Good morning, and welcome to the results call for Oncoclínicas. At this moment, all participants are connected as listeners only. Later in the call, we will begin the question and answer session, when instructions will be given about how to participate. If you need any assistance during the call, please dial [astarisk] 0 and an operator will attend to you. Remembering that the audio conference is being recorded. I would now like to pass the microphone to Dr. Bruno Ferrari, founder and CEO of Oncoclínicas Group. Dr. Bruno, please go ahead.
Good morning to everyone, and thank you for your presence in our teleconference of results with the market. It's a pleasure and a privilege to talk with you about one more important quarter, in which we've had the capacity to continue transforming thousands of lives through our constant mission of overcoming cancer.
In the first quarter of 2022, we concluded the acquisition and we started the incorporation of the CAM/CLION Group in our platform, a leading clinic in medical specialties and oncological care located in Salvador, with lots of operational synergies with our units in that city. We also concluded the acquisition of Cemise, which is in the process of integration. It's the most important network of clinics, specialized clinics in medical screening and diagnostics located in the state of Sergipe with 10 units. We also need to mention that these two acquisitions contribute to our strategy of covering the entire journey of the oncological patient from prevention and diagnostics in our specialized medical offices to our palliative care. For now, we're advancing in the line of integrated care through the implementation of our service centers. It makes total sense for us to be present in prevention and diagnostics for oncological diagnostics.
We're still awaiting the finalization of the conclusion of approval by the regulators for the acquisition of Unity. We'll add 34 more units to our platform with Itaigara Memorial in Salvador and our cancer center in partnership with Hospital Santa Izabel, also in Salvador, which will cooperate with our strategy of integrated care for patients in Bahia. As far as financial aspects, the first quarter was one more quarter of record performance for the company. In spite of the impact, which is still present, of the Omicron variant at the beginning of this year, in the month of January. This factor did not impede us from offering more than 103,000 procedures through our 91 units currently in operation. Growth of 14.8% in relation to the first quarter of 2021. Our net revenue grew by 31.5% compared to the previous year.
Our gross margin expanded 190 basis points in the quarter compared to the previous year, growing by 39%. Our adjusted EBITDA reached BRL 141 million in the first quarter, a record performance for the company. In comparison to the last 12 months, the adjusted EBITDA reached BRL 512 million, representing a growth of 31% compared to the same period in the first quarter of last year. We continue firm in the direction of raising the quality of oncological care in Brazil, expanding our presence with a great deal of discipline and accelerated rhythm, and with consistent results. Our journey is only at the beginning. We operate in a sector that is highly fragmented, and we are certain that we will transform many other lives.
I now want to pass it over to Rodrigo Medeiros, who is going to give us more details about the operations and about the things that are under our new units, which are underway. Congratulations to the team for the excellent work that has been being done in line with the chronograms and proposals to bringing operational efficiencies to the group. Rodrigo?
Thank you, Bruno. Good morning to everyone. If we look at page four of the presentation, the status of the integrations which we did in recent months, such as, for instance, Cebrom in Goiânia and UMC, our cancer center in Uberlândia. Both units are running together with our operations in the Centro. We also transformed the principle for our Shared Service Center. This unit is already running in the same margins as the Oncoclínicas Group and is integrated with our administration.
UMC is also running on the same margins as the group, and actually, we are centralizing the activities of supplies in our central Shared Service Center so that all of our hospitals and cancer centers will be standardized and centralized for the expansion of capture of synergies and various processes that facilitate our hospital operations in the future. We are very content with these integrations that have happened at the right time, maintaining the best practices of these units and capturing value for the company. Currently, we are advancing in the CAM/CLION Group integration, which is already quite integrated into our NOB, our clinic in Salvador, and they offer a very wider range of care with the acquisition of Itaigara, our day clinic, and the cancer center announced in partnership with the traditional Hospital Santa Izabel.
