Good afternoon and thank you for waiting. Welcome to Dasa's Q3 2023 Earnings Call. We would like to inform you that this event is being recorded. After the company's presentation, there will be a question-and-answer session for analysts and investors. If you need assistance during the conference, please press star zero to speak to the operator. The link to access the webcast with audio and slides is available on the Dasa investor relations website at www.ri.dasa.com.br. The presentation is also available for download on the website. We emphasize that the information contained in this presentation and any statements that may be made during this event regarding Dasa's business prospects, projections, and operational and financial goals constitute beliefs and assumptions of the company's management as well as currently available information. Future considerations are not a guarantee of performance.
They involve risks, uncertainties, and assumptions as they refer to future events and therefore depend on circumstances that may or may not occur. Investors should understand that the general economic conditions, market conditions, and other operational factors may affect Dasa's future performance. Now I will give the floor to Mr. Glauco Desidério, who will begin the presentation.
Good afternoon and thank you very much for listening. We will begin the presentation with considerations from Pedro Bueno, President of Dasa, followed by Lício Cintra, General Director of Operations, and André Covre, General Director of Finances. Also here with us, Emerson Gasparetto, General Director of Hospitals and Oncology, and Rafael Lucchesi, General Director of Diagnostics. Now I give the floor to Pedro Bueno to begin the presentations.
Thank you. Good afternoon, everyone.
This would be my last call as a CEO, so I would like to thank my whole team, not just the executive committee who is here in the room, but everyone who is part of Dasa, our clients. Next January, I will celebrate nine years as a company CEO, a company that has been through great transformation. We acquired Dasa in 2014, and I joined the company in 2015 when it was losing revenue, rentability, and quality. After two or three years of turnaround, we had threefold the EBITDA of the company. With the turnaround, we improved the quality, NPS. We gained customers' confidence. We gained market share.
Throughout 2017 and 2018, we embraced a new strategy, which I am so proud of that we created this proposal to perform a good medicine, best practices to provide medical services, which is generally concerned about to provide the correct medicine, which will guarantee sustainability to the sector. We became the second hospital network. We are within the three top rewards of oncology. We have a platform with over eight million users. We are a very important player in genetics. We have Alta, which is consistently gaining market share in the premium market. We have a great hub in artificial intelligence in Latin America. We have created a culture which works on humanized care, which fosters innovation, and of course, not everything is being solved. We still have relevant challenges. My last legacy as a CEO is the team that we are bringing together this year.
That is a combination of people that have been in the house for 10 years, like Emerson and Lucchesi, among some others, and some other more recent collaborators that they have excellent experiences that will add to our Dasa's team, like André as a CFO and Lício. Talking about Lício and his transition, he is doing really well. I am so amazed with his strategic direction. He is adding so much to our company. Also due to his ability to foster a strategic relationship to our operators and customers to advance towards that strategy to become the best option for all operators into the market. That transition was placed within two steps. The first three months, Lício was focused on bringing together more ties to the company and to design a budget and a strategic planning for 2024. That was in August, September, and October.
Since October, we are now stepping to a second step where I am giving more liability to the executive decisions to Lício, and that is being taken place in a very straightforward, organic way that will benefit the company. So during this call, you will perceive that I am more like a passenger seat and Lício will be more in the front line of this call. Once again, I would like to thank you all, of course, our investors who have believed in us, in our company. I am so enthusiastic with this new cycle for me at Dasa, with cash flow generation efficiency to be able to grow, designing an ecosystem that will change the health sector. Now I would like to hand over to Lício for his official opening for his first official earning result call.
Thank you so much.
I feel so proud to be in charge of this project, a project which we started nine years ago. Good afternoon. It is a great honor to be participating at this first call. For coincidence, it is the same day where I reach 100 days working for Dasa. Before I get into the details for Q3 and this improving project for indicators, I would like briefly, for those of you who have not met me yet, I would like to tell you what were the main reasons why I am at this Dasa project.
I have been working for the health sector for 20 years, always from the payer's perspective, representing health insurance providers with and without a network, but always from a provider's standpoint. This is a result of more than six months conversation and discussion, not only with Pedro, but with some investors, with the current executives, former investors.
