Mr. Nahus, IRO. For those requiring simultaneous English interpretation, the feature is available on the platform. Simply click on the Interpretation button and select English. This event is being recorded and will be made available on the company's IRO website along with the full earnings materials. You may download the presentation by clicking on the chat icon. Please note the disclaimers related to this release at the end of the slides. During the company's presentation, all participants will remain in listen-only mode. After the company's presentation, we'll open the Q&A session. To submit questions, click on the Q&A icon at the bottom of your screen and enter your name, company, and language preference to join the queue. I'll now turn the call over to CEO Jorge Pinheiro to begin the presentation. Jorge, please proceed.
Hello. Good morning, everyone. Thank you for joining our first quarter 2025 earnings call. We are gathered here in New York, myself, Luccas, and Guillermina Hus at the Itaú Conference, and together we will walk you through the key highlights of our results. We began 2025 in a very favorable position with our operations fully integrated and unified. Since the start of the year, we have been mobilizing our teams, resources, and efforts towards a new strategic agenda, always keeping our members at the center of our actions. By the end of the first quarter, we completed the full integration of NDI Saúde, including its managed operations. This milestone allowed us to optimize admin structures. For example, consolidating the vice presidencies overseeing our own network into a single VP of Operations. To strengthen the strategic focus on technology and innovation, we also merged the Finance and IT vice presidencies, now jointly led by Luccas.
During the 1st quarter and the beginning of the 2nd quarter of 2025, we opened, reopened, and expanded three hospitals located in Fortaleza, São Paulo, and Belém. In the coming weeks, we expect to open another hospital in Recife. Meanwhile, our two new hospitals in São Paulo and the Rio de Janeiro Hospital are progressing, with the São Paulo units already in the project development phase, and we remain committed to our verticalization strategy. In late April, we announced another capital markets fundraising round, our ninth The Venture issuance, raising BRL 1.5 billion at the cost of CDI plus 1.05%. This issuance also received the highest investment grade, AAA. Our gradual and organic deleveraging process continues, with our net debt to EBITDA ratio now below one time, a very comfortable level.
Now, moving to our financial results on slide two of the presentation, I will give you an overview of the highlights that Luccas will dive into later on. I would like to comment on some of them. Our net revenue grew 7.3% year-over-year, driven by necessary price adjustments and contributions from new sales. We recorded a net loss of 70,000 health plan members in the quarter, which was expected due to seasonality. Historically, early year periods see lower sales of mass plans as consumers prioritize other expenses. In corporate plans, we faced some impact from NDI Saúde's São Paulo systems integration and greater exposure to Brazil's retail sector, which typically sees negative turnover early in the year. For the remainder of 2025, we expect a return to organic member growth, supported by commercial initiatives that will support that.
For example, we are making improvements in our internal processes and system changes to reduce churn. We are also increasing sales incentives in regions with new hospitals such as Fortaleza, Recife, Manaus, and São Paulo, and in many other Brazilian cities. Our cash MLR stood at 68.6% in the quarter, up 60 basis points year-over-year. Adjusting MLR for litigation expenses, which are now classified as healthcare costs starting in 2025, the ratio would have been 67.6%. That is a 0.4 percentage point improvement vis-à-vis the first quarter of 2024 and 0.3 percentage points vis-à-vis the 4th quarter of 2024. This is a relevant gain in our view, as seasonality typically drives a quarter-on-quarter MLR increase. Adjusted EBITDA reached a bit over BRL 1 billion this quarter, up 0.5% year-over-year, despite rising litigation pressures in recent quarters.
We are enhancing our governance to accelerate high-tech deliveries, including AI automation and robotics in back office and care workflows, aiming to reduce expenses and costs, improve care quality, and enhance speed. Our investments in improving care quality have already started to bear fruits. We now have faster scheduling for appointments, tests, procedures, and shorter result turnaround times. This led to a 33% reduction in complaints, the so-called NIPS, from January 24 to March 25. We also achieved improvement in IGR group-wide. IGR is the Official Regulatory Complaint Index. NDI Saúde's NIPS have returned to pre-system migration levels. Now, a clinical research update. We now have around 580 patients enrolled in trials across oncology, nephrology, endometriosis, endocrinology, mental health, and urology. This new vertical has attracted strong interest, with 50+ clinical trial proposals for our in-house research centers. We also had progress in the education field.
