Odontoprev S.A. (ODPV3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to the Odontoprev conference call to discuss the results regarding 3Q '25. I'm Catarina Bruno, IR and Treasury Supervisor, and I have with me Elsen Carvalho, CEO; and Jose Roberto Pacheco, Financial and Investor Relations Officer for Odontoprev. This video conference is being recorded and streamed on the web, and you can see the link on the company's IR website at www.ri.odontoprev.com.br, where you can also see the presentation. This conference has simultaneous translation. To use it, you must click on the interpretation button on the bottom left icon on the screen. Pick the language of your preference, Portuguese or English. [Operator Instructions] Before proceeding, we would like to mention that any statements made during this conference regarding the business prospect, projections or financial goals are based on company management assumptions as well as the information that's currently available to Odontoprev. Future events are not a guarantee of performance and depend on circumstances that may or may not occur as they relate to future events. Investors and analysts should understand that the general conditions, industry conditions and other factors could affect materially the Odontoprev results and also differ materially from those expressed in such future-looking statements. Now I'll turn over to Mr. Jose Roberto Pacheco. You may begin.

Hello. Good morning, everyone. Once again, welcome to our call, so we can talk about the third quarter and first 9 months of 2025. Let's move on to our first slide. Here you can see the main metrics. So specifically on the top left corner, you can see net revenue and average ticket achieving 7% in 12 months. On the top right, a very important highlight, something that we've been mentioning in the past quarters, and this was no exception. We usually do not use the word record, but it's inevitable. We have to mention the positive movement in the quarter in 9 months and 12 months of the growth in the SME segment, especially through the Bradesco Dental brand. And finally, here on the bottom, we have the return to profitability measured by the EBITDA margin. With no other in supplemental health in Brazil, we have levels greater than 30%, not only in 9 months, but also 12 months and our net income growing 2 digits in the annual comparison, achieving BRL 556 million. Once again, welcome to our conference call for the third quarter of '25. On the next slide, we can see data that was published today by the National Supplementary Health Agency. So we have 35 million members now according to the data that was published today, that means 17% share in the Brazilian population. So much lower than what we have seen years ago in private health insurance. So we are very optimistic for the growth potential as it is still in its beginning here in our country. On the next slide, we can see the main players, the main participants in the market, the dental market specifically. So Odontoprev has the 2 main portfolios that are part of dental plans, as we know, corporate with BRL 1.3 billion and SME and individuals getting close to the first BRL 1 billion. So these are the biggest portfolios in the Brazilian market and other companies are trying to get close to BRL 900 million. That we also show the average ticket of the SME and individuals portfolio, which is practically double of what we can see in the market average close -- which is close to BRL 20. On the next slide, as we've highlighted before, and we expect to have this slide as a constant slide. So we have a strategic evolution through the bank channel, through the Bradesco Bank brands, bringing in small- and medium-sized companies to the company portfolio, 64,000 net adds in this quarter, 150,000 in 9 months, 180,000 in 12 months. So that's a strategic movement that we are very proud of, and it's very difficult to be replicated by the market and the competition. And lastly, a very relevant potential of increase in the upcoming years. On the next slide, we can see the breakdown of revenues per segment. Here, we can see what we had in 3Q '24 for the portfolio and now the evolution of this portfolio in 3Q '25. Clear highlight goes to SME, where we have 23% compared to 21% in 3Q '24. Individual and corporate, you see a little drop given the higher exposure of SMEs. Now about our dental care ratio. This is a very important slide to show the success of the strategy of the implementation of new products, which are increasingly more important in the company. We'd like to highlight dental care ratio of 40% in 2022. In 2023 and 2024, we can see a continuous improvement in 12 months here, September 2025, we are down to the 33%, pretty much in 1Q '24, just to remind you, we had the lowest dental care ratio for a third quarter in the company. And naturally, this number is higher now, a bit higher than 40% and a little bit lower than 3Q '23. On