Earnings Call: Q1 2021

May 18, 2021

Good morning, everyone. Welcome to the earnings call of the Q1 of 2021 of Radio d'Orso Ruiz. We have here with us today Mr. Palomao, President Otavio Lascano, Vice President of Finance and RI, Investor Relations Boris of Office, Vice President Executive Vice President Rodrigo Gaffina, Operations Vice President and Leandro Reyes, Medical Vice President. This event is being recorded and will be available at the IR website of the company. After the initial presentation, we will start with a Q and A session. Before we proceed, we would like to clarify that any information that might be provided during the earnings call regarding the company perspectives of Redidor Sonuis operation operating results, market share, competitive positions are substantially are stated in forward looking statements that express the opinion of the company. Manufacturers and values may impact these results and go beyond the ability and control of the company. General economic conditions and industry conditions and operational conditions might affect the performance of the company and might lead to results that differ from those expressed in forward statements. Now I would like to give the floor to Mr. Paolo Moura. He will start the teleconference. Well, good morning. Thank you for your presence. Thank you to our shareholders and our analysts. We've had great results that we will present to you. Let me start by the update of the COVID thing. I think the company has shown a lot of operational resilience, showing the capacity to adapt and flexibility either with a higher number of patients, COVID-nineteen patients. And with the reduction of the COVID-nineteen demand, the adaptation of those beds for the non COVID patients through segregated areas in our hospitals. And we are keeping the good services for the other pathologies and keeping the care even with a lot of oscillation, high occupancy rate for keeping the operation updated. We've had we said it's over 1,000,000 patients that were symptomatic. Out of the 300,000 were confirmed cases that generated over 40,000 patients that were admitted to the hospital. Our general lethality rate is around 1.7%. Only the best centers in the world have these index. And we would like to highlight our mobilization and support to the public health care system. And we opened over 13.50 beds for hospitals, for philanthropic hospitals, public hospitals to service the public health care system as U. S. We have BRL260 1,000,000 that we invested from Resideo and BRL100 1,000,000 that also contributed partners that contributed to this cause. And finally, in the research line that is related to COVID, we understand that it is our duty and we have one of the biggest databases and historical data series of servicing and taking care of the paid COVID-nineteen patients in the world. Even throughout the pandemic, we are evolving in the process of training. Our objective is to have until the end of the year all hospitals accredited. The still not accredited hospitals were the ones that were acquired recently or they haven't been launched yet. We also have the accreditation by the joint commission in Copa Star and Villanova Star. These have and the hospital has only been launched for 3 years and we've been accredited by joint division and expansion. We want to increase the access to our services. We are accessing 2 new markets. I would like to highlight our entry in the state of Paraiba with the acquisition of Noticing Aradas Neves in the state of Paraiba. It's a great platform and it's a second hospital that is called Clin. It has its own diagnosis unit and we have the platform to expand in the state of Paraiba and also Rio Grande do Norte. What else I'd like to highlight our entry into the miniaturized market. With Biojor, it's a very traditional 3.50 bed in the city of Palo Verde, it really highlights our entry in this market. And we will have an enormous opportunity for growth through M and As and through brownfield in this very attractive market. I would like to highlight our discipline as well in our M and As and our acquisitions. We acquired these assets with very attractive values and an ROI that is very good aligned with our historical numbers are in the 2 M and As that we commented. These were processes that were non competitive. These were processes basically of the partners choosing Residor as the partner. In aggregated numbers, we have 9 hospitals that have been acquired since October, bringing a total of 12 90 beds hospital beds, surpassing all expectations. Commercial partnerships. I would like to highlight a partnership that is very relevant for our year. We signed an agreement with Amil, which is the 3rd biggest healthcare operator in Brazil. And we have 20 hospitals here in 3 states Sao Paulo de Janeiro and the federal district. These are 82% of the beneficiaries of the mill. And within these 20 hospitals, we have 5 hospitals that were never accredited at AMIL are the 3 star, the Sao Paulo Rio de Janeiro and Gloria Dor and Niteroador. These are hospitals that have a great capacity and this will bring a lot of growth to the hospitals. Let's talk about ESG. We talked about the sustainability and the social fight against COVID, and I would like to show you tell you that we're going to publish our 6th annual