Morning, and welcome to the audio conference of Oncoclínicas. At this moment, all of the participants are connected as listeners, and later on, we will start the question and answer session when instructions will be given for you to participate. If you need any assistance during the call, please ask for help from an operator typing asterisk 0. This audio conference is being recorded. I would like to pass it over to Dr. Bruno Ferrari, founder and CEO of the Oncoclínicas group. Dr. Bruno, please go ahead. Thank you.
Thank you, and good afternoon to everyone, and thank you for participating in our results call with the market. It's a privilege to talk with you about one more special quarter for us in which we had the capacity to continue transforming many lives, thousands of lives through Oncoclínicas.
In this historic quarter, we had a series of good news to highlight, starting with the financial results, by historic growth of 71% in our net revenue with an organic expansion. In other words, a base on the same stores of 29% year-on-year. This performance represents an accentuated acceleration in relation to what we observed in the previous quarter and reflects gains of share on the part of the company in oncological treatment, growth on the line of care, and through the process of maturation of our cancer centers, which continue to ramp up in accordance with our estimates and represent an important parcel of our mix of sales.
Additionally, our average ticket per procedure grew by 12.8% in the period, which once again shows our capacity to replace costs and also the fact that we've been able to add complexity to the mix, especially the participation of cancer centers as a whole, as we mentioned previously. Another factor which is very important in this quarter was our expansion of gross margin in relation to the same quarter of the previous year, a tendency which we believe to be structural. Two main pillars for this growth in our gross margin: capture of synergies with the new units and the growth of our cancer centers. Rodrigo will talk more about this in more detail going forward, but it's already able to point out that 2.8 percentage points of improvement in margin in a 12-month period. News about our EBITDA.
Starting with this quarter, we will report EBITDA same adjustments that the companies had been adopting previously, such as recently inaugurated operations, expenses with precision medicine, expenses with M&A, among others. We are maintaining only the exclusion of the merely accounting registrations and the non-cash costs of phantom shares for comparability between the periods. In the third quarter of last year, these adjustments represented 26% of our total EBITDA. One year later, as the fruit of the operational financial teams, represents 9%, a motive where it makes no more sense to apply these adjustments, of course, seeking more transparency and comparability in relation to our numbers. This EBITDA without adjustments, was BRL 193 million, without adjustments, 122% higher than the same number previous year and 64%, even in relation to the adjusted number of the third quarter of last year.
Finally, the principal highlight in the third quarter of 2022, our net revenue was BRL 57 million, overcoming all of the losses accumulated during the first half of the year. We concluded in this quarter the first phase in our project of tax rationalization, composed by various initiatives of operational management, together with the reorganization of our shareholder structure to address inefficiencies in the structure. When we consider the net profit and without the effect of the fair value and the incentive shares, again, using only a purely accounting number without non-cash accounting, we have a record profit of BRL 70 million and five times than the same metric of the previous year. Heading toward the next slide. The diverse integration of units acquired continue, and with positive results.
Rodrigo will give you more information about this process, especially about Unity, our biggest acquisition up till today, which closing happened in last July. I would like to point out two important announcements that we've made in recent months. In September, the company announced an investment together with Unimed Nacional for the construction of its first cancer center in São Paulo, an investment of BRL 300 million in a structure that will be composed of 350 beds and an area of 40,000 square meters, completing that which was already the largest practice of outpatient oncology in the city. Additionally, and with the same subsequent event in the third quarter, the company, Unimed Nacional, announced a creation profit of a new company focused on offering solutions of oncological care integrated for co-ops of the Unimed system for all of Brazil.
More than 340 independent cooperatives totaling approximately 18.5 million beneficiaries who will now have the possibility of adding the force of Oncoclínicas and Unimed Nacional in a model that is sustainable and transparent in the management of oncological care, adding a differential incomparable for capillarity of the company. Now I'm going to pass it over to Rodrigo Medeiros, who will talk about the different details of our operations and the integration of the new units that are underway.
Good afternoon to everyone. Thank you, Bruno. In slide four, we look at the most relevant integrations that we've done in recent months, such as CAM/CLION, Microimagem, Itaigara Memorial, and most recently, integration of Unity. They're in different phases of cycles, but they're all going forward in accordance with or better than the original plan. We cover it in a more detailed way, the impacts in numbers and in margins going forward.