During these months of reflection, some points were relevant that helped me to reach my decision. First, the way as how Pedro and his family understands health for the future, having a patient-centered approach to guarantee a care with more quality, more accessibility from a cost perspective. I believe this is what will guarantee sustainability to the sector. Dasa is a pioneer in this area, and I believe that with the focus, we will be able to reach amazing results in addition to those that we have already achieved. Second, the time that the company is going through. After bringing together this great team, after a number of M&As, investment in technology, it is very clear to us that we have to focus on process, execution, synergy, scale, rule out any stress that we might face on the way.
Projects that will demand time, financial resources that might be away from our core, which is hospitals, diagnostics, and oncology. I am pretty sure that by doing that, we will be able to raise our profitability levels in relation to the size that we have right now within those two business units. Besides, what would be ideal would be an adjustment with the payers. Step out of all these denials, who has paid, who has not, have they applied the proper material or not, more of the same that we have been following the past years. Now, as a provider hat, we would like to have a more simplified product in alignment with the payer sources. To have a patient-centric. We have to include the patient as part of our process. I believe this is what will add benefits and success in the long run.
In addition to these main points that were key for our decision-making process, after 20 years in the health sector, 15 of those years at São Francisco, which was founded in the state of São Paulo, then it was disseminated to the whole state, fourth in the rank, and which was very compatible to vertical insurance companies, but amounting just 30% of in-house admission. I have a very close relationship to the network exchange and indicator, best practice analysis based on indicators. All of that added to three years working for Hapvida, which has acquired São Francisco and working closely to their daily routine led by Jorge. I am sure that that may add to the current Dasa's team. What is the best part of all? I am so glad with everything that I have seen so far.
Of course, we have huge challenges such as leverage and other issues, but I am convinced that we have several opportunities. Opportunities that have already been mapped and which will be translated within best performances. We have a team which knows exactly what they have to do. They are skilled for that, and now we have to focus and engage that team to speed up the execution process. To close my first talk, my first participation, by thanking Pedro. The way that he talks about the Dasa project is amazing. He is very engaging, and he has dedicated his past 10 years of his life totally to this company, and he is going to be a great supporter to all changes and transitions. Dasa's executive team, they are amazing.
They were very welcoming, and they are facing challenges in a very constructive way, and they understand that some changes will be necessary to improve and increase our profitability. Well, after this brief introduction, I would like now to hand over to André.
Thank you, Lício. Thank you, Pedro. Good morning. Good afternoon. It is a great honor to be here for the first time to share Dasa's results, and I would like to start our presentation on slide three with Dasa's consolidated performance in the third quarter 2023. We ended the quarter with gross revenue of BRL 4 billion, with growth in both BUs reflecting three aspects. An increase in the volume of services provided, greater complexity of services, and contractual readjustment. The company's consolidated growth was 10% this quarter compared to the same period last year.
Consolidated adjusted gross profit was BRL 1.2 billion in the period with a year-over-year adjusted gross margin of 31.3%, which represents a sequential growth of 2.0 points, showing a progress in the quality of operations of both BUs. Furthermore, at the company, we began a new phase of reviewing management process and organizational structure, prioritizing activities, renegotiating contracts, resulting in lower expenses and investments, which contributed to adjusted EBITDA of BRL 683 million this quarter. A growth of 13% when compared to the same period of the previous year. EBITDA societário has grown around 6%. Such a significant evolution of operational results has allowed an improvement of over BRL 100 million in our net revenue. Going to slide four, where we bring the performance of the hospitals and oncology business segment, which we call BU1.
This quarter, we had a 13% growth in gross revenue compared to the same period last year, and 5% compared to the previous quarter, resulting in gross revenue of BRL 2 billion. The increase in revenue compared to last year is due to the 3% growth in the volume of patients per day and the 10% higher average ticket. Four factors collaborated to this growth. First, a 1.2 percentage points higher occupancy rate, which reached 78.5%. Second, the increase in the complexity of treatments and management. Third, annual contract readjustments. Fourth, the 36% expansion of the oncology segment, which also reflects the maturation of the oncology units opened last year in the Brasília as a São hospital, Águas Claras, Christóvão da Gama, and Leforte Morumbi hospitals.
In addition to the growing use of technology to the e-identification of oncological diseases in preliminary stages within our units, which opens up the possibility of anticipating the start of treatment and thus can generate greater quality and longer life for patients and lower costs for paying sources. Adjusted gross profit grew 5% lower than the evolution of revenue, and consequently, there was a reduction of 2.2 percentage points in the margin. This is due to four elements. First, the stronger comparison basis for Q3 2022. The margin of BU1 in the first half of 2021 was 26.3%, and the third quarter of 2022, 29.1%. This year, the margin in the first quarter was 25.8%, second quarter, 26.4%, and now 26.8%, [Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content] Increase of BRL 443 million in accounts receivable contributed to this negative evolution in the company's cash flow, mainly due to the longer average collection period.