report on sustainability that will detail all of the actions regarding ESG in 2020. And I would like to highlight a recognition that we received at the beginning of this year as a sustainable company this sustainable company of 2020, the award of sustainable attitude by the Industry Commerce and Services Chamber in Brazil. It's a recognition that shows that we are on the right path. Now let's talk about the digital platform and the importance that we are doing all the investments, investments in technology and innovation. I would like to highlight that we already have robust results. We've had a relevance that is higher extra higher in regulatory. All of the most of the appointments are done through the digital channel And it has a growth of from the Q1 2020 through the Q1 2021, we had 169 appointments done through the platform. We almost doubled compared to last year, 132%. So we are providing more it's better for our patients. Just to give you a data on our website for appointments, it had 2,000,000 accesses. In the Q1 of 2020 2021, we got 2,600,000 appointments, 6,000,000 accesses to our website. And I would like to highlight MSCI. We have 54 we are one of the 54 companies Brazilian companies that are in the emerging markets, the index And we are just at the inception of our path here and we are very happy with the support that we are receiving from the market and with the recognition of our investments. Last but not least, but before I give the floor to Otavio to continue with our presentation, I would like to once again thank all the collaborators, all of our employees that have worked brilliantly in this fight against the pandemic. To me, it's a privilege to be part of this excellent team. The floor is now with Otavio. Thank you. Thank you, Paolo. Once again, good morning, everyone. Thank you for taking part in our earnings call for the Q1. I'm at page 4, operational indicators. Results for the Q1. The Q1 are once again we have new historical records. The consolidated results show more once more the strong recovery of the operational results and financial results of Residue. And I highlight that the results do not reflect the M and A. The investments recently announced as the accumulative adjustment to the ticket since the negotiations where the paying parties take part through the fiscal year. Now I have highlighted in the Q2 and until today, Residor is has a favorable business environment characterized by the coexistence of COVID-nineteen patients and a growing number of surgeries and high occupancy rate. Until the current date, the results of the Q2 are higher than the expectations. Now let's start with the graph on the left. The company reported 553 1,000 patients a day in the Q1 2021, 21.9% higher than what was reported for the Q1 of 2020 and 10% higher than the Q4 2020. So we go to the center of the page. The company registers a hospital bed occupancy rate of 1.9% higher than the one reported for the Q4 of 2020, 9.8% higher than what was reported for the Q1 of 2020 and in the same way, 2.6 percentage points higher than what was reported for the Q1 in 2021. And the company is presenting occupancy rate that is growing in the last three quarters. The graph on the right, the company reported 52,000 procedures of oncology, basically infusions on the ambulatory setting and it's 12% higher than what was reported to the Q1 of 10% higher than the Q1 of 2020 and 4% higher than the Q4 of 2020, another record. Let's talk about the next page. I'm in page 5. So with operational indicators, actually 5 and 6, we have messages that are basically the same. Operational indicators, they highlight the leverage and operational adaptation of Regitor combined with our corporate competency to actively administer patients and optimize the allocation of resources that are very limited by definition. The graph on your left, we can see the evolution of total surgeries and hospital beds, average occupancy rates, the historical data and the occupancy rate as well. You can see so the surgery you can see in 2021 is very similar to the Q3, Q4 2020 quarters where the company also reported good positive historical results. And just so you don't have any doubts on the right, we have the same information. In the same day, total surgeries and a POC rate. Now on the next page, we can see the graph of the evolution of COVID-nineteen patients and total surgeries. Coincidentally, we can see the resources in high occupancy rate. We have a portfolio that has good operational growth. And you can see the graph on the right, the patient day evolution from March, April May. We have the daily average of patients. We have even though we had a 26% reduction of COVID patient day in the same period, we have a Nexus management and we have the capacity of the company to immediately allocate the best resources and maximize the results for our shareholders. Let's go to page 7. Evolution of hospital beds. Since September of 2020, even though we're facing all the challenges of COVID, we had the addition of 1200 beds. For formal acquisitions, as we know, look as we have the additional cardiopulmonary capital acquisition and we also have the participation of Biocore de Mejerais and also the same as the others in Paraiba. The company reported the operational base at the end of the Q1 of 