Oncoclínicas do Brasil Serviços Médicos S.A. (ONCO3) Earnings Call Transcript & Summary

Good morning, and welcome to the earnings call, Oncoclínicas [Operator Instructions] It would be important to remind you that this earnings call is being recorded. I will now pass on the word to Mr. Bruno Ferrari, the Founder and Chairman of the Board at Group Oncoclínicas. Please, Dr. Bruno Ferrari, you may proceed.

Thank you very much. Good morning, everyone. Thank you for your presence in our first earnings call for the market. It's a great honor and satisfaction to be here with you today talking more about our performance and our results. We are very much honored with the confidence our investors through this IPO process we went through. And now as we became a publicly held company, this just reinforces our desire to really win. We will be able to expand our purpose and take care of the life of each patient as if it were our own. We are sure that we will grow even more to be able to work towards the health and success of oncology, the cure and care and respect to our patients and partners. And about our third slide here, I'm going to talk about the Oncoclínicas IPO on the 10th of August. We participated in the ceremony for the beginning of the negotiations with our shares in B3, is the reason of major pride for us to have conducted the company in this important milestone in its history, which certainly will bring in major challenges, but also huge opportunities up ahead. We are confident that we will be able to advance and expand even more with our national presence and our participation, especially in the journey and experience of our patients. We have a company that has a capital structure that's very robust to face all of the different opportunities that appear with the extension of strategic programs such as genomic medicine program. And additionally, I will talk about all of our acquisitions that were signed in this quarter. So we've signed the acquisition of CAM/Clion Group, which is one of the most traditional medical groups in the Savara region, made up of -- team to service entirely the oncology patients, distributed in five units in the city of Salvador and Lauro de Freitas. This acquisition is super important because it consolidates our position as leadership in the city of Salvador. We've also signed the acquisition of CEBROM, which is the leader in oncology support in the city of [ Goryana ] and in the region and its activities are distributed between three different units that have the biggest and most modern structure for oncology treatment that's integrated and also has radiotherapy technology. This acquisition released at the beginning of Oncoclínicas presence in the state of Goa . It's one of the most prosperous regions in the country. Finally, but not least important, we've also signed the acquisition of UMC Hospital in Uberlândia. This hospital has one of the most modern structures in the hospitals in the Mineiro region, with 130 operational beds currently and expansion under progress for another 100 beds with forecast to be delivered this year. So the hospital is going through its capacity of 230 beds. The consolidation of and acquisition of UMC with this counter center as a reference. And all of these acquisitions are still subject to approval from CADE and other preceding conditions. So this is our initial message. And now I want to pass -- turn over to [ Luiz ], CEO. He will be talking about our main highlights and the results. [ Matal ], please.

Thank you, Bruno and thank you, everyone. Good morning. I'm really happy to talk to you as investors and in our first earnings call. I'm going to pass on to Slide 4, and I want to talk about the main highlights of the results in the second quarter of 2021, where we need to have consistent growth in the volume of procedures, growing 27% compared to the second quarter of 2020. I'd also like to highlight the growth of 32.6% in the net revenue compared to the same period before, highlighting that in 2020, we already had a significant growth compared to 2019, which is different than the overall health sector. So we are growing based on -- from a base that's already growing in an accelerated pace. So it's growth upon growth. And monitoring our performance in the revenue, we also had a significant expansion in our EBITDA adjusted margin, reaching 17.7%. And in absolute numbers, the EBITDA, adjusted in the period, was BRL 113.3 million in the second quarter of 2021. So this represented a growth of 51.9% compared to the second quarter of 2020. So these numbers are extremely impressive. And now I want to pass on the word to our CFO and our IR Director, [ Erik Alankar ]. Now he be presenting in a little more detail to you on this.