In March, we launched ConnectaMed, our online medical education platform, now with 14,000 active physicians with access to over 200 video lectures. This content was fully produced in-house on different topics such as emergency medicine and AI in healthcare. The focus is on continuous physician upskilling and enhancing care quality across Hapvida's network. Before handing over to Luccas for a deeper dive into our financials, I'd like to wrap up by emphasizing that we remain highly disciplined and focused, tackling challenges while seizing opportunities and working hard to advance the strategies that we launched last year. We continue investing in operational strength and sustainable margins. A special thanks to our employees, doctors, dentists, brokers, suppliers, and the strategic participation of our board of directors, and above all, our clients for their trust. Luccas, over to you.
Thank you, Jorge. Good morning, everyone. Thank you for joining us.
It's a pleasure to be with you for another Hapvida's earnings call. This quarter's call is technically more straightforward than last quarter's, so we'll be more concise with the explanations and focus more on our outlook for the year. On slide three, we see total revenue reached BRL 7.5 billion in the 1st quarter of 2025, an increase of 7.3% compared to Q1 2024. This growth is mainly driven by our policy of regular price adjustments and financial balancing of existing contracts. This strategy has more than offset stability in medical hospital services revenue, which remains under review for credit risk exposure, as well as lower demand in the areas with higher idle capacity and a reduction in the number of lives considering the net losses we had in the 1st quarter.
Still on this topic, moving to slide four, we saw a net decrease of 70,000 health plan members in the first quarter. As Jorge mentioned, it's important to highlight the typical seasonal effect in the first quarters, which impacts two variables related to net growth. First, the declining gross sales of mass market plans, influenced by factors such as the Brazilian Carnival festivities, along with financial obligations like property and vehicle taxes, school enrollment fees, and others, and negative turnover in corporate plans resulting from layoffs of temporary positions hired for the holiday period. Remember, we have significant exposure to the Brazilian retail sector. Regarding cancellations in the first quarter, there was a marginal increase associated with the system migration during this period, which we believe is a non-recurring event and at a much lower level relative to our other systems integrations.
We should recall, because there have been many challenges, but we just completed the largest system integration in our history, indeed in the country's history. It was not a simple integration with market systems, but a complex process involving proprietary systems, legacy applications, standardization of ERP versions, and more. It was an extremely complex move, but we achieved significant results in the rapid conversions of customer service and NIPS, as you've seen from the public data released by ANS throughout the quarter, along with stabilization of cancellations, which were marginally higher, as mentioned. Despite the net loss of members in the first quarter of 2025, we're confident that the year of 2025 will be of net growth with a more robust outlook for the second half. This expectation is based on investments we've made to improve and expand our network.
Our current pipeline also looks promising as we see many corporate accounts with contract anniversaries in the second half of the year now seeking quotes. We know that the economic environment makes it appealing for companies to migrate their contracts to Hapvida, with potential cost savings for them. On the right side of the slide, we observe the evolution of average ticket up 9% year-over-year. This growth is primarily due to a 7.7% increase in net price, reflecting the necessary price adjustments and co-participation increases on existing contracts, including the unification of revenue transfer rules between health and dental plans following system integration. The second block, MIX, which represents the net difference between the average ticket of new contracts, gross sales, and cancellations, contributed with a 1.3 percentage point increase driven by revisions to our commercial tables.
We remain positive about 2025 in this aspect, as we expect more moderate average price hikes compared to 2024, an ongoing trend that our business model continues to mitigate, enabling us to apply price increases below those of our competitors, yet sufficient to recover and expand margins. This movement aligns with the gradual convergence of MLR, reinforcing our commitment to technical balance and business sustainability. Now, on slide five, we report a cash MLR of 68.6% in Q1 2025, up 70 basis points from the 4th quarter of 2024 and 60 basis points from the 1st quarter of 2024. Seventy from the 4th quarter and 60 from the 1st quarter of 2024. This increase is primarily due to the change in accounting for legal demands. Until the end of 2024, judicial claims were fully recognized under contingencies within admin expenses.
