Good morning. Thank you for waiting. Welcome to the Second Quarter of 2025 Earnings Release Video Conference of Vivio S.A. I would like to point out that those who need simultaneous translation, that this tool is available on the platform. To access, just click on "Interpretation" using the globe icon at the bottom of the screen and choose your preferred language: Portuguese or English. For those listening to the video conference in English, there is the option to mute the original audio in Portuguese by clicking on "Mute Original Audio." This video conference is being recorded and will be made available on the company's IR site, www.vivio.com.br/ri, where the complete material of our earnings release call is available. You can download the presentation from the chat icon, including the English version. During the company's presentation, all participants will be in listen-only mode. We'll then begin the question and answer session.
To ask a question, click on the Q&A icon at the bottom of your screen and write your name and company name to join the queue. Upon having your name called, you will get a request to unmute your mic. Click on it, unmute your mic, and ask your question. All questions would be preferably asked at once. We emphasize that the information contained in this presentation and any statements that may be made during the call related to the business perspectives, projections, and operational and financial goals of Vivio are beliefs and assumptions of the company's management, as well as information currently available. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties, and assumptions as they refer to future events and therefore depend on circumstances that may or may not occur.
Investors should understand that general economic conditions, market conditions, and other operating factors may affect the future performance of Vivio and lead to results that differ materially from those expressed in such forward-looking statements. We have here with us today Mr. Leonardo Biru, CEO of Vivio , Federico Daniel, Financial Administration VP, and additional executives. I would like now to hand it over to Mr. Biru, CEO, who is going to start the presentation. Mr. Biru, you may start now. Good morning, everyone. Thank you very much for being here for the earnings release calls of the second quarter of 2025. I am going to make the key highlights and the considerations of the quarter. I am going to hand it over to Federico to go into the financial results and also the specificities of some business units. We are going to be here for your questions.
Now, starting with the highlights of the quarter, we've maintained our disciplined execution and we have all strategic plans defined from 2024. We talked about that in the first quarter of 2024. We have been focused on executing each of the priorities, both operational and reviewing the commercial policies in each of our businesses. Total sales were somewhat stable. There was a minor growth of 2.5% in the second quarter over the second quarter last year, which is very much aligned with our proposal of growing in some businesses with better ROIC and margin and renegotiating the terms in businesses that do not have the right ROIC or the one that we believe is the best level for the company. Our business dynamic differed in each business unit.
We have had an increase in vaccines, Prevena, and even retail, and there was a decrease in sales of some businesses, such as renegotiation of some contracts in hospitals and clinics, where we thought there would be a need to improve the contract basis. We've also been focusing on improving the quality of our businesses. After years focusing on quantity and growth, now we are focusing on quality. The main indicator that we share is the improvement of gross margin, which was observed in nearly all businesses of the company. Even excluding the CMAD effect, we've been seeing the gross margin improving in nearly all business units, which is a key indicator to ensure improvement of quality of our business and our operational deliveries. The third priority is reduction of expenses.
We have defined the expense reduction in the end of 2024, which can only be done after integration and incorporations done throughout the past two years. Now we've started to capture the synergies. SG&A had a 4.5% decrease over the second quarter of 2024. If we exclude the effect of the bad debt provision, because now we have that projection of bad debt provision that we didn't use during the past, we would still have a reduction in our expenses below what we had reached. One of our priorities is now to work on reducing the expenses of freight. We still see opportunities in upcoming quarters. We've been making significant investments in changing the model of freight and adding technology to improve our management model. We believe we are going to bring further improvement and reduction of freight in upcoming quarters.
It has led to sequential improvement of adjusted EBITDA margin. We reached excellent 5.9% as opposed to 5.3% one year ago. The same thing observed with gross margin, as I mentioned. CMAD effect. Let me tell you what happened this year over the same period last year. If we compare CMAD this year, the price list in 2025 as opposed to 2024 and 2023, the main difference was Factor X. It's defined by the government, which hadn't been used in the previous two years. It was included this year, so CMAD difference was much lower than expected. For us, in our product composition, it was 2.5% as opposed to 5% on average in 2023 and 2024. It has impacted our comparison in terms of profitability, and it has also impacted our working capital.
Because of a smaller CMAD increase, seasonality of procurement between March and April was very different from previous years, and it had an impact on our inventory and accounts payable, which had some mismatch at first, but now it's fully funded again. Why am I saying that? Our working capital dynamics would have been even better in the second quarter had it been for the CMAD. We've corrected the course during the quarter, and you're going to see it getting even better throughout upcoming quarters. Our cash flow cycle improved about 12 days because of adjustments of our inventory levels, and once again, funded by accounts payable, which could have been better had it been for CMAD, but this is something that has already been set in regular pace. Another important thing was the renegotiation of our contracts, especially concerning hospitals.
Contracts are discussed during the second half of the year, but we had a different commercial approach this year, setting different priorities of renegotiation. We've improved profitability of the contracts and reduced significantly our accounts receivables terms. This is something already observed in our results in June. We are going to see the benefits of that clearly pictured in the results of the third quarter. What we expect to happen is that accounts payable will be funding our inventory levels and the renegotiation of our contracts, leading to improvement in accounts receivables. The main financial highlights: net revenue aligned with our strategy of quality and quantity. In 2025, we have a 2.5% increase in the quarter. Gross profit 6.8% increase with 15% of margin, very significant improvement, and adjusted EBITDA $178 million in the quarter. Total growth of 0.2% over the second quarter of 2024.