A matter on which the company's management is engaged, including Pedro and Lício, to develop solutions together with paying sources. In summary, I consider that the company had a good quarter of results with growth in volumes and progress in the quality of operations, which together with lower investments, puts the company in the direction of cash generation. This is everyone's number one objective at this moment, with accounts receivable as an important part of this work. In connection with this, I now turn it over to Lício so that he can comment a little bit more on our work priorities.
Thank you, André for your presentation. I would like to close this quarter's results presentation by exploring our current priorities of Dasa executives at this time, which I will present on slide eight.
Firstly, as André said, focusing on cash generation is a priority to ensure that we have an appropriate structure to support the organic growth of our operations. In practice, we have countless examples of actions already implemented in the company's routine that reflect the total commitment of senior leadership. Secondly, as shown in the quarter's results, we have a new dynamic implemented for capital allocation that ensures focus on the profitability of existing assets and adequate investments for the company's current needs. Thirdly, the company brings a renewed approach to operational execution and expense reduction to ensure excellence in delivering our results, supported by an adequate and optimized structure. Here are some examples of ongoing actions to deliver these results, such as: a review of the supply process using volume to become more competitive, to speed up materials and medications, integrating all hospitals of the network.
To focus on exams to allow existing assets. Moving on to the fourth item on our list. We understand that this is the ideal time to restructure the relationship with paying sources, as I said in my introduction. Creating an environment of greater cooperation, aiming at claim management, and consequently building the basis for a strengthened entire country's health chain. Finally, but not least important, we reinforce that more than ever, Dasa focus is on core business. The company's ecosystem strategy continues to exist and move in parallel with the whole. We understand that at this moment, the priority and focus must be on ensuring operational excellence in our two units. Hospitals, including oncology and diagnostics. With this, we come to the end of our presentation, and now we may proceed to the question-and-answer session.
Thank you.
If you would like to ask your questions, please type star one. You may address your questions throughout the webcast platform. Our first question is from Artur Alves, Morgan Stanley. You may proceed.
Good afternoon, Pedro , Lício. Thanks for answering my questions. First, we still see an increase in the leverage during this quarter. How about the initiatives and at what extent that guidance of 2,000 and a half will rely on that? Second, a little bit of valuation. I would like to understand what has motivated that in the BU2. Was there any change, any discontinuation? Thank you.
Hi, Artur. This is André speaking. Nice to meet you, even though remotely. I'm pretty sure that we're going to have a chance to meet each other face-to-face. In fact, as you said, and as I mentioned, there was an increase in the leverage during this quarter.
We have exceeded an indicator, which is followed by the experts. We increased 0.13, our indicator of net debt over EBITDA. As I said, that is intertwined to the accounts receivable increase. As a matter of fact, if we see that in a long run, accounts receivable has increased BRL 1 billion this year. This is a problem which draws the company's attention as a whole. All the rest is going towards a positive trajectory. Results are growing, CapEx is being reduced. As I said, that's possible as the company has done excellent investments in the recent past. Our project for cash flow generation is a way to extrapolate what Lício said. It is to keep on working to increase our volume and to increase our average ticket throughout more complexity services, throughout diagnostic or in the hospitals with our patients in more complexity.
Operational excellence in our expenses, where we are going to have lower expenses and more revenue, if possible, to reach an absolute reduction of expenses and CapEx reduction. Elements like sale-leaseback, well, this is a topic still to be discussed and that will rely essentially on some conditions. Since I joined the company, I am reassessing, and I don't believe we are in the right pathway to engage into a relationship of 20 or 25 years as it is the case. Having said that, and considering all the information I have available so far, that vision of not leveraging the company by the end of 2024, which I believe was the publication timing, is still the same. The guidance relies on those figures to the end of 2024.
About BU1 numbers that you mentioned. No, BU2, sorry. To be very honest, that's not very clear to me.
I would suggest that if we could talk individually later. I'm asking Glauco to write that down so we can better understand your question, and then we can get back to you, if you don't mind. Is that fine?
Yes, that's fine. Thank you, André. I appreciate. Thank you.
