[Foreign Language]
Good morning. Welcome to the audio conference of Oncoclínicas. At this moment, all of the participants are connected only as listeners, and later on, we will initiate the Q&A session for any questions when instructions will be passed along to you. We should remember that this audio conference is being recorded. I would like to now pass the word over to Bruno Ferrari, Dr. Bruno. Please go ahead.
[Foreign Language]
Good morning. Thank you for participating in our video conference as a result of our third quarter 2024 earnings call. This quarter marks an important inflection point for Oncoclínicas from the point of view of the cash generation, and with this indicator, I would like to begin with slide three. On the presentation, it points out more than BRL 30 million of free cash generation in the third quarter.
We've also generated cash even after paying interest, all of our CapEx of maintenance and expansion, and after the payment of dividends to the minority shareholders in some of our operations, of which we do not have 100% of the capital. For comparison, we had approximately BRL 640 million consumption in the two previous quarters to this quarter, which means that this turnaround is very important. It's the reflection of a great deal of work and discipline which the company has been using. It was made possible by several initiatives that were made a few months ago and which now start to bear fruit. In the first place, we have improved even more our receivables together with the payers in the third quarter.
The graph on slide four shows this evolution quarter on quarter of our volume of receivables since the beginning of the year and how much this represents for our net revenue, with a level of efficiency that has been improving progressively. As a consequence of this event in receivables, our PCLD, our provision for non-payment of doubtful payment, reached the lowest level in the last two years, as we see in the graph on slide five. In second place, on slide number six, the total of payments with financial expenses and CapEx came down expressively since the fourth quarter of last year due to the increase of capital of BRL 1.5 billion included in July of 2024. And why not? Because we have gotten close to the final phase of the cycle of expansion projects initiated since the IPO, with investments progressively smaller each quarter.
As a consequence of this conjunction of factors, as we see on slide seven, today we find ourselves in a relationship of leverage stabilized, currently at 2.7 x net debt to EBITDA, adjusted and annualized. So we have much work going forward. Considering this performance of the company, it's very encouraging for several reasons. First of all, because the scenario of the health sector is still challenging. It's not possible that we have totally turned the page when we talk about the cycle of working capital that has been demanded from our payers. There have been strong advances gradually, but we still have a long way to go in this aspect. Secondly, because in a macroeconomic environment in which the cost of capital continues to grow and when generating cash is the financial tonic for this company.
As we have promised and are delivering, we are a big ship. That's why now the change of direction always takes from one quarter to the next. It has arrived, and we're working strongly on diverse initiatives internally for this to intensify. Finally, but no less important, I think it's fundamental to mention that we've done all of this while we still run a relevant restructuring of the expenses of the company with the cleaning of our organizational structure, unification of several redundant units in several places, several cities. This has been affected by these transitory factors in the third quarter. We're heading towards operating more efficiently in an environment in which delivering more and more cost efficiency will be crucial.
It is now like to pass the word over to Cristiano Camargo, our Financial Director, so that he can cover in more detail the numbers from this quarter. Thank you.
[Foreign Language]
Thank you, Bruno. On slide eight, we start with the operational highlights for the third quarter related to the number of average tickets. The number of procedures increased by 7% when compared to the same period of last year, reaching a total of 150,000 procedures accelerated by the organic growth of these procedures. It's worth mentioning that the growth, the sequential growth of 0.3% in the period. The average ticket grew by 4.9% in comparison year on year, very much in line with inflation observed in that period. In the comparison of the last 12 months, the growth in the number of procedures was 10.7%, reaching a total of 642 million.
The average ticket went from BRL 9,000-BRL 9,476 in the comparison on the nine-month period, the twelve-month period, a growth of 4.9% due to the passage of inflation and a mix of new medications and therapies incorporated into the treatments in our patients. Looking at slide number nine, we reached a net revenue, gross revenue of BRL 1.7 billion in revenue, a growth of 12.9% in relation to the same period of the previous year. We can also mention that of this growth, 7.9 percentage points came from an increase in volume of treatments. It's also important to mention that this, we're talking about a growth on a base of the same number of units, therefore organic growth. The sequential growth of 1.2% compared to the second quarter of 2024 was more modest than that reached in previous quarters.