In addition to these acquisitions, our operation of cancer center in partnership with Unimed Rio in Barra da Tijuca has already started to serve patients and is in a ramp-up phase in Salvador. We've already started to receive patients in our cancer center in partnership with Hospital Santa Izabel, as this operation involves a phased operation of the beds, making a maturation curve which will be more quick. Going to slide five, we present the evolution of the gains of scale and efficiency of administrative expenses as we capture the synergies and implement almost the best practices and standardization of processes. We can see the evolution in relation to the expenses in relation to net revenue of the company. This metric, we expurgate all of the depreciation and the amortization, as well as the fair value of the long-term incentive plan.
As a proxy for the expenses, we reduced by 21.4%- 18.4% now in this third quarter. It was a reduction of 3 percentage points in the space of just one quarter. We consider that we had the entrance of Unity during this same quarter. Looking at the nine month period compared to the same nine months of the previous year, we are still at levels above that which was reported in 2021 in the relation of SG&A compared to net revenue. So there's still space for optimization of expenses, which we expect to continue happening over the next quarters. We reinforce again our internal squads of integration to continue advancing in these processes in parallel, integrating with Unity.
On the costs front, we've made advances in the centralization of hospital supplies, which directly impacts the gross margin of the cancer centers, advancing in the standardization of the assistential processes and the administrative costs of all of them. We're very content with the integrations which are happening within our chronogram, and looking at the best practices of these units and capturing value for the company. At the same time that we guarantee the continuity of the care of these patients without any interruption. We're confident that as these processes advance, we will be able to extract the totality of synergies in revenues, costs, and expenses, and we will continue expanding our margins. Looking at the next slide on page six, we show the financial highlights of the quarter.
In the third quarter of 2022, the company grew 71.3% in net revenue compared to the same period of the previous year, reaching BRL 1.2 billion. Of this growth, we point out that 29.4% was organic, a very important number, a very expressive number. We also highlighted a strong expansion of 280 basis points in gross margin in the quarter, reaching 35% compared to 32.2% in the third quarter of 2021. This expansion is the fruit of our constant and efficient work in supplies, efficiency in operations, and the growing participation of the cancer centers with higher margins due to the higher level of complexity.
Still on this slide, we report an EBITDA excluding only the effect of the fair value of the incentive long-term incentive plan and a value of BRL 193 million for the quarter, a record in one quarter, and an expansion of 380 basis points in margin in relation to the same period in the third quarter of 2021. In a period of nine months, we have BRL 435 million of EBITDA, 54% above the previous year. This expansion of the EBITDA margin points to an advance in the process of extraction of synergies, which I just mentioned, delivering operational efficiency allied with financial results. Finally, we've had, at the end of this quarter, a net profit of BRL 57 million, amplified by our efficiency in tax questions.
Looking at the next slide seven, we point out our robust and consistent growth in procedures with an average ticket during the periods analyzed, with an increase of 45% in the total of procedures, reaching 141,500 procedures in the quarter, an expansion of 12.8% in the average ticket, an effect of the pass-through of inflation from 2021 and part of the inflation of 2022, and an increase in complexity. Finally, the graph on the right, we can see in the period of nine months the expansion of approximately 27% in the number of procedures and an expansion of 13% in the average ticket. Now I will pass the word to Cristiano Camargo, our CFO and Director of IR, who will present the details of the results for the quarter. Thank you to all.
Thank you, Rodrigo. Hi everyone. It's a pleasure to talk with all of you again.
On slide eight, we start pointing out a growth of 71.3% in net revenue in the third quarter compared to the same period of the previous year, reaching a record of [BRL 1.2 billion]. In the sequential comparison, in other words, compared to the second quarter of 2022, we had an expansion of 29.3%, both due to the organic growth, as well as the accounting of three months of the operation of Unity, whose acquisition was concluded in the month of July. In the graph on the right, in the comparison of the first nine months, we had an expansion of 48.5% in net revenue. The next slide shows a organic growth of the company, in other words, on the base of the same stores, was up 29.4%, which is almost double the already solid 15.5%, which we had delivered in the previous quarter.