Our expectation is that all of these integrations in Salvador will be announced in the third quarter, when Itaigara and the cancer center have already been approved by the CADE, by the regulator. Finally, we are currently integrating Cemise, our specialized clinic in Sergipe, in Aracaju, with NOS, our oncological clinic in the same city. The micro imaging in our precision medicine unit. We also concluded the reorganization as with important changes in the marketing, IT, commercial, financial, and CSO, along with other reinforcements in our different teams involved in these integrations. We are very well positioned with the management structure more and more robust, and we are prepared to offer the continuity in the next integrations and the increase of complexity in our operations, both with initiatives of organic growth as well as the capture of synergies in the existing operations, as well as in the upcoming acquisitions.
We are also in parallel revising our processes and costs to be able to confront the inflationary pressure and the increase in the cost of capital, maintaining our financial discipline during this process of growth. Going to the next slide on page five, we can see several financial highlights in the quarter. In the first quarter of 2022, we grew by 31.5% in net revenue compared to the same period of the previous year, reaching BRL 808 million. We would like to also point out the expansion of 190 basis points in gross margin in the first quarter, which reached 33.3%, even with our PCLD reaching [0.6%] of gross revenue compared to that of the first quarter of 2021, which is 0.6% of net revenue. This is very normalized in the basis of comparison.
Even with this normalization for provisions for non-payment, we are still expanding our gross margins, fruit of our work together with the pharmaceutical industry and the gains of scale in the purchase of medications. On the same slide, we show the adjusted EBITDA of the last 12 months, which reached BRL 512 million with a flat margin in relation to the same period of 2021. It is important to mention that there is no integration of new units during this period of the last year, since we had a series of integrations, as we mentioned previously, in this current period.
Which helps us to believe that we have, in the next periods, the continuity of the process of gaining of leverage, operational leverage, both through the organic growth as well as inorganic growth and the integrations and capture of synergies, and contributing to the continuity of the expansion of margin and adjusted EBITDA.
Going to the next slide on page six, we point out our robust and consistent growth in the number of procedures and average ticket in the analyzed periods. We have to highlight the increase of approximately 15% in the total of procedures, reaching 103,000 procedures in the quarter, an expansion of 13% in the average ticket. And the effect of inflation in 2021 and part of the inflation of 2022, which is already having its effects on the first quarter, since several contracts with payers have already anticipated the repass of inflation in the beginning of the year. On the graph on the right, we see a growth of 22% in the number of procedures in the 12 month period ending in the first quarter, an expansion of 8% in average ticket.
Now I am going to pass it over to Cristiano Camargo, our CFO and Director of IR, who will give you more details about the results in the first quarter of 2022. Thank you all.
Thank you, Rodrigo. Good day to everyone. Today, for the first time as CFO of the company, I am going to present the results of the first quarter to you. On slide seven, we started with an expansion of 31.5% in net revenue in the quarter compared to the previous year, reaching BRL 808 million compared to the fourth quarter of 2021. In other words, in the sequential route, we had an expansion of 5.2%. In the graph on the right, in the comparison of the last 12 months, we had an expansion of 31.8% in net revenue, being that approximately 70% of this expansion came through organic growth.
On the next slide, we present the growth of 190 basis points of gross margin reaching 33.6% for the period. Even in basis of PCLD, different bases, as was mentioned by Rodrigo previously. Our growth in the first quarter of 2022 was in line with the levels, normalized lines of the company to 2.3%, compared to 0.6% in the first quarter of 2021. It is a result that is a very encouraging result, once it reflects the growing gains of scale in our platform. On the right-hand side, we observe on basis of the 12-month period that we have had an important expansion in the order of 60 basis points, indicating clearly a tendency for the expansion of margin growth, as the company has been mentioning since its IPO, as a tendency for our results.
On slide number nine , we point out the adjusted EBITDA, which reached BRL 141 million in the quarter with a margin of 17.5%. It is the highest adjusted EBITDA for one quarter in the history of the company. It is also worth mentioning that this margin in the quarter is being pressured by the integration of several new operations that did not exist in the first quarter of 2021, and that these operations traditionally come into the company with lower margins, due principally to a relation of expenses compared to net revenue, higher than our average. Over the process of integration with the capture of gains and synergy and efficiency, this relationship is converging to the average of the rest of the company.