However, this was intentional as we have decided to reduce our exposure to several payers during this quarter to prioritize the generation of cash. Explaining in more detail, the company took a decision, a commercial decision to establish a limit of exposure and therefore of sales for certain clients who usually are more capital intensive in working capital since they practice longer payment periods. This put less pressure on our working capital and also created incentives for these clients to seek to reduce their unpaid balances with us, improving our cash generation, operational cash generation. On the other hand, due to that, we have suffered with a lower level of leverage during the third quarter of 2024, which has shown us to have lower margins, but we believe that the balance overall was positive due to the performance in cash generation.
We have been monitoring this dynamic in terms of the conditions in the sector in which will really permit us to reaccelerate our growth of our top line, but as Bruno mentioned previously, the priority of the company now is cash generation, free cash generation in a consistent and gradual way, and the reduction of our leverage. Even so, the photo for the last 12 months of 2024, the graph on the right shows growth of the gross revenue of almost 16%, well above that which the oncology sector has grown overall and which shows a gain in market share. On slide 10, net revenue, BRL 1.6 billion in the third quarter of 2024, with growth year on year of 16.4%, 16.6%, sequential of 4.3%.
Here, the performance was much stronger than that of gross revenue due to the expressive reduction of PCLD in the quarter, which we showed in the following slide on slide 11. There was an expressive reduction in the provision for non-payment in this period, PCLD, and the performance of receivables. As we've always said, our policy for the provisioning for non-payment is very rigid. That's why it is more punitive to the P&L during certain cycles, such as the one which we went through in the last two years, in which the payers were very pressured by high levels of claims. However, as the scenario starts to change and we accelerate our receivables, we will see the opposite happening.
It's also important to make a cautious advice that the level of 0.5% in the third quarter of 2024 is not what we should see going forward because it is favored by reversions. Call your attention to the tendency for the reduction of the average, of the moving average of the PCLD for an indicator more appropriate in our vision. On the next slide, 12, we saw the gross profit and gross margin. Our gross profit was BRL 551 million in the quarter, 11.3% that reported in the same quarter of 2023, with a margin of 33.7%. The fall in the gross margin on the annual comparison is due to the mix of treatments, with a growth of the participation of several medications and technologies, which in the first moment have lower levels of discount. In the comparison, sequential comparison, the margin remains almost the same.
For the period of the last 12 months, ending in the third quarter of 2024, the gross profit was approximately BRL 2.1 billion, 9.2% above that which was verified in the same period of 2023. Looking at the next slide, number 13, the operating expenses, cash expenses totaled BRL 280.2 million in the quarter, in a relationship of 17.1% of net revenue. A growth in this metric, both in the comparison year on year as well as in the sequential, due to the expenses of restructuring related to the closing of the corporate, the leaning of the corporate structure and the closing of units, having these units totaled approximately BRL 20 million in expenses. If we do not consider this effect, the operating expenses, cash operating expenses would have been BRL 260.2 million or 15.2% of the net revenue.
We also had lower operating leverage during the third quarter 2024 since the company opted to reduce temporarily its volume of procedures and therefore lowering revenue by forgoing certain payers with longer payment cycles to be able to impose mix discipline on our working capital and prioritize cash generation. With the comparison of the last 12 months, the operating expenses cash totaled BRL 996 million versus BRL 856.9 million in the previous year, maintaining stable in relation to net revenue of 16.3% during both periods being compared. The EBITDA for Q3 2024 was BRL 271.5 million, with a margin of 16% compared to 16% in the third quarter of 2023.
This was affected by a combination of lower leverage or operating leverage in the period due to the reduction, temporary reduction of certain redundancy to certain payers and with the longer payment cycles and the operational expenses, which were higher by close to BRL 20 million. For the 12-month period considered in the third quarter of 2024, the EBITDA ex-LTIP was on a margin of 17.6% compared to BRL 1,0 37,000,000 in the same period of the third quarter of 2023, a slight growth of 3.3%. On slide 15, o`ur net profit ex-PILP was BRL 8.9 million in the quarter. For comparison with previous periods, we need to look back to the recurring concept of recurring net revenue without the impact of fiscal deferred fiscal credits. In this base, there was growth, a relevant growth of net profit sequentially.
