Earnings Call: Q2 2021

Aug 4, 2021

Hello. Good morning. Welcome to the teleconference earnings call of the Q2 of 2021 of Rensor San Luis. We have here with us today Paolo Moll, President Motavio Rasco, VP of RI and Finance. Juan Solates, VP, Executive and Leon Tru, VP, Medical. Be informed that this event is going to be recorded and will be available at our website. After the initial presentation, we will start with the Q and A or additional instructions will be provided. Before we proceed, we would like to clarify that anything that may or may not be said during the teleconference about the perspectives of business protections, operational goals, financial goals and beliefs of the Board of Directors based on information that is currently available. This does not guarantee performance, involves risks and circumstances that may or may not occur. The investors must understand that general economic issues, industry and other operational issues may affect the performance of the company and may lead to results that are different from the future considerations. Now I would like to give the floor to Mr. Paolo Mau. He will start. Good morning. Thank you for the opportunity. The floor is yours. Good morning, everyone. Thank you for your opportunity for this opportunity to show you the conference call, the earnings call. And before we present the great results, I wanted to update you on the evolution of a few strategic issues. Let's start by our digital platform. It has been an important source for capturing our business. Responsible for a third of our appointments, we've done 13,000,000 accesses on the portal, again, if you compare it to 5,000,000 in the same period of 2020. According to this platform, we delivered all the data on the patients. We focused in prevention and coordination of service increasing the well, how much the patients use our services. And also we are going through a sustainability issue here in the healthcare sector, but we are moving on. We have a very important relevant strategy. We have surgeries of high complexity and we do the share of the complex surgeries that has increased quarter by quarter and we can see a very good performance. And we've done our investment in infrastructure, HR, equipment, offering to our physicians and our patients the best structure possible for these complex procedures. In our growth agenda, we've had over the 1st 6 months of 2021, a CapEx that was record BRL3.1 billion organic, BRL 43 organic projects in development. Some are in advanced stage such as Materne Investeci Sono Histar that will be done by the end of the year. We are also we have the new tower of the Hospital Villa Novo Histar. We have the increase of the Northeast as well region. We are in the advanced building of Hospital Memorial Star in Recife and in Salvador, we are expanding the Sao Rafael and we have investments in these 6 months of BRL610 1,000,000. M and A, We've had a lot of investments, BRL2.3 billion in investments in reais up until this Q1 of 2021. Since October 2020, we required 12 hospitals and we added 1637 meds. This has strengthened our position in Rio de Janeiro Sao Paulo with the acquisitions of several hospitals and we have a very good strategy to diversify our geographic positioning, accessing new markets, very interesting markets. So here, I would compare that in the same way we're accessing by year's market in 2018 acquiring the first hospital. Today we have 3 hospitals in Salvador in Frida de Santana and recently we have the hospital in Frida de Santana, which is the biggest city in the north, northeast and center east, center west actually. We have over 1,600 beneficiaries. In accessing this market, this platform to achieve an opportunity of organic growth and we will be able to implement in Minas Gerais 5,300,000 people being benefited through the acquisition of Biocore, a hospital with 350 beds. We also have the city of Paraiba. We bought the company that was the lead in the market, 400,000 beneficiaries in Nocas Sinjarra dos Neves, that's the hot product that we bought. Also, Procore in Mato Grosso do Sul, 136 beds, 600,000 beneficiaries. And this is an opportunity to really open new frontiers, trying to achieve leadership in these states. I think that it's fundamental for our strategy to rise the standard of care aligned with our purpose of increasing access to medicine, good quality high medicines here in the country. We've already mentioned in the last call the expansion of our relationship with adding 21 new hospitals over 1,300,000 beneficiaries from the operator. In July, we have a partnership with Vale through the management of 2 hospitals in the state of Parac in Caracas to increase the services. But through a joint venture as well, we are positioning ourselves in the city of Paro Pemas, either by building a hospital or an M and A that might service the region. That's a strategic vision really, very relevant issue. And we hope that we can repeat this in the future. Now let me update you about the COVID-nineteen