From January 2025 onward, we began recording the healthcare cost of procedures performed under judicial demand as claims, referring solely to the judicial deposits that were actually disbursed during the quarter, with separate healthcare expenses from admin costs. Therefore, the MLR for this quarter, including at least one percentage point, about BRL 75 million of this new approach, is considered now more accurate and fair. To make comparable figures, we must subtract this one percentage point, which indicates that comparable cash MLR would have been 67.6%, a decrease compared to the same quarter last year and even lower than the 4th quarter 2024. In other words, we gain from the inherent seasonality of first quarters versus year-end. Additionally, for the first time on this slide, we present the per capita volume metrics for some of our services, such as appointments, tests, and admissions.
It's important to note that the utilization has increased since the first quarter of 2024 across all of these services, and yet we've managed to dilute MLR. This improvement in efficiency mentioned by Jorge has allowed us to reduce the number of NIPS end-to-end by 33%, March 2025 versus January 2024, and to improve the group's overall IGR. This progress results from our commitment to operational efficiency, maintaining high levels of vertical integration, price revisions, and strategic negotiations with our provider network alongside strict cost control. Turning now to litigation or judicialization on slide six. We present here the evolution throughout the first quarter of 2025 based on the latest data shared. Starting in the top left corner of the slide, we see judicial deposits. We began with a balance of BRL 728 million at the end of the 4th quarter of 2024.
In the first quarter of 2025, new net deposits totaled BRL 136 million, an impressive 33% decrease compared to BRL 204 million in Q4 2024 and BRL 199 million in Q3 2024. This decline results from intensive efforts, enhanced governance, and embedded technology aimed at reducing blockages and their impact on results. We also had disbursements of BRL 89 million, slightly lower than in the previous quarter, with potential for further improvement through new strategies underway. The total civil-judicial deposit balance at the end of the first quarter of 2025 was BRL 790 million. On the top right side, starting from a provisioning balance of BRL 754 million at the end of the 4th quarter of 2024, we see new net provision reversals of BRL 88 million, including BRL 15 million for legal costs.
To make things clear, we segregated BRL 11 million of provisions from acquisitions that are the responsibility of the sales teams, which reduces the retained amount without affecting our results. Payments of BRL 53 million for contingencies, including BRL 15 million for legal costs, and BRL 37 million of monetary restatement now applied uniformly across all of our group's operators. Thus, the total provision at the end of the first quarter of 2025 reached BRL 838 million, representing 106% of the deposits. Moving on to the lower left chart, we display contingency expenses, which include BRL 40 million related to labor tax and ANS fines, BRL 89 million in disbursements from civil-judicial deposits, which I just mentioned, BRL 88 million in new civil provisions. Combining these last two, we have BRL 177 million, somewhat below the figures of the 4th quarter 2024.
As previously indicated, we are also reclassifying medical procedural costs amounting to BRL 75 million in the quarter into claims rather than contingency expenses. Finally, in the lower right corner, we show the evolution of contingencies relative to net revenue. This indicates that the first quarter of 2025 is below the 4th quarter of 2024, reflecting the sequential reduction in labor and tax contingencies as provisions and adjustments for 2024 were made last quarter. Moving on to slide seven, covering cash admin and sales expenses. Compared to the 4th quarter of 2024, you recall that in our accounting, certain one-off events impacted the quarter, such as the ANS fines agreement and past blockages, totaling BRL 506 million, which did not occur in the first quarter of 2025.
Excluding those effects, the 4th quarter of 2024 expenses would have been about 10.4% vis-à-vis 10.3% in the 1st quarter of 2025 before the reclassification of medical procedures from lawsuits into claims, as I mentioned earlier. The reclassification was of BRL 75 million, representing 1% of net revenue, and admin expenses in the first quarter of 2025 was brought to 9.3%. Essentially, this is a reallocation of 1% from G&A into cost. Some highlights among recurring admin expenses: BRL 14 million related to consulting for integration efforts, which negatively impacted the 4th quarter of 2024, and that was not repeated the first quarter of 2025, although we are still under assisted operations and stabilization. We also saw a reduction of nearly BRL 5 million in travel post-integration.
