually part of the results that we are achieving our are due to a more agile billing so we can get a higher level of receivables. This is already a consequence of the strategy we've implemented. But I'll hand the floor to Rafael, who is driving some of these actions, so we can improve our cash generation even more in the coming quarters.

Filipe, your question takes us to working capital. We have an opportunity to reduce the term for receivables. It was stable. We also see variations of surprises on the left day, which don't really impact cash generation or cash levels, but to see these small variations. We have a challenge with a high interest rate in Brazil to have BRL 700 million, BRL 800 million in net debt, even if we are controlled at the [ 1.6 ] level, 15% of that amount is just interest rates. So that certainly impacts cash generation and the decrease of our debt. This is a scenario we're facing, but at the same time, we expect to improve in the next months and year, we hope Brazil can achieve a better economic stability. We are also doing a very strong control in social contribution and e-com tax. We have 24.5% of tax you could check that with 24.5% of income tax and 7% on the output of cash flow. So a significant gain in the work that we are doing to be expenses to where we have more payment taxes statements. We also have some credit recoveries from some health insurance operators, which is part of the cycle. And the CapEx control will remain essential. So we can measure our performance compared with cash generation. When it comes to payment in stocks, we can expect a reduction small reduction. We are already working with a number of units, growing the number of specialties. We have some hospitals that are slightly bigger. But the brand have like a 1 or 2-day reduction. Any payments, we also have a strategy to try to allocate that for 1 or 2 days. So we have from 5 to 10 days from the cycle. And if we do and work in the mid to longer term, we can have that recovered.

Question comes from Mr. Gustavo Casillo from Bank of America.