2021, dollars 8,191, 10.8% of what was reported for the Q4 of 2020, as you can see in the numbers, or 18.5% higher than the Q3 of 2020. Once again, the company has reported great results. Let's see page 8, revenue. Once again, with the information on your left, we can see the total gross revenue of BRL5.3 billion. This value is 13.2% higher than the Q4 of 2020, 42% higher than the one before the Q1 of 2020. And so you don't have any doubts? In cross sales, gross revenue grew 30.2% compared to the Q1 of 2020. Hospitals and other services, they reported 92.3% of the gross revenue, a growth of 13.2% over the Q4 of 2020 with or 43.7% over the Q1 of 2020. So you can see on the right, the company reported the gross revenue in oncology infusion BRL406 1,000,000, a value that is 26.4% higher than the one reported for the Q1 of 2020. Page 9, costs and expenses. And we can see the information on the left, the cost of services. We can see BRL 3,500,000,000 of value that is 32 point 4% higher than the one reported for the Q1 of 2020. Here we have the justification of acquisitions, the inauguration of Gloria, Dora Hospital, the Centres Rio de Janeiro and also the personnel hiring as the operation grows. Non recurring expenses related to the pandemic and the expansion of the oncology business. Going on the right, the company reported that the general administrative expenses we have BRL217 million or balance that is 45% higher than the one reported for the Q1 of 2020, the same way. Justifications, the subcontracting of 3rd parties related to COVID, the building of new stock options, so we can have the same plans that were pre existing through the IPO for the executives and collaborators, the IT services and the monetary contingencies for the labor issues within the company. Excluding the non recurring effect of stock options, the increase would be 23% year on year and the sub line of personnel in terms of administrative expenses was 8.8%. Going to page 10, getting to EBITDA net income and cash generation, once again on the left. The company reported an EBITDA of accounting of BRL1134 1,000,000,000, an increase of 86% when comparing to the Q1 of 2020, a record in the company. The 3rd sequential record for the company, the margin of EBITDA increased 5.5 percentage points to 25%. In the center of the graph, the adjusted EBITDA in the margin BRL 1,230,000,000, a growth of 95.3 percent. When comparing to what was informed in the Q1 of 2020, the adjusted EBITDA margin grew 7.6% and once again our historical record for the company. And on the right, we have the net income BRL402 million of growth of 2 54% compared to the Q1 of 2020, a new record for the company. Still on the right and on the bottom, the company informs the adjusted operational cash generation BRL777.6 million in the Q1 of 2021. Next page. We can see indebtedness of the company. We reported the gross debt of BRL21 million, the gross debt average cost EBITI plus 1.3 percentage point, the gross debt average term 5.1 years, we have the foreign currency exchange debt of 40%. So we also have reported the equivalent of cash of BRL 13,000,000. Net debt is BRL7.2 million and a ratio of net debt to EBITDA is 2.4 times. At the same at the center of the page, we have the gross debt profile per indexer and on the right, the amortization schedule of the debt of the company. Last but not least, we have in the last page of the presentation the Residor III performance. We can see the performance related to our shares since the IPO when comparing to the Ibogasba Index and on the right some additional information about the shareholder competition. You can see the end of the presentation and we are open for Q and A. Thank you. Thank you. Now we will start with the Q and A. Mr. Joseph from JPMorgan would like to ask a question. Mr. Giusek? Hello, good morning. Thank you, Pablo. Octavio, thank you for accepting my question. Congratulations on the presentation. Two points that I'd like to mention. First, that very relevant evolution in the average ticket of the company. I wanted to understand how much did you reach the complexity level before the pandemic. So I want to understand how the regular demand has behaved in this Q1. 2nd point, if you can comment a little bit on how we are seeing the evolution throughout the Q2. So the first day is very strong. Of course, the pandemic still affecting March April. But I wanted to get a few more comments on how the second item has behaved from the standpoint of growth and in this regular demand of high complexity of treatment? Well, I'm going to answer the first and then well, I'm going to talk about the ticket. What we observe in tickets is that the COVID-nineteen patients, we end up having a ticket that is similar to what we have with the other pathologies. Nonetheless, a profitability that is less. So our expectation with the reduction of the COVID-nineteen patients cases that we have observed since the beginning of April until today has been compensated. Through the other pathologies and surgeries scheduled and is a positive signal to our results. Otavio, would you like to add anything? I will reaffirm, Diego, what I've told you throughout the presentation. The business environment is very favorable, very similar to what we verified in the Q1. We are having a high number of COVID-nineteen