In contingencies, in addition to accounting for judicial claims as care costs, there was a BRL 29 million decrease in tax and labor contingencies, reflecting the seasonal nature of these provisions and prior year's cyclical adjustments. Regarding personnel costs, we allocated approximately 200 employees, around BRL 15 million, to sales expenses personnel, offset by a similar increase in vacation and bonus provisions. With Hapvida and NDI Saúde integration completed, our organization is embarking on a new journey prioritizing technology and innovation. We're focused on process optimization and hyperautomation, applying cutting-edge technology to become more efficient and reduce back-office turnaround times while improving user experience, from appointment scheduling to outcomes of treatments to be provided by our more than 40,000 physicians. This team is advancing rapidly worldwide, and we are actively testing tools to enhance patients' lives and transform our operational model, enhancing the care provided.
Sales expenses in the upper right corner of the slide remain stable at 7.4% as a whole, but we'd like to highlight two points for the quarter. First, PDD provision for doubtful debts for the 1st quarter of 2025 was higher than the 4th quarter of 2024, primarily due to a higher volume of cancellations in the period and lower recovery performance on overdue credits. It's important to note that the PDD is calculated based on the portfolio's loss perspective, considering historical credit non-recoverability and individualized credit assessments for the largest clients in the receivables portfolio. This model provides a more forward-looking view of loss probability rather than a purely retrospective one. Second, in personnel expenses, there was a reclassification, as I previously mentioned, of approximately BRL 15 million. That is due to the systems migration, and it was completely expected.
These impacts were partially offset by a BRL 20 million reduction in advertising and marketing, reflecting the concentration of campaigns in the 2nd quarter and 4th quarters of 2024. On slide eight, you can see that our adjusted EBITDA reached BRL 1 billion in the quarter, which is naturally more pressured compared to the first quarter of 2024, as it reflects the impact of increased litigation, which escalated significantly throughout 2024. Nevertheless, it remains a strong result, demonstrating that we are on track to continue expanding margins. Our IFRS 4 adjusted net income reached BRL 416 million with a 5.6% margin below the first quarter of 2024 for the same reasons. Now turning to cash flow on slide nine, in the first quarter of 2025, we recorded a net cash increase of BRL 695 million.
This variation was primarily driven by positive free cash flow of BRL 570 million and BRL 240 million generated from financial investments, sorry, which were partially offset by BRL 117 million consumed in M&A activities and BRL 34 million in interest payments. Breaking down the free cash flow, starting from BRL 1 billion in adjusted EBITDA, we have BRL 93 million in variable compensation payments related to 2024 and BRL 12 million in net provisions and civil deposits, consisting of BRL 177 million in write-offs and deposit expenses, which impacted adjusted EBITDA but have no cash effect, BRL 133 million in new net civil-judicial deposits, BRL 53 million in actual payments of provision lawsuits, BRL 19 million in SUS provisions and deposits, net of monetary restatement.
These deposits are required for the company to defend itself in court without incurring in penalty fees and charges, and BRL 86 million from the company's operations, mainly consisting of BRL 171 million in provisions for medical bills payable due to receiving invoices at the end of the quarter, with payments scheduled for the 2nd quarter of 2024, a seasonal movement, and BRL 24 million in IBNR with a negative effect on EBITDA, but no cash impact, and BRL 19 million in inventory and suppliers, partially offset by BRL 129 million in accounts receivable. Finally, minus BRL 197 million in CapEx, continuing investments in IT and in our own healthcare infrastructure. We also had BRL 103 million in income tax and social contribution. Please refer to the chart below to help reconcile cash taxes and current taxes.
As previously mentioned, the company is making monthly payments under the annual real profit system, as well as taxes withheld. In March 2025, after assessments, we made interest on equity payments from the operating companies to the holding, reversing part of the current tax and crediting BRL 55 million disbursed in advance, which will be offset throughout the year. This will be replicated monthly, and we expect a reduction in current taxes over the year, as mentioned in the last call. In total, we generated BRL 872 million in cash. That is 86.4% EBITDA to operating cash conversion, a level above historical averages, primarily due to the previously mentioned increase in medical bill provisions.