It's important to mention that we have passed to consider the Cebrom, our unit in Goiânia, and that it was incorporated in our results in the third quarter of 2021 with a base and the same stores starting now in the third quarter of 2022. Excluding this effect, we would have had organic growth still very strong of 23% compared to the same period of the previous year. More importantly, this organic expansion happened as a result both in volume as well as average ticket, a characteristic which is typical in our business model, which is very resilient. On slide 10, one more highlight, which is important from the third quarter of 2022, an expansion of 280 basis points in our gross margin, reaching 35% of margin for the period, close to the all-time high benchmark which we had established in the second quarter of 2022.
This is due to three pillars. One, the increase of efficiency in the supplies of and our operation, a work of execution which the team has been trying to do untiringly. Secondly, the delivery of gains of synergy and costs with the integrations that are underway, and three, growth in operations in cancer centers in the mix of revenue of the company, remembering that cancer centers operate with margins that are typically higher. These results are very encouraging as they point to integrations are heading in the right direction and all of the structural gains that we have communicated that the company is able to deliver continue to happen quarter- after- quarter. The graph shows this tendency very clearly.
On the right, we observe on basis of our first nine months that we have an important expansion of approximately 360 basis points, pointing again for a tendency which we consider structural. On slide number 11, in line with what Bruno already mentioned at the beginning of the presentation, we started to now report our EBITDA without adjustments that were previously adopted, maintaining just the adjustments that are merely accounting adjustments in the calculation of the fair value of the long-term incentive shares. Since this is a non-cash item, it distorts the comparability for the period. The company decided to make this decision due to the sequential improvements in the different lines of adjustment.
For example, the EBITDA of operation recently inaugurated, which reduced by BRL 10.4 million in the third quarter of the previous year to BRL 1.7 million in this quarter, proving what we have communicated in relation to an action which is very present of this team in its operation, with focus on efficiency, acceleration of the curves of maturation of the cancer centers, and profitability. The result of this is that these adjustments previously adopted, which represented 26.2% of the total EBITDA in the third quarter of 2021, today are less than 10%. Important to mention that the management of the company will inform if there are in the future any items which, due to the non-recurring nature or extraordinary nature of their expense, should be treated as adjustments to the EBITDA or any other financial metric reported.
On the next slide, the EBITDA, without the adjustments mentioned previously, reached BRL 193 million, with a margin of 16.6%, compared with an EBITDA of BRL 87 million in the previous year, with a margin of 12.8%. Therefore, an expansion of 380 basis points. Here it's important to detail that this EBITDA of [BRL 193 million] already includes a provision for additional expenses, with the new salary level for nursing. Another important point, with the integrations that are underway, which are in different phases of their cycles, it would be expected a reduction in the EBITDA margin in the first moment. This is because the acquisitions initially enter into our platform with a level of expenses which is higher than the average of the company, and the complete process of rationalization of these expenses takes from 12- 18 months.
Nonetheless, it is not that which we have seen in the numbers that we are reporting. EBITDA margin increased compared to the same period of the previous year due to the success already reached of the delivery of these synergies, which was reflected since the gross margin and was transmitted to the EBITDA. As these additional optimization expenses coming from these integrations are being delivered, are being captured during the next quarters, we should see this reflecting in our EBITDA. On the graph on the right, we can see an EBITDA in the first nine months of [2022, of 2026], a record for the company with a margin of 15.1%, 150 basis points above the first nine months of 2021.
On the next slide, we put a net revenue of BRL 57 million, or BRL 70 million if we do not consider the accounting effects of the long-term incentives of the phantom shares. This number is 5x higher than the BRL 14 million reported in the third quarter of 2021. Principally fruit of the increase in the profitability of the company and of the initiatives of tax efficiency the company initiated in this quarter. In relation to this point, we've been able to anticipate the beginning of the normalization of the effective income tax rate of the company. This is due principally to two points. First, operational improvements in Unity that were in a ramp-up phase and which are now profitable can use their tax losses.
The beginning of some subsidies permitting profitable operations can use deductible expenses which happen in other subsidiaries or even in the holding company, addressing this historic inefficiency with which the company has been dealing. On the next slide, we observe a strong generation of operational cash in the quarter, reflecting a tendency for the normalization and the cycle of working capital in line with what the company expected, but still not our normal rate. This evolution should maintain itself in the fourth quarter, bringing us to levels higher to our historical rate, remembering that we still navigate in an environment of risks very high on the part of the payers impacting the price, the average period for payments.