During the third quarter of 2024, the average period for payments to receivables was 111 days, as we see here on slide number 16. For the same period, the period of accounts payable was 82 and of stocks was 20 days. As a consequence, the number of days of working capital for the quarter was 49 days, a relevant improvement in relation to the first quarter of 2024. On slide 17, the free cash of the third quarter measured as the cash generation, operational cash generation without payment of interest, CapEx and maintenance and expansion, other payments such as the anticipated payments of BTS payments and dividends to minority shareholders was positive by BRL 207.3 million .
This was possible due to the positive performance in the cash in the operational generation, with an improvement in the dynamic of receipts and the consequent improvement in working capital, the lower volume of financial expenses after we improved our capital structure of the company through the increase in capital, and also a greater discipline in CapEx during the period. As we reinforced previously by Bruno, it's a strong reversion in relation to previous quarters in which the company had been burning cash. This has been a priority number one of Oncoclínicas, especially in the context of a macroeconomic scenario with the elevated cost of capital. As a consequence, the leverage of the company has maintained practically stable in 2.7 x net debt compared to adjusted EBITDA and annualized, as we see on the following slide, slide number 18.
And finally, on slide 19, our chronogram for amortization, which, well, has a strong profile. With that, we close the exposition of our presentation of the third quarter of 2024, and we open up for the question and answer session. Thank you.
[Foreign Language]
Thank you, ladies and gentlemen. We now close and begin the question and answer period. To make a question by audio, please click on the icon Raise Hand in the lower button on the lower end of your screen. Our first question comes from Yan Cesquim of BTG Pactual. So, Yan, please go ahead, open your microphone.
[Foreign Language]
Good morning, Bruno, Chris, Isaac. Two questions from my side. First of all, about the growth.
We see that the growth, the rate of growth has slowed down a little bit in the third quarter, well justified by you during the presentation due to the focus on prioritization of cash generation, and we can follow this more closely with items such as a sustainable level of growth for the short to medium term, and then the second question is about the PCLD and this type of receivables. I want to understand a little bit about the impact that this has had on the reversion of the provision for PCLD on the working capital. We see that the line of receivables has increased compared to the recent quarters, and I wanted to understand a little bit more compared to other recent quarters.
How do you expect to receive this amount in relation to non-payments and which operators or which category of operators would be in this area of the people who have renegotiated these non-payments during the period?
[Foreign Languagge]
Hi, Bruno, Yan, this is Chris speaking. I'm going to start with the answer, first of all, with your first question about growth. We have, as was detailed in the call, the company has taken a decision, which I would say both commercial as well as strategic in this quarter in the sense of direction of reducing our exposure. Just to make it clear, we have not ended any contracts. We have not cut any contract with any payers. What we have done is close a little bit the faucets, especially for procedures.
We're talking about new procedures without obviously interrupting any treatment currently underway with any patients currently being attended, but new patients to a series of payers. We historically have been more intensive in the standpoint of the capital, working capital due to their longer payment terms as compared to other payers, and this because there exists a trade-off between attending more patients and therefore generating more revenue as opposed to the exposure that this generates and the direction that we have taken, which is a direction of exposure to credit name by name, and we control and monitor this constantly so that we can privilege the cash generation. We've said this for a while that the free cash flow is the goal of the company in certain in some at least by the end of this year and a quarter by the end of this year.
And we started to operate at this level now. Due to this, we have not grown at this as much as we might have grown in the quarter. We wound up growing gross revenue by 12.9%. This growth could have been even more. However, even so, we're talking about a growth of low double digits, a growth above the growth of the oncology sector as a whole, which is more or less between nine and 10. So this shows that we have gained market share. The companies have gained market share because our growth has been almost eight percentage points came from volume, number of procedures. And so again, we are reinforcing the quality of this growth, growth which is predominantly filled with an increase of volume, number of treatments. And it's a growth that has based on the same number of units.
It's very important to reinforce we have no acquisitions polluting this number in the comparability. So we're satisfied with the results of this combination. Another effect, a collateral effect to this is that as we have said, using this analogy, we close a little bit the faucets of the exposure to certain payers. And this has created an incentive that many of them have sought to cover their, to lower their open billings with us, their open payments to us lower than their historic levels, which has favored and impacted positively our performance in receivables. We had a record of receipts in the quarter of more than BRL 1.5 billion in receipts. And this was the major together with the discipline in CapEx and reduction of financial expenses were the three major promoters of our free cash flow performance in the quarter.