patients and the company has corporate competency to fulfill that space to leverage operationally all of our units almost immediately. The results until today are even higher than the expectations in the company for the Q2. So it's positive. Thank you. Thank you, Lataf. Mr. Samuel from BKG Pactual, the floor is yours. Hello, Paolo, Fabio. Congratulations on your results. Two questions. First, the opening on slide 6, it really helped the issue. But could you talk about the representativeness of the COVID-nineteen admitting to the hospital? That's my first question. And secondly, on a follow-up on the comment of Paolo on the average ticket, we know that the ticket is growing percentage wise. Of course, Paolo mentioned the similarity in the COVID-nineteen treatment and general admissions. But I just wanted to see if there is an effect in the ticket because maybe since March of last year, we had a drop in the admittance. And the question is from January to February, the tickets of the company grew with the same magnitude as you mentioned. That's the question. Thank you for the questions. Regarding the representativeness of COVID-nineteen patients and medicine and hospital in the Q1, we rather not provide that information. I think that the relevant information for the shareholders, for analysts is that the company keeps high occupancy rates and the volume of patients per day is very stable regardless of the natural oscillations and movements of the number of patients that are COVID-nineteen. And we can see very clearly in this in the presentation, in the slides. About the evolution of the ticket, yes, we've had an evolution of the ticket of 16.6% when we compare it to the Q1 of 2020 and 5% when comparing to the Q4 of 2020. It's very important to highlight that this is a very broad range, a broad mix. And when we compare the Q1 to this year of last year, there was even more evolution in the portfolio. Now the adjustment of prices by this company, it always follows the base employment bus plus a premium very small, maybe 1%, that's not stable throughout time. And the company goes through it. We have corporate competency to attract more high complexity cases, which leverages the revenues as time goes by. This is something that has been discussed all throughout the process. And this is a conscious decision of the Board of Directors that allows to target a higher market share. And therefore, we are helping the market to have more sustainability financial sustainability in the medium to long term so that the market grows. Thank you. Congratulations on the results once again. Mr. Gustavo from Bradesco Bank, floor is yours. Thank you. I have few questions on our side. First is regarding the operational beds. What can we observe? What can what we have a better visibility? And what would be a ratio that would be sustainable operationally for the Q2, Q3 because what we are thinking? There is the impact of COVID because that may be increased the number of operational beds, an increase in percentage. But what can we imagine for the Q3? Is that sustainable? That's the question. And second question, oncology. The structure of oncology in Rio de Janeiro is very strong. And in Sao Paulo, it's doing a catch up. How is that situation since the pandemic gives a little bit of a dilution to those numbers? But how can we move forward? Do we have proportion similar to Rio de Janeiro in Sao Paulo? How is the situation unfolding? Gustavo, I'm going to answer on the oncology question, and then I will let Otavio talk about the operational bids. You're right. We had oncology in Rio de Janeiro that was very strong. We grew our oncology. Our oncology is growing in Sao Paulo basically organic. Well, it's organic growth. We attracted a few big names and Doctor. Paulo Rossi joined the group in 2017. And from that moment on, we are attracting physicians and assembling our services in several hospitals within the state of Sao Paulo itself. Now this growth, very organic growth has been very strong. To the point that we are reaching, if I'm not wrong, in March, the number for the Q1 volumes are similar in Sao Paulo, in chemotherapy than with the numbers that we see in Rio de Janeiro. Of course, Sao Paulo, the size of the market is completely different and we have more opportunity than what we expect in Rio. And here in Rio de Janeiro, we are still growing. We are growing nonetheless with good rates. But given the fact that we have the opportunity in Sao Paulo and we started to from a very low invoicing in 2017, we had a rhythm of growth that is higher and we have a gigantic opportunity to keep the size of the growth because of the size of the Sao Paulo market. Gustavo. And then I'll repeat myself once again. One of the more beautiful characteristics of this company is its capacity to optimize the resource allocation almost immediately. At the end of the last quarter, we had 8,191 beds that were operational. We have today approximately 8,230 operational beds. In the presentation, there is the information that since the end of March until today, the number of COVID-nineteen patients dropped 26% year on year. This is sufficient evidence for my statements here. And it doesn't seem that with the information that we have today that the 1st semester was monotonous, no, in regards to COVID. No, we