the next slide, this is probably one of the most important slides in our conversation. So this ratifies our strategy of the last decade. We're comparing the figures in 2014 to the 12-month year-to-date. So once again, the SME plans and individual plans have had a 2-digit growth in its contribution margin. And you can see that for the first time, the noncorporate segments have exceeded the contribution margin compared to the corporate plans. Contribution margin is at the level of 60%, which is much higher to the 44% of the contribution margin that we can see in the corporate segment. Once again, this movement is very hard to be replicated by the competition as this makes our long-term strategy very evident as well as the potential for the company to generate value. Moving on. Here, we have the breakdown as a percentage of revenues for admin expenses or SG&A and bad debt and selling expenses. So here, the highlight. We have a margin gain with less expenses and lower bad debt because of the bankarization of the portfolio. You see bad debt of 2% in the first quarter. And in the first 9 months of '25, we see 1.5%. And finally, in 12 months, bad debt has become stable at 1.7% of revenues. So that's another very relevant differential for the strategy of reaching new frontiers, new geographies with different products with the noncorporate products, increasing the differentials of the company's portfolio. On the next slide, we address EBITDA. We had a very important margin last year. Now we're at the third year of a 30% cycle or greater than 30% of the EBITDA margin that starts in 2023, increases in 2024. In last 12 months ending September, we have 32% EBITDA margin. So I would say it's extremely likely that this year, we would have a margin increase year-over-year because the dynamic that we have just observed in the dental care ratio, stable expenses, SG&A and selling. And when we add the 2, we have balanced results and therefore, a more efficient period. So that's a strategy guided towards value that we've been executing. And in 9 months, the 2-digit growth of EBITDA as you can see. So we're very constructive in what we've been seeing in the potential and return for the company's portfolio. Now on to net income. 12-month year-to-date is BRL 556 million, the 5% variation with no recurring results. So recurring results in the past 12 months and that was the same in the 9 months. And now we have a decrease in net income in the third quarter. On the next slide, as we've been calling everyone's attention is the evolution of CapEx where achieved its peak in 2023. And in 2024, you can see a slight nominal drop and that continues in 2025. So that's what -- how we interpret the upcoming years. The major investments of the company are focused on technology, process improvement, implementation of digital processes, robotization, so on and so forth. And we also have a magnitude of depreciation that's greater than previous years. But -- and certainly, it's the main reason for us to expect a G&A dilution in admin expenses in the long term. Now moving on to a very important data of today's conversation. It's the cash remuneration to shareholders. We have our history since 2022. In that year, BRL 340 million among dividends, interest on capital and share buyback. So then we had BRL 183 million. And since last year, we go into more significant cash events, BRL 612 million last year. And here, we already include the dividends and interest on capital that will be disbursed on December 10, which was already announced. So practically BRL 1.3 billion disbursed in 2024 and 2025 so far. It's important to mention as well that as we traditionally do the quarterly dividends, we don't have the figure for that yet. We will inform that in the next month together with IOC, we do that at the end of the quarter. So we will do that to maximize the flow of dividends before the new calendar year. So in the next month, in December, we will have the announcement of interest on own capital for the fourth quarter and the regular dividends for the third quarter. On the next slide, we have the global shareholder base for minority shareholders of the company. So North America is an important highlight with almost 47% of the free float. It's also worth noting that we've been seeing a higher flow of the negotiation of company shares and more investors, not only in individuals, but also institutional investors of approximately 30 countries. To conclude the initial remarks, we have to mention the significant recognition for the 12th consecutive year, Odontoprev was voted as the top of mind plan by human resources executives across Brazil. That makes us very proud. We're very happy to share this recognition with everyone, which is a recognition and acknowledgment from our customers. So we do believe in the company's business model and business proposal. So now we are available for the Q&A session. Thank you very much, everyone.