So we understand that this level is sustainable from the standpoint of growth of top line growth, remembering that we can always reaccelerate. The idea here is to continue to monitor the situation, the evolution of this situation of the sector as a whole, which has been slow, however consistent, and as we from the standpoint of management, risk management, credit risk management, we are focused and focusing on signals that we can reaccelerate going back to the exposure, increasing exposure to names in relation to which we have reduced them in this quarter. This can be the case going forward. However, if we have a combination of low double digit growth, organic growth with cash generation, free cash generation progressively increasing, it's exactly this that we're seeking.
As far as the PCLD, we saw in this quarter a reversion, very expressive reversion, mainly due to the history of recovery of these payments supports this reversion. So this did not come in anticipation of an expectation of losses. It came because it's happening at a lower level which supports these reversions. Now, remembering that 0.5% is a very low number. It's outside the curve, as well as 3.8%, which we reached for a few quarters was also outside of the curve. So we call your attention to our historical average. We always operated with closer to 2%-2.5%. And this is the level at which we understand to be which we look at our historical levels.
That's where we agree with the advice, the cautious advice that this number will remain at this level of 0.5% in the next quarters, which will not be the case.
[Foreign Language]
Thank you, Chris. Our next question comes from Leandro Bastos from Citi. Leandro, please go ahead.
[Foreign Language]
Good morning, everyone. Thank you so much. Two questions here. First, I wanted to explore the question of the gross margins mentioned in this PCLD. I think that's coming a little bit lower than you said due to the mix. If you could mention a little bit, what were the principal factors for the margin pressure that was created on the gross margin? And if we can expect a recurrence of this going forward, that's the first question.
And secondly, the guidance of leverage at the end of the year, if this guidance of 2.7 is still maintained or if we can expect any change in that by the end of the year?
[Foreign Language]
Well, Leandro, thank you. G ross margin, it's worth pointing out two aspects, two important aspects which help to explain this print in this quarter. First of all, exactly due to the decision on the part of the company to reduce our exposure to a group of names who are traditionally payers who take longer to pay or slower to pay, we have had an effect, a negative effect on our gross margin.
Because these payers, which if we look at them case by case from the standpoint of contribution margin, they tend to have a contribution higher than the average of the other clients of the portfolio of clients of the company. So as we close off our exposure to these names, then we can receive these benefits from the cash in cash flow. But this does impact our gross margin because from the standpoint of prices, tabled prices, listed prices, if we look at the name by name, look at this list name by name, we see there's an effect of having less contribution from these payers in the group of revenue. And that's what it transmitted down the P&L. Another factor that we have an impact on mix of medications utilized in different protocols.
This also is very important for the comparison year on year because the third quarter of this year compared to the third quarter of last year talks about the respect of the introduction of new drugs, new technologies very much connected to the questions of alpha therapy in which we have drugs that are more recently released with less competition and therefore less discounts or smaller discounts than the group of these in the basket of medications already existing. We see this as a transitory effect because historically we have go through these cycles every year. Specifically, there's always an introduction of a relevant technology and winds up becoming relatively quick. These clinical results and the scientific results justify the adoption of this medication into our protocols.
At the first moment when we incorporate them, they offer contribution margins that are lower because we have smaller discounts on these new medications. However, progressively, as we increase the volume of purchase of these medications because their adoption expands and we see drugs that compete with them, we're able to rebuild these margins. At the end, as the time goes by, it's that story. Gross margin is good, but it doesn't pay the bills. So we're focused more on cash generation. The tonic will always be and has been for several quarters now that we haven't been able to deliver this yet because there is a legacy of payments which were made a mass of CapEx that we had no way to not do.
But now it's clearer that the focus of the company is to privilege cash generation, even if this implies at some point in time for a short period of time, margins that are lower or growth that is a little bit slower. This for us is not; doesn't bother us because again, we continue to grow at double digit rates of organic growth. From the standpoint of margin, we're very safe because we've seen these cycles previously and we know very well where it comes from. It's a commercial decision on the part of the company, which we can change at any time. And the introduction of new medications, which tend to be softened over the medium term.
[Foreign Language]
Thank you, Chris.