On the graph on the right, you can see an adjusted EBITDA of BRL 512 million, margin of 17.7%, in line with the same 12 month period ending in the first quarter of 2021. It is worth mentioning again that in the previous year, there was no large integration of new units, which pressured the margins of the company. On the next slide, commenting about our level of our debt, we are currently with 1.3x of financial leverage, net debt to adjusted EBITDA, okay, what is important in this scenario of an increase in interest rates. On the last slide, on the cash flow of the quarter, we had a consumption of BRL 127 million of operating cash due to a working capital more intensive, principally intensification of the purchase of medications in the first quarter.
Also by the accelerated growth of the company, added to a seasonal effect of an increase in the day of receivables, which tends to be transitory and converges to the average over the next quarters. We have had a consumption of BRL 303 million in cash flow in investments, principally due to the payment for acquisitions and payment of participations of minority participations. In the cash flow of financing, we consumed BRL 123 million in cash due to the amortization of loans and financing and payment of interest on loans and acquisitions. With this, we finish our presentation results for the first quarter of 2022, and we take advantage to open for the questions and answers.
Thank you all. We will now start the questions and answer session. To make a question, please type asterisk one. To remove your question from the list, type asterisk two. Please await while we collect the first questions. Our first question is from Gustavo from Goldman Sachs.
Good morning, Bruno, Rodrigo, Cristiano. Thank you for the presentation. Two questions from our side. First, about the organic performance of volume. We see that the growth year-on-year of organic growth was 12%, while the ticket was close to 13%. I understand that the ticket growth is not 100% organic, but we understand that there shouldn't be such a huge difference in the average of the legacy units. So we wonder if the volume performance may have been more stable compared with the first quarter of 2021. I would like you to comment a little bit on this dynamic. Do you see a higher level of competition? Have you dividing some of this volume with other players? Is it due to the pandemic?
I wanted to understand a little bit this recovery of organic volume. That is my first question. The second question is in relation to gross margin of 2% that you had year-on-year. Can you comment a little bit about these gains of acquisitions of inputs? I want to understand if this is a natural gain of scale or if you are expanding your scope with the pharmaceutical companies that are your partners, perhaps buying different drugs as the protocols evolve. Then how does this affect your cost? These two points on this. Thank you very much.
Good morning. This is Rodrigo. I am going to cover the first question and pass Cristiano to answer the second one. As we mentioned, in fact, in this first quarter, the comparison is a little bit atypical, both because the first quarter of last year, we had a window of a cooling off of the pandemic.
An increase, which right after that started to be reduced again, as people started going out for the checkups and so forth. So the base of comparison is atypically high. This year we have had the inverse effect. In the month of January was highly impacted by the volume that we saw, atypical, lower, due to the Omicron variant. We had many cancellations, many reschedulings. Even so, we had organic growth, both in number of procedures as well as average ticket. And we see a tendency to January was very weak, but March was very strong, and April and May, we continue with a positive tendency. This is our vision as far as your first question on the organic. Now I am going to ask Cristiano to answer the second part.
[Non-English content]. Good morning. As far as the expansion of our gross margin, we see this expansion of 190 basis points in the first quarter of this year compared to the first quarter of 2021, and this in spite of the fact that we have had an average base, which is not apples to apples, as we can say, of PCLD. We have come back to normalize of the company. We had a PCLD of 2.3% of our revenue compared to, in the past, it was only 0.6 %, which was a PCLD atypically low.
When we equalize this on the same base, our expansion of gross margin would actually have been even higher than this 190 basis points, and this has a lot to do with the gains of scale in the platform. Obviously, this is a reflection of better procurement terms in the basis of medications, which is our main input. As an important factor, which I am going to ask Bruno to comment on, is exactly as a result of the standardization in the use of preferential protocols.
Thank you, Cris. Thank you, Miele. Your question is very correct. The adoption of part of the preferential protocols has meant that we do an analysis of the economic factors of each protocol and a pharmacoeconomic analysis. Obviously, there is a higher level of competition in the pharmaceutical companies who offer treatments for the same disease with different drugs.