Thank you, Pacheco. Now let's begin our Q&A session.

Our first question is from Andre Salles from UBS.

Actually, I have 2 on my side. We can see as the average cost of services per member has increased 10% in this quarter. Could you share with us if that increase was a higher frequency of use or medical inflation that's higher in this quarter? Are there any other specific factors? Just so we can have a breakdown of what actually led to that increase. And another important point that I'd like some more flavor on is the drop of the individual plan. I'd like to know if it's a one-off or a company strategy. And if it's a company strategy, how should we look at the volume and profitability of that specific product?

Andre, great points. So let's start off with dental care ratio. It's important to observe what happened in the past in 3Q last year. We had the lowest dental care ratio, as we mentioned, in company history for a third quarter. So it's natural to have an increase, as you well mentioned, a 2-digit increase. So there was a small high in individual plans, and that is desired. It's important for us to have products that are fully used with a regular frequency given the dental benefit. It's positive to have our members using it. And at the same time, healthy price increases of the tickets. And that happened in corporate, that happened in SME. And now about what you mentioned about the individual plans, specifically in this quarter, we have the beginning of a new cycle. So about your point that's very timely. It's important for us to mention what already happened and will happen again in the next quarter, which is a cycle for individual plans where the company is increasing its product portfolio, developing new partner channels and large-sized national company and other regional companies. That's a very important movement in order to balance out the individual plans portfolio again. If you remember, it had a very shy behavior in adds in the recent years, but with very robust margins. So it's a higher risk product, and it has adverse selection and contract cancellation by consumers and potential behavior of nonpayment, bad debt, we can also talk about that. So the individual plan as a definition, it has a risk component that's much different than the corporate plans, be them for small or large companies. So that's an effort that the company has been developed even in a pioneer movement, testing, channels, brands, distribution, new sales tickets in order to expand and benefit from a portfolio that's the biggest in Brazil. And we have all the risk management tools that's adequate for that product. So that's a movement that should bring in more volume as of mid-'26. So we're talking about a year of transition. And once again, we've been having -- we would have a different individual plan portfolio, multi-brand with products that so far haven't existed before, and we're the pioneers in bringing that to the market. That's our interpretation of the individual plans.

Next question is from Gustavo Miele from Goldman Sachs.

I also have 2 questions on my side. The first one is that I'd like to explore the topic of selling expenses. When we look at that under a consolidated basis, we've seen a stable level in the past quarters. But there's something in between the lines that calls our attention. So in the increase in selling in SME that are merged by a more efficient individual plan. So I'd like to zoom into that in the selling expenses for SME, why do we have that slight increase that calls to my attention when Bradesco channel is getting more traction in company portfolio. So I'd like to understand if, in fact, that's a change in payment, commissioning and sales force? Or is there any other one-off factor that would justify that increase in SME for selling expenses? And the second point, even as a follow-up to Pacheco's last comments about dividends. I'd like to understand with the strong cash delivery, do you see any return to shareholders greater than the regular payout of the year? I know that there is a restriction of regulatory capital. But I'd like to know if there's any options of over exceeding the net income of the year to return capital to shareholders? How do you see that? So those 2 points.

Gustavo, I'd like to mention the cost of acquisition, the commissions. They changed levels in SME. SME is more robust. And as you have seen in the bank channel, we have an important brand. Today, it's greater than 80% of what we had already represented by Bradesco Dental. So what's happening to SME is that it's getting closer to the conditioning levels that already exist in individual brands. Numerically speaking, we're talking about 12%, 13% of commissioning in historical commissioning in SME. And by increasing sales, a strong rate of getting new customers, it's natural to have campaigns, promotions and incentives. So now we estimate something like 17% to 18%, which is a new level of selling expenses at SMEs. So 2-digit growth in the first line, followed by commissioning that's closer to individual plants. That's the new dynamic of SMEs. So about dividends, Gustavo, another relevant point that you mentioned, we don't have any concerns with cash flow. Cash flow was never really a concern. The company has 0 debt. So the details that we study is a regulatory. So the solvency left over, and that's regulated by the ANS. So now in the transition of the tax regimen as of 2026, next month, month 12, after having the results for October and November, we'll have a better understanding specifically about the margin and the solvency leftover that's expected for month 12, and then we would deliberate. Gustavo, it's very hard to leave the 100% because the mathematical model from the ANS hinders us from that. But we'll look into that closely to see what we can do. The objective -- like mathematically, that model really doesn't give us much flexibility, but we'll have -- we'll put in our maximum efforts into that distribution, not only for interest on own capital. That's a formula we can't really change, but the deliberation of the dividends for the quarter.

Next question is from Lucca Marquezini, Itau BBA.

We have 2 direct questions on our side. First one is about G&A. So we see it a little higher, and we'd like to understand if that should be a recurring level moving forward. And the second one is about CapEx. We've seen lower CapEx in this earnings, and we'd like to know your mindset for CapEx. And if we're going to see lower levels or if that was just a one-off effect for the quarter.

Lucca, let's start off with CapEx. There is a downward trend as we have been pointing out in the past years. There was a higher point approximately 2 years ago. So we implemented a major system for the company and also all the different technology initiatives are a great priority. So that financial amount, we believe it should decrease in nominal terms in the upcoming years. So it wasn't a one-off. It's part of that pluriannual explanation that we have. So once again, we have an understanding that CapEx is lower year-over-year, slightly lower moving forward as it has been in the past 2 years. Specifically about G&A, I believe G&A is going to be a consequence of the return of those investments and digital and technological initiatives that the company has. So we do expect a potential of dilution of G&A, but that's midterm, not short term because these investments have to become more mature. So that's our interpretation.

Next question is from Gustavo Tiseo from Bank of America.