About the leverage guidance regarding leverage?
[Foreign Language]
This guidance that we have maintained, an important point to maintain is that right now in the third quarter, due to the one-offs that we, which wound up having in the expenses, and this impacted our breach of the numbers. Due to the revenue, which has come more soft, we had a loss of operating leverage in the quarter. This left the leverage calculation in our view polluted for the third quarter. However, as guidance, since the guidance talks about an EBITDA for the fourth quarter annualized, we are not changing this guidance regarding leverage at the end of the year.
[Foreign Language]
Okay, thank you very much.
[Foreign Language]
Our next question comes from Gustavo Tiseo from Bank of America. Gustavo.
[Foreign Language]
Thank you for taking our question. There are two from our side. I wanted to explore a little bit. It's a follow-up.
People have been asking a lot about the possibilities of cash generation and try to understand the cycle of this new strategy, and what can we expect? In what lines can we expect this downturn in the number of PCLD that these receivables should be showing an improvement already? When you remove this impact, how many days of receivables have you reached? And going forward, does this strategy continue quite a bit? Is there any target or vision of what will be the efficient point between taking a little losing a little bit of margin and receiving these receivables at a lower rate? Another question is, in recent quarters, it's been there was BRL 10 million in the first quarter, BRL 16 million in the second, and now it's reached BRL 19 million.
We had in our mind that this could have reduced over time, but it would always reach a balance point with the that it could increase. This is actually growing going forward due to the joint ventures. In the long term, that those 10% or 7% or 15%, I'm not sure if that's true. Perhaps it's a higher level. How much does the CapEx the company needs to invest for long term?
[Foreign Language]
Thank you, Gustavo. I'm going to start answering your points that impact our cash generation, the question of receivables, then I'm going to pass over to Isaac to talk about the minority shareholders.
What we've done over the last four or five quarters from the standpoint of half years to maximize our cash generation, not just on this front of receivables, but also we'll also be ready to prioritize the evolution of the film and not just the photo for this quarter. We had 118 days of receivables in the first quarter, and we've brought that down to 111 now. Remembering that this number is this clause was reversed, we'll increase our accounts receivable so we have a higher numerator. Therefore, this number will be lower than the 111 in this base, adjusted base. So it's an improvement that we've seen, a gradual improvement that we've seen. It won't be in a straight line.
There will be hiccups along the way, but we can say that, yes, there's a consistent improvement since the beginning of the year until now. The company is focused internally on a work of reduction of our average payment period until the point is sent to the healthcare plan. There's some work, efficiency work here internally that the company has executed, and this would start to accelerate as soon as we have a partnership with Accenture in our back office. In fact, a cycle of accounts starting in April of this year, and we have deepened our work more profoundly. Internally, we see that we can gain efficiency in-house with the process of authorization and payment sources. You know, so this also is behind this performance, this positive performance that we've had in receipts during the quarter.
Because if this the bill arrives faster to the client and then it stays here on a payment line internally and I bring it to the benefits too for to not eat up working capital, which also doesn't necessarily happen at working capital. On another front, there's a revision. We have an important reversal of expenses in the company, not just at the corporate level, but also in the operations in the clinics themselves, reducing redundancies among clinics that were operated in the same city, and this is also helped us looking at the operational expenses that we have maintained current during the quarter. This is close to it's a decision and other expenses related to restructuring, and we'll do our work here and this on our G&A, and this also impacts the cash generation, operational cash generation, and also favors the free cash flow.
[Foreign Language]
Good morning. This is Isaac.
Just to comment about the minority shareholders. In this quarter specifically, we had a lot of one-offs, especially in the reversion of PCLDs in the companies that have minority shareholders. So due to that, the profit attributed to the minorities is higher than it was in previous quarters. Of course, this will not happen, and this is not guidance for the future. However, we believe that the recurring level is what we saw in the first quarter. This should be a more sustainable level going forward.
[Foreign Language]
Very well. Thank you very much for your answers.
[Foreign Language]
Our next question comes from Andre Salles from UBS. Andre, please go ahead.
[Foreign Language]
Good morning to everyone. Thank you for the opportunity to make these questions. I have two from my side.