On slide 10, M&A activities consumed approximately BRL 120 million in the first quarter of 2025, consisting of BRL 50 million related to the arbitration agreement mentioned in previous calls and BRL 70 million in amortizations of retained installments from other acquisitions. Regarding financial activities, there was a generation of BRL 243 million with the following highlights: BRL 280 million in financial income, representing 102.4% CDI return on the average applied cash balance, and BRL 34 million in interest and derivative payments during the quarter. We closed the quarter with a net debt of 0.98 times EBITDA, consistent with our gradual deleveraging strategy, primarily driven by strong free cash flow generation. Finally, completing Jorge Pinheiro's remarks at the beginning of the call, we are conducting a net fundraising of BRL 1.5 billion through our ninth debenture issuance.
The operation was structured at a cost of CDI plus 1.05%, with a bullet maturity in 2032 and settlement in the coming days. The proceeds will be used for the early amortization of the second debenture issuance, which carries a cost of CDI plus 1.45% and maturities in 2026 and 2027. This extends our duration while reducing the weighted average cost of debt. Thank you once again for your patience and attention, and we'll now open for questions. We're happy to address them. Thank you very much.
We'll now start the question and answer session for investors and analysts. When your name is announced, a prompt to activate your microphone will pop on your screen. Please unmute your mic and ask your question. Please limit yourself to two questions per analyst and ask all of your questions at once.
Our first question is from Joseph Giordano, a sell-side analyst at JP Morgan. Joseph, please go ahead. Your line is open.
Hi, good morning, everyone. Good morning, Dr. Jorge, Luccas, Guillermina. Thank you for taking my question. I would like to talk about growth. You said that the income for the year was a bit better with moderate price adjustments. Can you tell us a bit more about the competitive landscapes? Especially in São Paulo, we see a more aggressive player. What is your strategy to tackle this? We see improvements in MLR in spite of enhanced fixed costs. Can you tell us about the acceptance of the new product and the new network and the locations where your footprint is greater now? Have you seen any type of seasonality that is weaker this quarter?
When we look at the industry, the MLR has dropped significantly because of the carnival festivities and the vacation period. Do you see any type of seasonality here? We would expect a less relevant seasonality in this context. Thank you very much.
Hi, Joseph. Thank you for your questions. To start off, I would say that we continue happy for having finally concluded this long journey with great time and money invested in this integration. This hard work is now behind us, and our teams, our commercial teams, product, and pricing teams were devoting a lot of attention to systems changes that were being deployed, and we had to explain to them how to use the new platforms and the new apps. Now this is all behind us, and we are starting on a new journey.
Therefore, we can now look at expanding our own network, and we can now focus on organic growth. Such organic growth will happen gradually. We expect it to gain momentum throughout the year, but we have a positive outlook for growth for the remainder of the year, and we've been implementing actions for that. We have been opening new units, and we have some idle beds, so we have the possibility of being more competitive and more aggressive from a commercial perspective. We have a very good and well-controlled MLR, which gives us margins to be sustainably more competitive. Additionally, we've been taking actions to review our portfolio, readapt products, and prices of our network. This is being done continuously, and we now have new internal governance to attract brokers, multi-brand or monobrand brokers to come work with us.
We want to be closer to all of these brokers, and we believe that this is going to lead us to successful results. This new journey has been of expanding and upskilling our own network, organic growth, digitalization of our operations with great use of technology. Our momentum now is focused on all of that. With the integration now behind us, we have been focusing on this new agenda. Yes, we do see one or another player being more aggressive in the market. That is only natural, but our main concern is to have a cost structure that allows us to be competitive at the right time, not being irresponsible. We want to be sustainable. We have margins for that where we are present, and the investments we have been making will enable us to be even more accurate in our decisions.
We have a very positive outlook for the year. Now, I'd like to turn the floor over to Luccas to answer your second question.