In the cash flow of financing, we continue with our efforts of liability management, very active with the emission of debt at lower costs and longer terms, and the prepayment of more expensive debt. A process which we plan to maintain in a recurring form, always seeking the optimization in the terms of this financing. Still on this slide, our highlight for our program of repurchase of stock, part of the Unity payment, and the CapEx and other acquisitions that impacted our cash flow in the period. On the last slide, we comment about the level of debt. We are currently with 3.1x the leverage of debt compared to adjusted EBITDA, a position which we consider healthy in this scenario of higher interest rates and cost of capital.
When we annualize our EBITDA in the third quarter without adjustments, we have a leverage rate of 2.6x , a metric which we consider more adequate due to the fact that the third quarter was the first to consider all of the acquisitions realized by the company until now. With that, we conclude our presentation of our results of the third quarter, and we open for questions and answers. Thank you all.
Ladies and gentlemen, we will now begin the session of questions and answers. To make a question, please type asterisk one. To remove your question from the list, type asterisk two. Our first question is from Gustavo Miele of Goldman Sachs.
Good afternoon, Bruno, Cris, Rodrigo. Thank you for the presentation. I wanted to make two questions.
First, I wanted to understand a little better what were the principal causes of this organic growth, this robust growth which we saw in the quarter. Did you see any pent-up demand that was addressed in this quarter? Or maybe there was a backlog which was attended during this period? Or was it more a question of organic share gain of the operation? If it was gain of share, I wanted to understand what were the motivators of that. More favorable competitive environment or collecting the fruits of some of your previous efforts? My second question, if you would allow it, along the lines of synergies of the integration of Unity, but leaving a little bit the traditional M&A, as Rodrigo mentioned in his presentation, and looking at the top-line growth.
What do you see as the principal commercial partners of Unity? Did they leave space for? Should we think about that? Also, another point. Now that the company has a presence, an extensive outpatient, for instance, in Brasília, should we think more and more cancer centers to offer this integrated solution in other areas? These two points. Thank you very much.
Great, Miele. Thank you for your questions. Let me start here with the first one in relation to its more organic share, more efficiency, better integration. We gain share in care overall, expanding our care and having an integrated oncology care. It's a very good program of relationship with doctors, so it's an absolute control of the care situation, and that's what adds more volume in the context of the patient journey. Obviously, this is something that we don't have any way to stop.
It's a growing number of new cancer centers. The number of new patients with cancer in Brazil is all tied to our capacity to continue attracting new talent to the group, and that's why the number of patients has grown. You want to answer the second part?
Let me look at the second part, Miele. The integration with Unity, as you said, it's in the question of medication. We've started to capture. It hasn't been complete in the third quarter. It's been a gradual capture. In the fourth quarter, we'll see the full impact of that. As far as SG&A, there's that curve, which is more gradual, which takes a few quarters to realize, which should happen between the fourth quarter and the first quarter of next year.
As far as the timing, we started this planning with quite a bit of headway, and we've mapped out several initiatives, which we can't detail here due to strategic questions. However, if I can go city by city, there are, yes, opportunities both for looking at the plans that we have already negotiated nationally, as well as opportunities for care in cities where we have chemotherapy, radiotherapy. Then we would also be able to have patients who previously were part of the chain and are outsourced, and we're now going to be able to attend to them completely from diagnostics, imaging.
It has a large amount of complementarity and the possibility of unification of gains of synergy, both from the standpoint of assistential care as well as administrative points, where there are cities where we have complementary synergies as well as in the savings and in the cost area. Finally, cancer centers. Yes, of course. We cannot talk city by city for the same reason, but to have a cancer center in. There are several cities in which putting together our operations, we would have one or another standalone operation. The results show that our earnings, as we increase our volume with patients in the clinics, taking to a higher volume and a higher level of cancer centers as well.
Thank you, Bruno and Rodrigo. Good afternoon.
Next question is from Vinicius Figueiredo from Itaú BBA.
Good afternoon, everyone. Thank you for taking my question.