There are different protocols from the different manufacturers, and this has given us some leverage to us in our negotiations, and we see this intensifying more and more. This is an important part of that equation. And the other part, of course, is the operational efficiency as was commented both by Cris and by Rodrigo in their speech of integration, which have been happened at a faster velocity and with more regularity. Just to reinforce this, it's important to reinforce that the 2.3% of growth in the non-payment, which is above our normal rate in the first quarter of 2021, is well below the average of the sector. We simply came back to our normalized volumes. This is the historical average of the company. But even so, well below the average of the health sector overall.
Very good, Bruno. Thank you all very much for your answers.
Our next question comes from UBS, Beatriz.
Hi, guys. Thanks for taking my question. I have two questions here about the volume. What's the expectation for the growth of volume for 2022 related to procedures? And our next question, as far as average ticket, we understand that the average ticket could have some volatility from quarter- to- quarter. Is your expectation is that this level of ticket in the first quarter will maintain for the rest of the year? What are your expectations as far as average ticket?
Hi, Beatriz. This is Rodrigo. I'm going to give you a general view, and Cristiano can add, or Bruno, if they have anything to add. First of all, we're still running after. As I said, March was very strong. January, that was weak, February was more or less, and in April and May, we see an increase in the sequence.
We still can't see clearly, but we're optimistic in terms to this repressed numbers from the pandemic. There's a delay in a period that was more a gradual recovery as far as recoveries and routine tests come back in, that the number of procedures will increase. The average ticket, we hope will be in line with the signals that we've given and our history, which is approximately 20% of expansion of revenue. As far as when you asked about the effect of average ticket, I think it's more than mix. We had this effect at the beginning of our readjustments, which was still very timid and which was adjusted now in April, some in June and some in July. So we'll have a gradual capture of this in our revenue, which will give us an increase over the next few quarters.
Thank you, Rodrigo. I would just add on the question of the procedures, that this quarterly dynamic, it oscillates. It's not homogenous quarter- on- quarter. We have historically quarters in which the volume of procedures, the growth in the number of procedures compared to the first semester of the previous year comes in more strongly. There are quarters in which it comes in more softly. When we add the conjunction of quarters, we see this historic, which we're able to deliver of growth. Organic growth in the number of procedures always in line with the low double- digits. However, it's not exactly predictable quarter- by- quarter. Consistently, we have been able to deliver organic growth of revenue, and in some quarters, the biggest contributor to this has been the volume of the number of procedures, and in other quarters, it's the average ticket, and in some cases it's the mix.
However, looking at the several quarters overall at a more annualized basis, tends to converge to the mix, which we frequently mention, which is average growth in low double- digits for procedures and average ticket always historically between 8% and 10% per year in growth.
Thank you very much.
Our next question is from Lucca Marquezini, from Itaú BBA.
Good morning, everybody. Thanks for taking our question. In relation to working capital, you had some increase in stocks and in receivables. Is this something temporary, or if you see that it will stay like this going forward? Do you see that as a constant going forward?
[Non-English content], Lucca. Good morning. This is Cris. The dynamic of working capital is transitory. It is due to basically two major variables. The first is an increase in the average amount of stocks of inventories that we have on hand.
In the first quarter of 2022, went to 21 days of stock on hand. When we look at the inventory the first quarter of 2021, that number was much lower. This is due to a decision that we made, a strategic commercial of anticipating the purchase of medications prior to the readjustment. It is a commercial decision. It would benefit the cash position of the company so that we could capture and make an inventory of these medications prior to the annual readjustment of medication prices. Beyond that, we also have a dynamic which is seasonal, and as I said, the beginning of the year in relation to the number of average days for receivables.
So we also had an increase of approximately 10 days in the average period for receivables due principally to the dynamic of the payers of making a management of their cash flows based on the amount of service providers, which is not specific to Oncoclínicas. It is something that we have seen happening in the sector. Overall, so it is a combination of these two factors, which winds up taking us to this intensity of working capital in the first quarter of 2022.