Thank you, Matal. Thank you, Bruno. Thank you, everyone. It's a pleasure to be with you. So on Slide 5, we are going to present our operational results and financial results with a special highlight on the record results that Oncoclínicas with 93,000 procedures, 27% greater than the second quarter of 2020, besides BRL 7,500 in the average ticket, 6% higher than the second quarter of 2020. In the first semester of 2021, we reached the level of 183,000 procedures, 20% higher than the first semester 2020. And in regard to the average ticket, we had a 10% growth in the semester comparison. So on Slide 6, on the left side graph, we have the growth of the net revenue, which in the second quarter of 2020 reached BRL 640 million with a growth of 33% compared to the -- last year. On the right side graph, you can see the consistent growth of the revenue in the semester, where the net revenue added up to BRL 1,255 million, 34% higher than the first semester 2020. I want to remind you that differently than the rest of the health sector, our growth in 2021 are compared to a base that's also very solid and consistent of over 20% that we've had in 2020 compared to 2019, demonstrating the resilience of oncology growth even in a pandemic period. On Slide 7, we highlight the cost and expenses in the period. On the graph to the left, you can have the quarterly comparison -- adjustments within 50% growth between the first semester of 2021 with the first semester of 2020, impacted mainly by the extraordinary items like the provision for long-term incentives, which is not a cash effect, and it's already backed up by our treasury shares. So excluding the effects of these extraordinary items in the graph to the right, you can see that the cost of expenses grew 26% in the period. And you can see that the ratio between the net revenue dropped 6 percentage points, reaching 82% in the first semester of 2021, reflecting the reduction of costs and expenses in regard to the net revenue, which is the fruit of the scale gains in the expense line. So on the next slide, on Slide 8, we are presenting the EBITDA. The adjusted EBITDA in the second quarter of 2021 was BRL 113 million, 52% higher than the second quarter of 2020 with an adjusted margin of 17.7%. In the semester, the growth was even greater. In the comparison with the previous year, the increase was 95%, reaching BRL 224 million with a margin of 17.8% compared to the net revenue. The net income was BRL 195.9 million, which is the fruit of extraordinary expenses with long-term incentives, which is a noncash expense and supported by our treasury shares. We also had a drop in the net income attributed to minority shareholders going from BRL 9.1 million to BRL 2.4 million in the second quarter of 2021, mainly due to the purchases of stock in many different clinics as presented in the release. On Slide 9, we're going to talk about our debt. Our schedule for amortization is very well distributed in the next 5 years, reaching a peak of payment in '23, where we'll have an amortization of BRL 363 million. 2021, we're going to have BRL 107 million of debt bank to amortize. On the graph below, on the same image, the net debt, the company reached in second quarter, BRL 979 million with a leverage financially of 2.3x the adjusted EBITDA in the past 12 months. It's important to mention also that subsequently, due to the IPO the rate of the debt and the company was modified with a cash net position in the company since the main use of process for M&A are adjustments for the capital structure with this income of BRL 1.7 billion is a significant factor, ensuring major solidity in our group. On the next slide about the cash flows and the first semester of 2021, the cash position before the IPO went from [ BRL 640 million ] to [ BRL 348 million ], mainly due to the funding activities such as the amortization of debt, payments for acquisitions, participation of controlled -- entities and also the consumption to the payment of partnerships of BRL 50 million and the occasional down payment of BRL 57 million for the purchase of drug. So I'm going to end this part of the presentation. Now we are available -- to answer all of your questions.

[Operator Instructions] Our first question comes from [ Emerson Vera ] from Itau.

The first question is to understand the dynamic of the top line for the second semester. We understand that if you consider the strong base, but if you could maybe reconcile what you consider in regards to seasonality with this accelerated or even an increase in the volume? And if we should see some kind of a stronger contribution of the M&A ? How much should this contribute also?

Just a minute, Emerson. We cannot hear you. Your volume is very low. Could you please repeat your question?

So what's going to be the top line in the second semester? And also understand the ticket dynamics and how you are looking at this scenario up ahead? We had a growth year upon year in this quarter. And we want to understand if you imagine any kind of deacceleration in the second semester also. I think those are the two questions we had.

Emerson, this is Erik. Your first -- it's a pleasure to speak with you, but we were only able to hear the second question with the dynamics of the average ticket. Do you think you could please repeat the first question once again because it was very low. We were not able to hear you.

Of course, yes, I can repeat it. Well, let's go. The first question is about the top line dynamic. I want to reconcile this there with what we should expect in the second semester, considering the seasonality, possibly? And also if the volume should be a little bigger in the second semester? Or the impact of the ticket should also accelerate this due to the adjustments in the price of the drugs to take place in April? So the first point is really understanding the mindset for the second semester in regards to the top line organically. And the second point is what should be the contribution and how much you expect in the closing for the three operations? Can you also in Uberlândia and how much they should contribute to the top line, so that we can reach a revenue level that's close to what you guys are indicating in the period of the IPO? So just really understand how comfortable you are to deliver that number? And the second point is to understand the ticket dynamics. So we've had a ticket growing 6%, so very healthy, but still lower than what we expected. And so we wanted to understand the ticket dynamics in the short term. I think that's pretty much it.