I wanted to start with a follow-up with Miele in relation to the backlog of undiagnosed cancers. I remember that there was a ratio that we always spoke about of the sick patients who arrived with symptoms and those who did not arrive, who arrived with no symptoms as yet. Have you been able to give us an update of how this is behaving? Is it in a more normalized rate after the pandemic? The second point in relation to the bigger contribution of hospitals and cancer centers, which has been increasing. Does this impact this ticket, since it has done a strong acceleration? The third point, if I could. Hello. On the terms for the receipt of your payments, what is the most qualitative aspect? What calls our attention that we have not seen any impact of that, even though it is a very adverse scenario for the payers.
How do you imagine that this will impact your income going forward?
Thank you, Vinicius. I am going to talk in relation to the diagnoses. We have seen a practice which is more similar to the pre-pandemic, a bigger volume of asymptomatic patients who are doing their normal routines for checkups, their annual checkups, and appearing without symptoms. We think that that is more normalized, that this backlog has already been reflected during this period. But we think that now there is a tendency that the world, as it should be. So, in our vision, and here we have it very clearly, that more and more we see more patients with asymptomatic diagnoses happily. The practice of diagnosis is more normalized in our way of looking at things.
Thank you, Bruno.
Vinicius, thank you for your questions.
Looking at the question of the ticket and the contribution of the cancer centers in the increasing the average ticket, the answer is yes, the cancers are accretive to the average ticket, even though the performance that we have observed in this quarter, in relation to the same quarter last year, is in fact a combination of the increase of the participation of the cancer centers in the total mix, as well as the capacity of the company to pass through the inflation, the trading capacity through its contracts. The combination of these things, however, the cancer center will bring more complexity is accretive to the average ticket. In relation to your question, as far as the average period for payment terms, for repayment, as we anticipated, we spoke about this in the second quarter, we spoke about this a lot.
We saw an evolution of this number falling from 92 days for an average payment period in the second quarter to 85 days now in this last quarter. It is not our historical level, so there is still an evolution to arrive at our historic number, which is lower than this 85 days. It is closer to 80 days than to 85 days. For what we are observing, during the fourth quarter, we should get back to this historic level, because the fourth quarter for Oncoclínicas is normally the best quarter for the generation of cash. So we see this number getting closer to 80 days. However, the generation of operating cash in the third quarter was still favored by the beginning of this normalization of this flow of payments from our clients.
Very good. Thank you, [Cristiano]. That was very clear. Thank you, Bruno. Thank you, Chris.
The next question is from Vinicius Ribeiro from UBS. Vinicius, go ahead. Vinicius, please check if you are on mute. Can you hear me now?
Yes, go ahead, Vinicius.
I am sorry. Thank you for your time. Excuse my technical issue. Just two simple questions my side . One, about your gross margins. Since the IPO, you have communicated that you have a gain of scale as you grow. I want to understand with the organic growth of the company and with the integration of Unity, if we should expect better gains in gross margin in the short term. The second point is about seasonality. The sector has discussed a lot about the fourth quarter, which is generally weaker in normal circumstances, but this year we have the effect of the World Cup. I wanted to see if you expect any type of additional pressure in the volumes of fourth quarter due to these events.
Thank you, Vinicius. I want to start with the question of gross margin, then I am going to pass it to Rodrigo to address the question of volume in the fourth quarter. We do see this expansion, which has been happening gradually in gross margin, as something which is structural and sustainable and which should continue. This due to a combination of two factors. On one side, a continuous increase in the scale and efficiency gains in our operations, in our outpatient operations. This has to do with the integrations that we have been conducting, and also by the growth of the company and the increase in scale, and an increase in the volume of supplies purchased from suppliers.
The second factor is the increase of the participation of cancer centers in the total mix of the sales of the company. Today, we are at a level between 10% and 15% of our revenue. Our gross revenue is already coming from the cancer centers. So it is continued to ramp up very quickly and gaining representativeness in the mix of revenues. So this should help to sustain the gross margins at these levels, but also bring a potential for expansion going forward. I am going to go to Rodrigo now to address the question of volume.
As far as seasonality, Bruno can also add because he has experience from several World Cups. But we have talked about this. We do not expect much different than normal, because differently from other type of procedures, elective surgeries and so forth, cancer for our patients, they cannot wait. They can't just mark it for another time. They usually follow the normal chronogram. We don't expect major impact from that.