Hi, Luccas. Joseph, sorry. Thank you for your question. What we have been seeing is that the number of lawsuits discussing this topic in the judicial environment has been stable since the 2nd quarter of 2024 up until now. We did not see a seasonality in the number of care-related lawsuits. It is hard to talk about a seasonality here because we have a short historical series, and it is the first time that we have a first quarter with our teams focused on this governance, and things are working much better now. Our feeling is that no, there is no seasonality here in the first quarter. I think that we have data to illustrate that.
We are constantly evolving in this area, and this is quite dynamic, but the April numbers, for example, are very close to the 1st quarter's average. If there was any type of seasonality here, we would be seeing some things moving around, and that's not what we're seeing. The short answer is no, we do not see any seasonality here, although this is the first historical series with our team focused on the 1st quarter. Let's see how this unfolds. The number of lawsuits has been stable since the 2nd quarter of 2024, and we see a similar monthly average all the way up to April 2025. There does not seem to be any seasonality related to the first quarters.
That is very clear. Thank you very much, Jorge and Luccas. Have a great day.
Our next question comes from Leandro Bastos, sell-side analyst at CD. Leandro, your line is open. Please go ahead.
Good morning, everyone. I have two questions here on my side. The first question is about contingencies. I just heard what you said about April and that you do not see major oscillations or seasonality. In Q1, we saw contingencies over net revenue improving to 2.9, and the coverage index is also improving when we look at deposits and balance provisions. Considering all of the governance you have in place for this topic, do you have a clearer vision on how this 2.9 can evolve from now on? What can we expect here in this line? My second question is about G&A. Excluding the contingencies line, which has been a bit more volatile, the 1st quarter seems to be a bit better, and you were just completing the NDI integration.
Can you tell us about the levers for the year? If we look at NDI, ex contingencies, what are the factors that we can expect from now on? Thank you very much.
Hi, Leandro. Thank you for your questions. I'll start with your G&A question. We started now in the 2nd quarter of 2025 a journey of capturing synergies related to G&A, which is fruit of this integration with NDI. We are leaving legacy systems behind. We have mapped all of our outsourcing contracts, and we now have a timeline in place. Throughout the year of 2025, we will be executing our plan.
Based on our expectations, I mean, we know that some of these contracts may take a while to be left behind, but we believe we are going to finish this by the 3rd quarter of 2025, and the 4th quarter will be cleaner, making the most of all of these synergies. Yes, we have great possibilities to capture synergies on different fronts, and we have a group tracking all of these synergies. Luccas, would you like to talk about contingencies?
Sure. Hi, Leandro. Thank you for your question. This is an opportunity for me to explain what I said about April, which is exactly what I said in the 4th quarter. I am talking about new net deposits. When I look at the new net deposits in April, it is similar to the average we had in the first quarter.
Now, when we look at contingencies, things are a bit different, not in terms of what we expect for the remainder of the year, because we do expect this to be diluted throughout the rest of the year because of the many initiatives that we've been implementing. The 2.9% of contingencies take into account civil, labor, tax, ANS, and others. We have different vectors that may not evolve hand in hand. Now, when we look at the remainder of the year, we have to think about how to model this looking ahead, right, considering the information shared in the first quarter. The first quarter shows great strength, and we have ways to control this internally without a mismatch in our MLR.
If we exclude this effect, our MLR was great, and we've been working hard to control net deposits and expenses and the needs for higher provision for all of that. We have a positive outlook for the coming quarters because we've been doing everything we can: mapping, negotiating, gaining speed whenever we have to negotiate with our members, and including new providers, bringing many of those providers in-house. We see positive things happening here. We have a great team focusing on that with people from legal, people from operations, people from registration, people from regulation. This is becoming more and more mature here. Of course, this is a living organism.
There are always adjustments to be made month after month, week after week, but we have a positive outlook for this, considering the positive results we had in Q1 and what we expect to achieve in the coming quarters.
Thank you, Luccas and Jorge. Have a great day.
Our next question is from Vinicius Figueiredo, sell-side analyst at Itaú. Vinicius, your line is open. Please proceed.