Very well, Cris. Thank you.
Our next question, stella from JP Morgan.
Morning, people. Thank you for taking my question. On our side, we wanted to know how do you see the tendency of normalization of the working capital in the next quarters?
[Non-English content], stella. This is the dynamic which we have seen happen in previous years. It is almost invariably repeated year- after- year.
The tendency is that this number will converge with an average for the rest of the year over the next quarters. So, there is something that was specifically related to a commercial decision that we made, which as I just explained in the previous question, which was the anticipated purchase of medications. This will already be normalized in the second quarter. And the question of average period for receivables, which also something which we historically see normalizing more over the second and third quarters as the payers receive and are able to implement their readjustments of their plans for their final consumers. This removes this cash pressure on the payers. And we need to remember that last year they had on average come from that system of negative readjustments of less 8%.
In the individual plans, which brought a tremendous cash pressure for those which are more exposed to the individual plans. The tendency that this readjustment is applied now during the second quarter, this also alleviates this cash pressure on them. So the expectation is that in the second or maximum in the third quarter, in the second and third quarters, this distortion in the average length of receivables will term for receivables will pass. It is something that is transitory. Nothing to be concerned about. It is nothing that we haven't seen previously in previous years.
Our next question is from Hernan from Citibank.
Hi, guys. Bruno, Cristiano, Rodrigo, just a quick question to see, how are you thinking about M&A in this year going forward? You have lots of things to integrate, several units to be closed still. What level of leverage would you feel comfortable with by the end of the year, since you will have some relevant cash outflows from the acquisitions that you have already made.
Hi, Hernan. I am going to start with the end of your question, talking about leverage, and then later I will pass it over to Bruno and Rodrigo to talk about M&A and integrations. We imagine the company in the scenarios and our forecasts arriving at somewhere close to 2.5x- 2.8x net debt EBITDA LTM at the end of this year. That should be the peak of our leverage from which we will start to lower this leverage curve over the next year. So probably the fourth quarter of this year is something between 2.5x and 2.8x EBITDA. This will be the peak of our leverage, and then we will be de-leveraging starting next year.
Rodrigo, just to complement, we are very much focused, as I mentioned in my speech, in the integration of the acquisitions which we have already made. We are in the process of capturing synergies, which will contribute to the improvement in these indicators. The cost provisions, as I commented. We are in the best possible position in terms of looking at CapEx as well as OpEx, SG&A, et cetera. Everything that we are able to prioritize and focus on that which we really contribute to an improvement in terms of results in this position.
Be well-positioned to continue looking at M&A, as Bruno mentioned a little bit here. Maintaining the financial discipline and taking advantage of the good opportunities. This, it is even easier to say, as Bruno speaking, due to the capacity for integration that we have today. It is easier to think about a strategy of M&A and acquisitions.
Obviously, we are going to continue to do that which is related to the oncology business or that brings synergies to us or to our oncology business. So we have several strategies for growth in line with our care, which will not add pressure to the cash position of the company in the first moment, and this helps a lot. Obviously, we have several acquisitions which are very strategic, which should happen. However, within this culture of discipline which we have mentioned.
Very well. Thank you very much.
Reminding that to make a question, please type asterisk one. To remove your question from the queue, dial asterisk two. Please wait while we collect any new questions. Our next question comes from Gustavo Miele from Goldman Sachs.
Hi, guys. Just wanted to make one quick question. If you could share with us an update about the units. How is the process in the CADE, any expectation for closing?
[Non-English content] Miele. This is Bruno. Thank you for the question. I think it's within what's expected. We have an update almost weekly together with our attorneys about this subject. It's within what we expect. Between the second and third quarter, the Unity should be brought in to our platform.
Thank you.
Thank you all. We now close the session of questions and answers. I would like to pass the microphone over to Dr. Bruno Ferrari for his final comments. Dr. Bruno, please go ahead.
Once again, I'd like to thank you all for your participation in our teleconference of results and for the questions you've made. With this, we finalize our presentation of results, and we remain at your service for anything you might need. Have a good day and a strong hug to everyone.
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