That's true. We don't expect any. That's true, we don't expect any. We have no perspective of change because we're not going to stop working any of these days because the treatment of patients cannot be postponed. What we expect is a fourth quarter in line with what we see every year. We saw this very much during the pandemic as well. Yes. And we also saw in other World Cups as well. We don't stop, so we don't see this as a limiting factor.
Very good. Thank you.
Next question is from Leandro Bastos from Citi.
Hi. Three questions, specific questions from our side.
First, going back to organic growth, can you tell us this growth between volume and ticket, and also can break that down and also your feeling at the level, if this is inertial going forward and for the fourth quarter, it shouldn't change much. Due to the magnitude of this acceleration, if we'll continue at this rate or will slow down. That's the first point. About the reorganization, stockholder reorganization, how do you see this going forward? Will this have any effect, any tax effect going into the 34% level of income tax? Finally, looking at the presentation that you've always included the higher salaries for nurses, if this is referring to the entire quarter or how is that?
Okay. I'm going to start here. As far as your first question, the breakdown of the growth, organic and that we saw of 29% in this quarter compared to the previous quarter, the quarter of last year or the previous year, it's basically half and half between volume and ticket expansion. Again, the expansion of the ticket is a combination of what is predominantly a pass-through of inflation, accumulated completion in the contracts, and a smaller component in the increase of the complexity coming from the cancer centers. Looking forward, we visualize organic growth much closer to 20% than to the 29% that we saw in this quarter. Remembering that we always talk about this when we look at it quarter- by- quarter, and there always will be oscillations up and down.
However, when we look at it medium to longer term, what we have observed in the history of the company is something much closer to 20% in growth, in organic growth, in a base of same stores over a space of time, over a longer period of time. In relation to the question of taxes, we started in this quarter, in the third quarter, the first phase of this project of tax rationalization of our effective tax rate, income tax rate, and this implies that some of these subsidiaries that are operating have already gone through a process of incorporation. Remembering that prior to these incorporations, they had a huge challenge and very difficult in the terms of timing, of doing all the transference of the credentials of the tax numbers that will be incorporated, the tax number of the operation that will be the surviving entity.
We are looking very strongly on this project from April until now. In this first phase, we have more waves that we should have done by the end of the second quarter of next year. This tax rate will gradually converge with the sustainable level of 34% of average effective rate, and it is something which, going forward, will become permanent and sustainable. This is because looking at the current rate itself, in parallel to that, we should have the recognition of several additional fiscal assets, deferred taxes, in the sense that deferred losses, operations that were not profitable and became profitable. For example, the cancer centers that are in ramp-up, and this also permits us to activate these deferred tax benefits because we have changed the perspective of profitability of these operations. It is a combination of these two things.
We are going to have the current [aliquota], the current rate of 34% in a sustainable rate because we have optimized the question of taking advantage of revenues and expenses, making this merger of these subsidiaries, and also taking advantage of the accumulated tax losses of the company without talking about the goodwill, taking advantage of the goodwill, which is a third lever, which is above all of this, and which will reduce our effective rate, our effective cash, will lower it from below 34%, and we will be able to take advantage of that starting next year, especially starting in February.
As far as the question of the provisioning finances for the new salary for nurses, in this BRL 193 million in EBITDA that we reported, it has already been impacted negatively by BRL 6 million, which is a provision for this additional payment for two months of additional costs for these nurses in the third quarter. Our EBITDA, if it had been adjusted for that or if we had not made that provisioning, we would have had an EBITDA of BRL 199 million and not BRL 193 million.
To add to what Cristiano said, our impact is lower than other operations. It is principally outpatient, so it has a level of specialization which is higher. So it proportionately has a lower impact than on other players. We also provisioned two months, which is when the law was promulgated. So we now use this as a basis for our calculations.
Very clear. Thank you very much.
Ladies and gentlemen, remembering that to make any questions, please type asterisk one. Please dial asterisk one if you have any questions. We now close the session of questions and answers. I would like to pass it back over to Dr. Bruno Ferrari for his final considerations. Thank you. Dr. Bruno, please go ahead.
Again, we would like to thank you all for your presence in our earnings call, and we finalize our presentation for results, and we remain at your service for any further questions. Have a good afternoon to everyone. Thank you very much.
The call of Oncoclínicas is now closed. We thank you all for your participation. Have a good day, and thank you for using Chorus Call.