I will put this into three parts, and I'll pass to each one with you, Emerson. And then [ Nate ] and Bruno can also contribute with some aspects of the strategy. So historically, the market for oncology really increases. I'm going to talk about the procedures then I will talk about the average ticket. So it increases the amount of procedures in the second semester. You can notice this historically due to the dynamics. If you look at the previous years in Oncoclínicas, it's a lot stronger in the second semester, even organically. Before we talk about M&A, it's a lot stronger than the first semester. So what you can imagine is really an increasing amount of procedures. And when it comes to ticket, I think what you mentioned already makes a lot of sense. So first, there is volatility from quarter-to-quarter. In the year, the growth was 10%. And you can expect within what we were expecting or more this year, the average ticket in the third and fourth quarter will suffer with the related increases related to the major adjustments between 7% and 8% for oncology. And so when it comes to procedures and average ticket, you can expect an increase in the third quarter. So when it comes to M&A, the three operations are in CADE, the antitrust organization. So all of the process was just waiting for approval from CADE. And then CEBROM will just have the publishing from the antitrust body. So we have the legal 15-day period. And then after, we'll be able to find. So in September and October, we're going to start counting this. And the expectation is that this will also be for September, October, the two other operations that are in the final CADE phase. So it just depends on the regulator and so far, so good. And this will really help us in the number of procedures and tickets as we had already mentioned to you. I think that's pretty much it. So things are moving exactly within what was planned and what we had committed to with you and mentioned with you during the entire IPO process. Perfect. Excellent. And the seasonality as the term import course with greater clarity as well in regards to how the M&As are going to be incorporated as well.

Our next question comes from [ Henampa ] from Citibank.

And congratulations, initially on the IPO and the results, Bruno, Nate and Erik. So just a follow-up here about the seasonality. I want to know if there's any kind of specific part related to the nonpayment or if it's something natural in the business, there's some specific considerations about this? And also a bit in the presentation, you talked about long-term incentives and the accounting effect. But should we see some kind of effect in the next quarter? Or was everything pretty much covered in this period for -- this is a question regarding the disallowances?

So [ Henna ], how is it going? I hope everything is okay. So the disallowance on Oncoclínicas is low. So there's little more volatility because we have very low base so quarter-by-quarter. This tends to vary a bit. So that's how we always look at the -- this has some effect, of course, in the gross margin. But this is not something that in the second semester will get better. What's going to get better in the second semester is really the part with the tickets and procedures. So what you're going to see probably is the variations in the allowances -- because we follow this fuller. And if some payment is delayed, we have to account for it. in regard to phantom shares, as we mentioned, it is -- this is a noncash aspect. So the shareholders -- for the IPO provided 28 million shares in the treasury. They diluted this, and this is already what kind of support the payment of the plan on shares. So this is a noncash effect that's already provisioned for in the dilution of the actual IPO. We consider this 28 million shares in the dilution of the pricing. And now it was priced at BRL 19.92 . So with some preparations, maybe this would be adjusted in the market.

So before the IPO, the shareholders -- and congratulations on the results.

[Operator Instructions] Our next question comes from webcast from [ Carlos ] [indiscernible]. What are the characteristics of the assets you're searching for in the next acquisitions?

Well, good afternoon. These are assets that are quality assets focused on oncology basically. So our life is oncology and everything related to clinics or oncology-related entities are within our pipeline for acquisitions. These are always assets that are within our line, as you mentioned during the IPO process. For example, we are researching for a main focus on having a clinical primary team in line with our values and our spreads and our main objectives. And once these are identified, these are the assets we are searching for. And so we have these assets that can complement all of our care and our program of having our oncology clinics interconnected to some more higher complex centers such as the UMC, which allows for us to control in-house all of the patients' journey.

[Operator Instructions] Ladies and gentlemen, since there are no other questions, we are ending this session for Q&A. Now I'm going to pass on the word once again to Dr. Bruno Ferrari, final remarks. Please, Dr. Bruno, you may proceed.

Well, once again, Me, Nate and Erik want to thank and everyone in the company really, I want to thank you so much for your presence in our earnings call. Thank you so much for your questions submitted, and we hope to have answered them and addressed the main points. And now we are finishing our presentation here for the earnings call. We will remain available to all of you. Thank you very much, and have a wonderful day. Thank you.

Thank you, Bruno. Thank you, Nate, and Erik. Have a great day. Bye-bye.

The earnings call for Oncoclínicas is officially finished. Thank you so much for your participation, and have a wonderful day. Thank you so much for using Chorus Call. You may disconnect now. [Statements in English on this transcript were spoken by an interpreter present on the live call.]