pandemic. We had an expansive reduction of admitted to the ICU patients. We had at the end of July 800 patients in comparison to over 3,000 patients before. Regardless of that, we have a higher occupancy rate and a growth of service to the other pathologies in a way that we can sustain these occupancy rates that are very high. And this is interesting to deliver our results. I would like to highlight that we are going over we've gone over the threshold of BRL300 1,000,000 in donations and we raised over BRL100 1,000,000 with partners. We are very proud. We take a lot of pride in helping the local population. Once again, I would like to thank you all, all the collaborators of Residore or of our all of our employees. And also, I would like to thank the shareholders. Thank you for the trust that was invested over the years. Now I give the floor to Otavio. He's going to go over the numbers. Otavio? Thank you, Paolo. Good morning, everyone. Thank you for taking part in this earnings call. Once again, Residor is announcing very solid results and some records, historical numbers established by the company in the last quarter. Residor has reported almost BRL50 1,000,000,000 in assets, BRL14.6 billion of cash flow immediately available. Patrimony net that shows the muscle financial muscle to continue to grow. Now if you go to page 4, regardless of the drop in 54% in the number of COVID-nineteen patients, We can see between March June, the number of patients has grown well, the patient day, daily average has grown 4.3 percent and ex COVID increased 12% quarter by quarter. The next page. As you can see, we have the operational indicators evolution of total surgeries. We also see the diagnosical sales. We can see that actively we are have all the operational costs for surgeries and therefore we can have a high occupancy rate on based on the enormous amount of beds operational beds. This is a record number of surgeries and a growth of 6.6% and the same hospital sales base quarter by quarter. Page 6. We have the data in regards to the oncology volume of procedures and patient day volume and average occupancy rate. On the graph on the left, year on year, we have 628,000 patients stay in the Q2 for 2021, a record 62% higher than the previous year. Average occupancy rate for a set of 58 hospitals has gotten to 83%. On the right, you can see the data regarding ambulatory oncology. 52,000 over 52,000 procedures, another record, 21.3% higher than the same period in 2020. Page 7. We can see the hospital bed evolution. We've talked about that, the operational and total beds. 1500 operational beds were added actually about 1578 since the start of the pandemic. 8,780 8 operational beds are for the Q2 of 2021, another record 597 beds higher than what was reported in the previous quarter. And we can see 532 that come from M and A. We have 9,600 and 11 total beds. That's a record. 16,500 from M and A by 12 hospitals that were added to the portfolio since the IPO move beyond. Take a look at the gross revenues. Total gross revenues on the left. You can see BRL5.8 billion in the Q2, 10.7 percent higher than the Q1 of 2021 and you can see almost 89% higher than the Q2 of 2020, another record. Quarter on quarter growth of 63.4%. Let's continue. On the right, the gross revenues for oncology infusions or ambulatory, we again see BRL445 1,000,000 2nd quarter, 34% higher than the Q2 2020 another record on quarter by quarter the growth is 30.5%. In the 1st 6 months, gross revenue oncologyinfusionsambulatory has reached the landmark BRL852 million. If you take a look at page 9 on your left. Rivadore has reported in the Q2 of 2021 the cost of services RMB918 million, a growth of 37.6 percent. And we have the total revenue and a growth of 42.6 percent in comparison to the 6 months of 2020 when we reported the cost of BRL 2.7 41 1,000,000. And we have the services for subcontracted parties that has been related to the patient data and the additional beds over BRL 1800. And those are the impacts during the Q2 of 2021 to 2020 and the oncology expansion as well. Now semester on semester, the costs were administered to the general costs. There was a decrease of 10%. You can see the decrease here on your right in expenses. As we have mentioned, the expenses of BRL258 1,000,000 of BRL 21,000,000, a growth of 16% in regards to the previous quarter and a reduction of 32% facing the same period of the previous year. The growth of impacts in comparison to the previous quarter is the impact of non recurring stock options, the high expenses with profit sharing, the collective bargaining agreements that we're mentioning and the opposition. So the reduction in regards to the previous year, we have less expenses with the stock options and more expenses for the proprietary for the workers. And those are the provision salaries. Let's see page 10. We will start on the left. The EBITDA BRL2.379 billion for the Q1 of 2021 margin of almost 24% of record as well as the EBITDA adjusted reported for the Q2 of 21, BRL1565 