Good morning, everyone. Thank you for taking my question. A common question I heard in my interaction with investors was about cost internalization related to litigation and their impact on MLR. Just to make it clear, when we think about the delta between gross deposits and net deposits, how does that impact your results? Because I see recovery, duplication, and others. We were wondering whether this is somehow included in the BRL 75 million or if that is separate.
If it's separate, maybe it could indicate that the claims ex litigation is better than 77.6%. That's my first question. My second question about price adjustments. You have a relevant price increase for small and medium businesses. What can you tell us about this readjustment or pass-through of the litigation-related costs, and how does that align with your growth expectations for 2025?
Thank you. Hi, Vinicius. Thank you for your questions, and thank you for having us here in New York for this great event.
No, thank you.
Okay, I'll answer your question about the price readjustments, and then Luccas will take your second question. This year, our pricing strategy will bring us an average readjustment that is lower than last year's. This is something close to 2 percentage points below last year's average.
These 2 percentage points already include a 1.5 percentage point increase related to the lawsuits. Our MLR is very well controlled, as you saw, and the verticalization measures we have taken and the integration itself, which brings us a very large number of tools that can help us reduce costs and expenses. All of the measures we have adopted, renegotiating with providers and clients, will allow us to have price adjustments that are lower than last year's, but that are sufficient for us to continue diluting our costs and expenses. The small and medium businesses readjustment that you mentioned, if you compare to all of the other companies, this is actually at a low level. Some companies increased 4, 5, 6 percentage points more than us. No other company had lower readjustments for small and medium businesses.
This can actually vary around 10% on average for this portfolio, maybe a bit more or a bit less, depending on the year dynamics. Vinicius, like we said, considering that we have our own network units opening up and new hospitals opening up, we can be more aggressive this year in situations where we have margins for that and fixed costs for our own network. As a result, we'll be able to be more aggressive at the right locations and at the right time this year. Now, Luccas will take your other question.
Hi, Vinicius. Thank you for your question. The BRL 75 million that we highlighted as judicial claims is the only risk related to deposits that are out of our control, those that we cannot negotiate on and that the judge has ordered to free up the resource for the other party.
This is not related to the recovery of our own network service. Like you said, and you're right when you say this, the MLR could have been better than what we delivered because the BRL 75 million was something that we were not able to negotiate. As part of this MLR, we also have this whole recovery of the gross to the net that we did in our network or that we paid to our 3rd-party network. We have duplicated deposits every month. We have a significant amount of duplicated deposits that we recover, and it's only natural. You have three, four, five bank accounts blocked. We have the amount that is duplicated being freed up after some time. We also have issues in, I mean, situations in which we are able to negotiate with members.
There are situations in which we gain the lawsuit and the money comes back to our cash. We have the gross deposits that need to be decreased, and we have to be able to do the recovery and clean up the duplicates. The 75 is only the amount that was dispersed in blockages and the MLR that we also served in 3rd-party operators. Your analysis is correct.
Thank you, Jorge, Luccas, and Naus for your answers, and have a great day.
Our next question is from Andre Salles, sell-side analyst at Hapvida. Andrea, go ahead.
Hi, good morning, everyone. I have two questions on my side, and they are about capital allocation. My first question is, we see an average leverage below one time, and the company continues to generate a lot of cash. What can we expect?
Are you close to this optimum leverage level or not? What can you tell us about how you plan to use this cash? My second question is about your sales of the Maringá asset. Was that something timely, or can we expect similar actions from the company from now on?
Hi, Andrea. Thank you for your questions. I will start talking about the Maringá asset. We had a plan to do that. We did not do a systems integration there in that unit because we had a significant number of lives there, fewer than 1,000 lives. The hospital was only selling services to 3rd parties, so it was not in line with our philosophy since we did not see opportunities for growth there in the medium term. It was part of our strategy to sell the asset.
Of course, we consider selling services in addition to selling plans in a verticalized network. We will be opening hospitals in São Paulo and Rio and in Recife, and all of them have specific wards to sell services to PPOs. We do not want to have hospitals that sell services only. Since this was not aligned with our strategy, we decided to sell this asset, which helped us somehow to reduce our leverage. Now, about capital allocation, I would like to turn the floor over to Luccas. Before I do so, just a philosophical comment. We want to continue in spite of making greater and greater investments. We are going to exceed BRL 1 million in CapEx this year, but our strategy is to continue deleveraging the company. We expect to go back to a net cash position, which we believe is best for the company.