Our next question is from Rafael Basto, XP. You may proceed.
Thank you. Good afternoon. Thank you for your question. I have two questions, if you allow me. The first one has to do with the relationship with the payment sources. We have seen some payers working on a more integrated way, some transactions, and the main one is Rede D'Or with SulAmérica. I would like to hear from you if that will change the competitive market or not as long as we see this kind of development taking place into the market.
Do you see that as an opportunity to become an independent player? That's my first question. Second, about working capital. Do you see in addition to the work that you have been doing with the paying sources, do you see any window for opportunity for the storage, for the stock number, stock volume? Thank you.
Thank you, Rafael. This is Lício speaking, and thank you for your questions. I will answer your first question, then I will hand over to André. First, recently, transactions mentioned by you. Well, that puts us even closer to the pay sources. If we understand that there is a large pulverization and catalyzation with one single payment source, Dasa as a whole, I think I see a positive result if I weigh that out.
I am pretty sure that if we continue management our business based on indicators with a medicine of quality, with a patient-centered approach, with a more accessible and affordable cost, I believe we are going to continue to be a great option as an impartial and independent health provider. I hand over to André to answer your second question about working capital.
Hello, Rafael. Thank you for your question. Straightforward answer, yes. I think it would be useful to elaborate a little bit more about yes. I am a newcomer in the company. I have the following perspective about the past years. Dasa is a result of several companies, which in a short period of time, most of them during COVID-19. What the company did correctly, in my opinion, was to prioritize integration in everything that deals with the customers and patients.
That was really well done, and as a consequence, we see that in the revenue growth. We see wonderful NPSs. We also see that in the users recurrence. The forefront was really prioritized and extremely well done. Now we are missing to do in a more relevant way the backward integration, such as to improve our inventory and also the payment methodologies. In our initial speech, some initiatives are being done regarding inventory, such as standardization, unified purchase. If we are able to see the whole purchase package in a more centralized way, we will be able to manage better our inventories, and we will be able to choose to set different sort of relationship with some of our providers. Here we will be able to reduce our inventory times and to set more productive relationships with our providers, including longer deadlines.
Our average inventory for Q3 has even improved a little bit in relation to the past one. As we are talking about a significant change, the main benefits, they will become more material by the beginning of next year.
That is clear. Thank you for your answers. Thank you.
Our next question is from Samuel Alves, BTG Pactual. You may go on.
Hello. I have two questions, Pedro, Lício. The first one is a follow-up from your slide eight on short-run priorities. If I take into account Lício's great experience and expertise, what would be a feasible timeline to set the company to a more humanized trajectory, especially the integration of the company's ecosystems? You answered that before. A strong improvement by the end of next year, centralizing purchase. What do you have in mind in terms of schedule addressed in your slide eight? My second question now.
A transaction that took place in Q3, the receivables. Is that concentrated in few payment sources, or is that more kind of spread from the receivable accounts by the company? Thank you.
Samuel, thank you for your question. This is Lício talking. I will answer the first one and then hand over to André to answer your second question. Slide eight sums up to the first item, cash flow generation, which leads to a number of other actions. It is quite clear that there are many actions and several opportunities, all of them with a different execution time, some with short run, others long run. What makes me feel so optimistic about that, we do not have just only one silver bullet, but we have a set of actions which are already mapped. The only complexity relies on execution. Most of them, they depend on execution.
Therefore, the level of control that we have among them is quite high. Having said so, we do not have one set date to start our cruise line, but future cycles with small gains that will take us to a level for execution and attack. Our main commitment, our internal commitment, is to speed actions up. Many of them were already mapped, and now we want to give total focus to that. And we have been doing that where we do not prioritize those less impacted actions. We are removing any sort of distractions from the table. Now it is with you, André.
As to increase of receivables. For the first time, the end of the quarter was during a weekend, Saturday and Sunday. With that, the receivables, they are postponed to Monday, which is already the following quarter.
This is one of the reasons why we have such an increase in the receivables, in addition to some other issues. Therefore, the amount concentration is within good payment sources with good additional credit, and we feel comfortable with that.
Thank you, Lício and André, and good afternoon to everyone.
Our next question is from Leandro Bastos from Citi. You may go on.
Hi there. I have two questions as well. The first one is still along receivables. For Q4, can we already see any sort of evolutions?
We can barely hear you, Leandro. Can you speak up loud, please?