1,000,000,000 a growth of 607 percent in regards to the previous quarter. Operational cash flow adjusted and here we can see the generation of BRL887 1,000,000. So over BRL500 1,000,000 after taxes. In net revenue BRL447 million. Now to continue, let's talk about the debt profile on the left. As of June 30, we have a gross debt of BRL 22,000,000. The gross debt average CDI 1.3 percent gross debt average term 5.7 years. The well, a percentage of the foreign currency that is subcontracted, we have 37.6 percent. We can see the credit mines. Many companies are affected by the exchange rates. The company as it was mentioned has reported a cash of BRL14.6 billion. We have a net debt of BRL7 billion. The net debt over EBITDA over the 12 months 1.7 times. The same population relates to well, if you reduce it, it will be 1.4 times. We can see the gross debt per index and you can see on the right the debt amortization schedule. Last but not least, before we open for Q and A. On the left, we have the performance of our shares in connection to the index of the stock exchange after the IPO. On the right, we have a few more information in regards to the treasury, the average daily traded volume, etcetera. I think that we will stop the presentation now for the benefit of time. And then we will open for Q and A. Thank you. Let's start the Q and A. We have a few questions. Joseph from JPMorgan, the floor is yours. Good morning. Congratulations for the presentation. So let's talk about the trend that seems very good ex COVID. To try and understand the average ticket, the numbers maybe it will grow in this last quarter. Do you see any accommodation in regards to the average ticket? And we have to see the profitability rates. We have seen that after there was a drop in the COVID-nineteen patients. Now from now on I think that we're going to get better numbers. The M and A is favorable. And I think that the issue of M and A seems to be very low. Will you continue to do this geographical expansion? Well, let me start with the M and A and then I will give the floor to Otavio and then he can continue with your questions. We are very excited with our pipeline for M and A. And we've been talking about this in our IPO. So I think that this is maybe even if we consider the effect of COVID-nineteen in some of the average sized hospitals are having more difficulties in their books. It has an impact in the pipeline and there's even the issues of expectations. We had an accommodation and a gradual return to levels that are according to the records and we're very excited nonetheless with the size of our pipeline. We hope that we have good news for the next following quarters. Joe, we don't guide tickets quarter by quarter through the market. But if you allow me, we believe that as we manage actively these surgeries and we use the operational cash flow of the company, we will this will compensate the drop in the revenue that comes from the COVID-nineteen patients. As Paolo has said at the beginning of the presentation, there's a trend in drop of these patients. We are here in August and the company will report the operational best, which is very similar to the occupancy rate that was reported for the period of June. So I think that in that way, I'm answering your question without trying to compromise the company with KPIs or guidance. It all depends on the way that you're working with these numbers. Thank you. Very well. Next question will be from Fred Mendez, Bank of America. The floor is yours. Good morning, everyone. Thank you for the call. I have a few questions. I think that the next question is just like the one from Joseph. Diaco de Cire is the same one as 2019 now above 80%. So I wanted to understand from your standpoint, how much of it is sustainable? Can we think that the regrowth is stronger? Can you think about that level that is stronger up ahead? And secondly, I wanted to understand if there was an impact rather than impact or maybe these are more recent data, the biggest impact should take place over the next quarter? What do you think? Hello, Fred. I'm going to start with your second part and then I will talk about the occupancy. Current having to ramp up is within our year. It's what's expected. Of course, you have an impact for some relevance over the next few months, but it's beyond the potential. There is a time for the physicians and the population. So we hope that this is a process that will take a few quarters, so we can get to the potential. And remember, as we had said in other calls, earnings calls. This is the first step and we have to have expectations of increasing our relationship with our investors. Fred, hi. Congratulations for your career. I know that this is another interesting step for you. Now Fred, occupancy 83% is not our record. In 2018, we had an occupancy rate. I don't remember the numbers, but it was higher. But here, we talk about the business model that we have. The IPO, so the occupancy rate 79% all throughout the investments of the company. I believe