We're not going to relinquish organic and inorganic growth opportunities. We want to keep this deleveraging trajectory, but still making the most of the growth opportunities that may arise. Luccas?
Yes, thank you for your question about capital allocation. You asked about the optimum level. Optimal is what is mathematized in a specific modeling. An optimal level for capital structure was something that was not studied in a country of 14-15% of risk-free rate. When we look at capital allocation, an enhanced leverage level would be close to the tax shield that I have and an appropriate debt level. The company has a great premium on the holding, so we do not have to have a gross debt level in order to have this tax shield because of the premium we have available for amortization.
We also have our operational profit in the operating units and at the holding. If we do not have deductible expenses with that, I will not be close to an enhanced leverage situation because of my tax shield. Our idea is to incorporate the entities into the holding in a way to control our cash income statement. That is what we have been doing this year with some tools so that we look at the optimum tax shield level in order to become net cash. The company has been generating a lot of cash, and we want to be net cash. This gives us a robust deleveraging position so that we do not need to have such a high risk-free rate. That is our main goal. Now, about the Maringá asset, you asked about other assets that we wanted to disinvest from.
We keep on looking at the different locations and opportunities, but for now, that is the only asset we had to sell. We will continue reviewing and modeling our fixed assets elsewhere as well.
Okay, great. That was very clear. Thank you very much.
Our next question is from Mauricio Cepeda, sell-side analyst at Morgan Stanley. Mauricio, please proceed.
Hello, good morning, Dr. Jorge, Luccas, and Naus. Thank you for taking my questions. I have two questions. The first is about the judicial MLR now being allocated into cash. For small and medium businesses, I know that you already had that in place, but for corporate, I think you can adjust in the negotiations. Now, what about individual plans? You have controlled readjustment prices, but you also have new sales. Considering new sales, what do you expect in terms of rebalancing for the judicialization situation in this portfolio?
How long will it take for you to achieve this rebalancing? My second question is about the industry as a whole. The industry was working hard on the excess of litigation, excessive lawsuits. Can you give us an update of what is going on in the industry there?
Thank you very much. Great questions, Cepeda. Let me start by talking about the industry. The work that has been done through our institutions, Abrange and Fenasaúde, is starting to bear fruits. We can now see through the events that were conducted, there are several reports clarifying this to the population, meetings with the regulators, with the judicial and the executive branches of power. We have been clarifying these issues with more reasonable practices to comply with the regulation so that users can have more affordable health plans.
This is a gradual work, but we start to see that the population and business owners now understand that abuse and use of procedures without coverage are reverted back to them through higher prices. Of course, this is not going to happen in the short term, but the results have been relevant. We've been working with the regulator, the executive, the judicial branches of power, and also providing clarification to the population through news pieces and events, informing the population about the best practices so that they can have access to high-quality healthcare that is affordable to them. Because we don't want to have to have high-priced adjustments. Only one-4th of the Brazilian population has access to healthcare plans, and we want to be able to offer good products to the rest of the population as well.
About prices, you probably remember that at the end of last year, we announced that our new tables would already include readjustments, and we did that for the individual portfolio, for small and medium businesses, for corporate plans. We did that in all of our sales channels. Twice a year, we review our tables, and we do not have to make extraordinary adjustments anymore because we already considered all that we needed in the table that we published last year. Now, since we are incorporating legal expenses into costs, after this one-year journey, this is going to be captured not only by the regulators when they calculate the readjustments for the individual portfolio for the year of 2026 and 2027, and for small and medium businesses and corporate channels.
This has already been incorporated in costs as of the beginning of 2025, which will affect the pricing and readjustments from now on. Thank you for your questions, Cepeda.
Thank you, Jorge.
The question and answer session is now concluded. This marks the end of Hapvida's first quarter 2025 earnings call. The investor relations team remains available for follow-ups. Thank you all for joining us today and have.