still verify high occupancy rates of COVID-nineteen patients and that capacity to allocation and optimization of resources is key to our company. Thank you. Congratulations on the results. Mr. Mauricio from Credit Suisse, the floor is yours. Pablo Altagua here is Sapeda. Congratulations on your results. Two questions. Now that you have some respire, then you have some respire that you can well, you have the expansion as well of the other operations and not so much the heavy burden of COVID-nineteen. How are you dealing with that expansion? And the second question is the stock options. You have done some corrections for the stock options and the results. The question, do you point to change the dimension of the stock options and the other differentiated stock options in the future? Thank you. I'm going to ask the first part. Well, I apologize the connection was poor and I realize that your question is about the indebtedness of the company. If you can repeat it Mauricio, please, we couldn't get it. It's better. Is so the rest part of the ratio of indebtedness, do you will you finance the expansion of the debt? Well, we do the management of liabilities actively. In the post announcement of our earnings call, we issue a 3, 15 years, BRL 1,500,000,000. Of course, there is the expansion of the organic expansion of the company and the issuance of debt for 15 years of CRI. But we can see the lines of credit that have eventually higher cost and a deadline that is shorter. The company has a very robust plan of investment and it's detailed in the Section 10.4 of the reference form, 32 projects of growth, organic growth that will add to 5,200 beds to the portfolio until the end of the fiscal year 2025. All of these projected growth by the company and in the context of our business plan will be done with the capital structure that is optimized understood as optimal by the Board of Directors of the company. Have I answered your question? Yes. And in regards to the stock options, did you get that question? Yes. The company doesn't have any intention of changing our plan of stock options. I understand that the way that we report gives the enough transparency for the analysts and investors to understand the impact in our financial reports and the cash flow. So it would be the way the stock options is not reported separately because you don't want to change it, as I mentioned. It has a recurrence in those levels that we are used to seeing. Yes. And I would like to highlight that we didn't have anything relevant new in regards to stock options after the IPO of the company. The old what we have new options that are transferred to the beneficiaries of the plan and of course this is correctly stated in our financial reports. Thank you. And eventually new stock options will be given by the company in the future. But what is stated in the financial report is that it is related to the plans of stock options, granting of stock options in the past. And so, Josefio, if there is any variation that you're observing, it's due to the valuation of the shares itself. Baby Guerra, our Controller, can answer your questions more specifically, but it's based on those on that group of shares that you have planned to rent. Thank you. Mr. Leandro from Citibank, the floor is yours. Great question. On my part, cost. I wanted to know your opinion, especially we've had a lot of shortness of materials in the supply chain really, hospital supply chain. So year on year, it's not reasonable. COVID really impacts a lot. But can you see the familiar of costs for the year on materials? Yes. This is Andrew. We in fact the items related to COVID-nineteen and these items had variations in costs on these items that we depend on imports to guarantee the supply. And our team in logistics has done a brilliant work, assuring the safety of our operations and the good supply of all the materials necessary to provide care for the patients. And some of these materials had variations that are expressive. In the consolidated, this is diluted and but when I see the COVID-nineteen patients and I compare it to the other patients, given the lateral cost associated to these procedures, I have an expense of materials over revenue that is higher. And this is diluted when you see the numbers of the company as a whole. But as we have a reduction in the invoicing in the covenanting patients, as it has been compensated and it's growing the service to the other patients. So we have a gain in profitability because it's an efficiency of costs of expenses of materials that is higher than the patient's non COVID. Thank you, Paolo. Without any further questions, we close the Q and A session. I'd like to give the floor to Mr. Panamov for his final statements. Once again, thank you to all of our shareholders and analysts that took part in our call, earnings call. And I would like to close by saying that we are very positive. In regards to the scenario ahead in the future, once again, I would like to compliment our executives, our employees that have shown the capacity to adapt and a very quick response in a scenario of a lot of volatility. So we are very happy with the scenario ahead. Thank you. Have a wonderful day. The earnings call also very good. The survey is closed. Thank you for your participation. Have a wonderful day.