that this is a good information for you and the correct way of answering your question. Now Fred, if you look at Page 5, the graph on the right, we can see the total surgeries, the same base. And here historically, we can accelerate and recover some movement for surgeries with the same administrative base. So as Paolo has said, I am very excited with the results and we are excited for the future. I think that we will have a good occupancy rate and we will have the long term results. Thank you, Paolo. Thank you. Well, thank you. The next question will be from Samuel Alves from BTG Pactual. Good morning, everyone. I have two questions for you. First, still about occupancy rate, could you tell us how was the occupancy rate on the 2nd quarter? Did we improve? Did we optimize this as the COVID-nineteen cases dropped in the in your network? And now we saw that there was an acceleration quarter by quarter regarding COVID. If you can tell us a little bit more details, expenses with COVID that are being adjusted, the results just so we can understand this evolution quarter by quarter. Samuel, the occupancy rate throughout the quarter was stable. We had great fluctuations and we have 58 hospitals of course. Now in regards to your question, non recurring COVID-nineteen and the peak of the 2nd wave was manifested in the Q1. And obviously, we have resources, we have expenses and we had to mobilize all throughout the second quarter as the number of cases is increasing. So that's the response. Thank you. Thank you. Well, next question will be from Mauricio from Credit Suisse. Mauricio? Good morning, everyone. Thank you for your availability. I have a few questions. And I would like to go back to a few points that the colleagues have mentioned. And we've had many conversations. The selection processes, they're not affected by the COVID. But you can see that COVID is it even became a problem for the elective procedures. So I wanted to know how much net occupancy does it take away from the occupancy of the rates, you call it, versus the other one? And let's see this from a different angle. You have those expense courses and the adjustment of the EBITDA. This doesn't impact the revenue. So how much do you estimate COVID? And how much has it helped the revenue? 3rd quarter, variable payout and you see the number that is still interesting because of the different action plans. What should we expect as normal threshold for the recovery? So when things are becoming recurrent? And the last one, well, since you're getting into the volume of complex surgeries, do you will you talk about this volume so that it becomes a proxy that is better for you? What is your help? Let's talk with the first part of your question about the COVID-nineteen demand and the elective surgeries. It's important to talk about this. We had a behavior at the beginning of the pandemic where we had a drop expressive drop of the elective services to all pathologies without necessarily having a growth of COVID-nineteen in other hospitals. So actually the occupancy rates are low and that has had a very high impact in the results of Q2 of 2019. After the Q2 of last year, we see a normality growth in the electives. We understand that the flows are segregated. Of course, they were safe. So we go back to normality and the occupancy of the hospitals. Of course, if you see a moment such as March of last year, where we had over 3,000 patients admitted to the hospital simultaneously, then we have to see the less complexity surgeries and we see the other non emergency pathologists with the ladies. So we would have the human resources to actually service our patients and for the other surgeries and pathologies that couldn't have their treatment delayed. That's where we see an expressive drop in the elective surgeries. Now as you have a drop and this is what we observed from April, we had a drop in the number of COVID-nineteen patients. We start to create an increase. We see an increase in the service of other pathologies and we can do that with a lot of competency. And we managed to do the reduction of COVID and the increase of other services in an organized way, keeping high occupancy rates. And we have clarified that part. And now let Otavio and the team to talk about the other issues. Okay. A lot of questions, a lot of answers. The items that we highlight as extraordinary non recurring regarding COVID and that we use to calculate the adjusted EBITDA are the items that are not invoiced by the company. We do not have the reimbursement from the pain. So the share of revenue by the COVID-nineteen patients about the expenses that occurred in regards to the quarter, the RXU, we have gathered the taxes and the labor costs. And we do not expect in this quarter an extraordinary recurring impact. Remembering that we also incur into expenses of profit sharing for the people that are higher than the provisioning that we for the fiscal year that we are in regards for 2020. This is due to the dedication that is not questionable of