Is it any better now?
Yes, much better. Thank you.
Two questions. First one, along receivables and the calendar effect by the end of the last quarter. How about Q4? Can we expect any evolution? This is my first question. Second, leverage.
Talking about leverage, André talked about some conditions which are not the most desirable one. What do you see for some other inorganic initiatives to improve the capital structure? How do you see that agenda, internal agenda? Thank you.
This is André speaking. About receivables. This is a topic which draws the whole executive committee direct attention. Myself, Pedro, Lício, Emerson, Rafael from commercial, Lucchesi, everyone is involved. We are deeply engaged to deal with this topic in a very efficient and productive way. The timing will depend on the work that is being done. It is still difficult to precise or to estimate a certain time. It may be two, three months. We are working on that. As to leverage, where receivables is an important part, Lício has mentioned on slide eight that we have a priority on our central business, hospitals, oncology, and diagnostics.
Our focus is on those two areas and other possible things that might be around that, but those are not our priorities. Therefore, we have to reassess our portfolio recurrently. The company is 24 by 7 analyzing their business composition.
Thank you. That is very clear.
Our next question is from Emerson Vieira, Goldman Sachs. You may proceed.
Good afternoon, Lício, André, Pedro, and other directors. I have two questions. The first one about average ticket dynamic for BU1 Hospital. 7% quarter- after- quarter. Could you explain what is the readjustment level that you are passing to the operators and what is the complexity evolution behind that? And second, could you explain a little bit more what you have been doing in terms of payment sources? What are those initiatives in this forefront? Is this relationship change going through any redesign of products or repositioning of assets? Thank you.
Hello, Emerson.
Thank you for your questions. As to tickets increase, we have different realities at different hospital units. There are some hospitals that throughout the years, they got investments, they received investments, and we will bump into price tables adjustments. There are other regions that they are working with price tables in their hospital units. What we have been doing lately is to focus on a hospital mix to prioritize procedures that the hospital has that gift for it. My margin is going to be higher, even if that price is tight, because I concentrate volume, I optimize OR and bed. The growth, in fact, is a mix of different forefronts or front lines. We have two aspects.
One, which is more conceptual and gains, they will be perceived in the middle to long run, where we think over and rediscuss about the use of materials and how the payment source will work with that, with physicians. Revenue is more harmonic between payment sources and insurance companies and operators. I am pretty sure that this is a pillar that in the middle to a long run, has the ability to change that relationship with the payers. In a short run, it is a matter of adjusting the process, giving more focus into the ability and agility of revenue/giving a feedback to the payer's source.
Very clear. Thank you.
Our next question is from Gustavo Tiseo, Bank of America. You may proceed.
Thank you. Good afternoon. I have two questions. Could you elaborate a little bit more about the receivables?
I know that much has been already talked about that, but have you reached the peak of suffering and that might improve from now on, or that will become even worsening than it is? Second, some of the benefits they have already been mapped. More recently, you had a consultancy to reach more efficiency. Could you update us what has happened? Was there an improvement? Is there a room for improvement or have you reached a limit yet or not?
Hi, Gustavo. This is Pedro speaking. About G&A, as we said, we did some work in the beginning of the year to map our possibility and activities, and G&A is being diluted constantly in relation to the revenue.
More recently, Lício, together with the team, without a consultancy support, we are doing that internally without our 2024 budget, where we are considering a second wave of opportunities to build out in a short run. So we hope to throw good news very soon in the near future.
Thank you.
About your question addressing working capital, it might be useful to set some numbers here in evolution. Comparing receivables, less clients anticipation with the quarter revenue. That is not a very precise math because that is the last month of the quarter. Just for you to have an idea, in these calculations, we have 98 days of receivables accounts. In the first quarter, that was close to 90. Last year, that was close to 80. So I cannot precise you if we have reached a peak or not, but our growth was very significant.
We expect to work together with the payers for something which is more normal, which replicates what we had in the past. Yes, this is what we are after too.
Thank you. Very clear.
The Q&A session is now closed. Now I would like to give the floor to Mr. Pedro Bueno for his final considerations. You may proceed.
Thank you so much for your participation at the earnings conference call for Dasa. Lício, thank you. We are very excited for what to come next year. Have a great weekend.
The earnings conference call for Dasa's Q3 2023 is now closed. The investors relationship area is available to answer any other questions and queries. Thank you very much to the participants, and have a good afternoon.