I wanted to explore this question of this quarter, looking at the profile of payments has increased a little bit in this quarter specifically. I think the question that is to understand how it's returned to normality in terms of provisions for these quarterly provisions. When we look at the future, should we see this coming back to normality in a more gradual way? Or if in fact this reduction of provisions is something that should be limited to just the third quarter and in the next quarter we'll see levels more normal, more normal levels, closer to historical levels, and the second point is this strategy of build-to-suit of the company. We see BRL 30 million of anticipation of contracts of rental contracts.
If you could give us a little bit of color of how this payment, how these additional payments for future projects, how we should look at this line for the coming quarters.
[Foreign Language]
Hi, Andre. Thank you. As far as PCLD, the tendency is that we will operate at the historical level. So this again, just as 3.8, which we wound up 3.8% is not a level which is not sustainable. The same is true, same applies to 0.5%. In relation to the BTSs, built-to-suit , we have contracted for the BTS projects underway payments made in an anticipated way because when these projects were negotiated previously, these payments came into the account of the price of rentals that the company will pay for each one of these assets.
You mentioned that these payments coincide with they will come in as a factor to benefit the company when these operations begin because the rentals per square meters will be lower. There'll also be a grace period of a non-payment of rental for the operation of these projects to be able to favor the profile of cash flow in these assets. However, this sequence of payments ended in this quarter, in the current quarter. So these payments of approximately BRL 30 million was the final payment in this sequence of payments. Therefore, we don't see any further these payments on the horizon in the fourth quarter going forward. Again, in our analysis, this should favor even more cash generation for the next quarters going forward.
[Foreign Language]
Very well, very clear. Thank you for your explanations.
[Foreign Language]
Our next question comes from Lucca Marquezini from Itaú BBA.
Luca, please go ahead.
[Foreign Language]
Good morning, everybody. Thank you for answering our question. In relation to the operating expenses, we know that there's an impact of BRL 20 million here due to restructuring. I wanted to understand how much of this restructuring has been concluded or do we should we expect further impacts in the next quarters? If you could comment a little bit about the evolution of this restructuring, that would help. Thank you.
[Foreign Language]
Good morning, Lucca. This is Isaac. We do not yet have some projects of restructuring still underway in the fourth quarter. We still have lots of reduction of our manpower, optimization of certain areas. So yes, you should see impacts like this in the short term.
Our intention, obviously, is to improve this level of expenses compared to revenue to levels to lower levels as we have seen in previous years. The major question in the short term is that we have lower growth and to bring the administrative structure to that level as we'll see in the next quarters. This is our intention. We should see this happening some impact in the fourth quarter, but after that, we think that that will be much less, much less significant.
[Foreign Language]
Very well. Thank you, Isaac. Next question comes from Maria Stella from J.P. Morgan.
[Foreign Language]
I have a question in relation to the average ticket. What will be the mix of ticket? What is the complexity of these operations that will growing year by year and these negotiating these contracts? And also with regard to the question of negotiations, what's your relationship with the operators?
How can we think about this negotiation of prices for the next quarters? Thank you.
[Foreign Language]
Stella, thank you. As far as average ticket, we have a breakdown, which is the majority of this is the pass-through of mostly inflation, 4.5%, 4.5 percentage points is a pass-through of inflation. And then we have something like about 50 basis points of complexity because there have been the adoption of higher complexity always happens, but that comes in gradually. So this is the breakdown of these two elements. And as far as pass-through to prices and negotiations, these discussions are continuous. We're continuing discussions with the payers, the paying sources. Our expectation is that we have a pass-through of the accumulated inflation in the coming cycles of these contracts. Nothing very different from the historical levels.
There's always been the average. We also see a return to normal normalcy passing this period of inflation of the last two years in which the discussions were much much harder. We see that coming back to a level of historic normality.
[Foreign Language]
Very well. Thank you, Chris. And we now close the question and answer session. And we'd like to pass the microphone back to Dr. Bruno Ferrari for his final considerations. Dr. Bruno, please go ahead.
[Foreign Language]
Once again, we'd like to thank you all for your presence in our conference, our earnings call. And since the company remains at your service, at your disposition for any clarifications or doubts you might have, thank you very much and good afternoon.
[Foreign Language]
The audio conference of Oncoclínicas is now closed. We thank you all for your participation. Please have a good day and thank you for using VoxCall.