all of the workers of the company. Last but not least, Zepeda, I do not know the number of surgeries, high complexity ones. But just to show you, this is very interesting, which is using the operational flows all throughout time. We do not want to provide that granularity to the investors in a recurring way. Once again, the KPIs, they have good things and bad things, either they are good or bad. And it all depends on how we use them. So not all of the details has the granularity that we will report in a recurring way. We will report of course the information as we think that it helps the beneficiaries from the balance sheet, so they can have a better understanding of the operational results, financial results of the company. Okay. Thank you. It was maybe a proxy better than beds for the revenue and the ticket, a proxy that is more related to the generation of revenue. But regardless, thank you very much. We will talk about this, Aveda. We always have a good relationship with you. Once again, we interact during the IPO. We discussed the pricing model to give more sustainability for the sector. And here, obviously, we have the question, well, where do we get this revenue growth? It comes from the number of complex procedures that are being done by the company. The good news, the therapy dynamics is present quarter by quarter. The number of complex surgeries has increased 6%. Thank you. Now next question will be from Vinicius Ribeiro from UBS. Vinicius? Hello. Thank you. I have two questions. Just to talk about the issue of the nonrecurrence, something that I would understand. There was a demobilization of resources assets. I just wanted to understand that this is this means that you closed operational bids during the quarter. So can we expect that there was more beds than the 8, 788 that you've shown? Or is it something else? And what are you if your idea is to occupy these collective beds? Now another question about the infusion ticket. I know it represents a little from your revenue, but when we compare it to the previous quarter, there was a significant increase. So I just wanted to understand, what should we expect up ahead? Thanks for the question. All right. Let's talk about the expenses. The subcontracted expenses in the end of the Q1 when the pandemic was taking place in the beginning and they were recognized by accounting. There is no closing of operational debts. As it was said in the presentation, we increased the rate of operational debts even in comparison to the Q1 and we had the record results of the company. What we had also is the subcontracted the elimination of subcontracted additional workforce, subcontracted at the end of the Q1 when the first wave was manifesting itself. Now as the time goes by, the number of COVID-nineteen decreases in our units, we expect that these are non recurring expenses in the future. Thank you very much. Well, the second point about the infusion oncology, if you can comment a little bit on that. What can we expect on that? What is the baseline that we should consider? This is along the lines of the long term modeling of the company. We have an increase of 9%. This is on the long term that we shared in the IPO. But if you can give us more qualitative things about this, From an update that I got from the President of Oncology and we have a number of new drugs to be launched and this influences of course the dynamics of the tickets by infusion for chemotherapy. It is difficult to see the impact on the long term for the new drugs. But if you wanted more short- to medium term, that dynamic of the increase of ticket is higher than the ticket and other services, medical services and they will continue to happen. This dynamic is very important, more the launch of new drugs and therapies. Well, let me just talk about the quarter. In the Q2, the infusion average was 8,400 and it was lower in the Q2, but there might be a mix issue. So what are the 2 parameters that we should consider for the rest of the year? And what is the baseline that we should assume for the long term? About the ticket detail, the 10.8% is an increase quarter on quarter of the previous fiscal year, absolutely aligned with the long term model of the company. Now this quarter against the previous quarter, the increase of ticket is 7%, 8%. Perfect. I just wanted to understand if there was a specific thing, but this is clear. So if I was in your position, I would continue to model the 10% of increase of ticket year on year, which is what the company uses. Thank you. Very well. Remember that to ask a question, you just need to type asterisk 9 in your phone. If there are no more questions, we close the Q and A session. Therefore, we return the floor to Paulo Moll. Please. Once again, thank you for your participation. Our Investor Relations team will be available to have the need to talk about this other issues and thank you for your time. Therefore, the audio conference of Residor suddenly is disclosed. Thank you for your participation. Have a wonderful day.