However, if we exclude the CMAD effect that I've just explained to you, which was relevant in nearly half of previous years, we would have been grown 13% of absolute EBITDA as opposed to the same quarter last year. It's a significant improvement of profitability, quality of businesses, and also leverage of our EBITDA by reduction of expenses. It has led to free cash flow of BRL 177 million in the second quarter. As of the next quarter, we'll be focusing on cash generation by reorganizing our cycle. By the middle of the year, we needed to readjust all the different terms of operational cycles. Inventory, accounts payables, and now accounts receivables, so that we could really generate more cash and have resumed growth of some businesses with increased margins and increased ROICs, as I've just mentioned in the beginning of the presentation.
The last highlight, which is something quite important to us, is our new plan of wet wipes. We've been talking about it. It was an investment of BRL 40 million in the past two years, and we have consolidated in this manufacturing unit in Blumenau, two acquisitions, Daviso and FW1 in Blumenau, the other one from São Paulo. As of May, we have both operations combined here, the most modern and largest plant in Brazil and maybe even in Latin America. Huge potential of expansion of this category, which is the largest category of manufacturing products at Vivio . We really believe in gaining market share, having growth, and having synergy. Let me show you a brief video that shows you how the plant works. In Blumenau, we have the new home of Vivio , the result of a combination of the expertise of Daviso and FW.
We introduced the largest and most modern site of manufacturing of wet wipes in Latin America, with industrial synergy connected with other plants in Santa Catarina. By doing that, we increase competitiveness, agility in manufacturing, bringing benefits to the whole supply chain. A verticalized plant equipped with top-quality machinery and innovative technology, providing expansion of scale and creating new opportunities for our portfolio. 8,000 sq m producing 11 million packs of wipes per month, and with 250 people, we reinforce our commitment with caring for each life. Get connected to Vivio' s team and visit our new home of wet wipes. This is our new home in Blumenau, and as I told you, we are highly excited to develop this category and this unit during the second half of the year.
Let me now hand it over to Federico Daniel for the financial highlights, and I'll be back for the Q&A.
Fred? Good morning, everyone. I'm going to start my presentation, slide seven, talking about the revenue by channel. First, hospital and clinics, where we had sales of BRL 1.9 billion in the second quarter, 3.9% decrease over last year. This segment is exactly where we had the major negotiations of contracts. It's the most relevant segment after all. As we had anticipated, we have successfully renegotiated contracts, and we end up terminating some contracts in which the conditions were not favorable in terms of margins and conditions aligned with our strategy. We had seen that in the first quarter, and we observed exactly the same in the second quarter, aligned with what we have planned. Contracts which were left behind had been already planned.
I think that the main strength in terms of that, and it has a consequence on gross margin, as you've seen, is that we have renegotiated current contracts. It was one of the main challenges for the year, which was to set up a new basis of contract, new conditions in terms of margins and payment conditions. Now we are going to build up on that. We've done our homework, and now we can work on new contract bases in terms of margins and conditions. Now, in terms of labs and vaccines, the second quarter was very strong. We had seen good performance in the first quarter. The same remained in the second quarter, especially vaccines and the launch of vaccines for adults, which is a trend that we've been observing. There was a relevant launch in the second quarter, which had significant contribution to our margins.
Bifort's vaccine, which is a vaccine to bronchiolitis, a very interesting and popular vaccine. There were even periods of shortage. As you can see, there is an increased demand for our product and the market product, of course. It's a clear example of how the vaccine channel has been developing, showing a potential to keep on growing. Now, slide eight, we can see retail. In retail, we've also had good performance, 20% growth in the second quarter, 5% year to date. We've been saying that retail is a channel that we were going to bet our chips because it has high profitability, positive ROIC, and we were going to focus on retail to really keep on growing with it. We've seen that. We've seen growth picking up as of the second quarter, and we have very positive expectations for the remaining of the year.
In services, we've been affected by the loss of contract from the second half of 2024. There are a number of new actions being put in motion. We've changed our management, especially of the sterile, handling of steriles. I believe that as of the second half of the year, we are going to resume our performance to try to keep on growing from services. Gross profit, next slide. Our gross profit improved significantly in the second quarter, 6.8%. We've had margin expansion and even higher if we considered that the CMAD price readjustment was smaller than what we had expected. We are talking about something like BRL 17 million, BRL 18 million less than what we had expected compared against last year. Still, we had a margin expansion. This is associated with contract renegotiation and all price adjustments, portfolio adjustments that we've been doing since the end of last year.
It's a positive number for the second quarter and for the whole first half of the year. It shows that we have been successfully renegotiating our contracts. Despite the retraction of revenues, we delivered an increase of gross profit and gross margin aligned with what we had planned in the end of last year. We've managed to execute what we had planned during the year. In terms of expenses, I think Leonardo has already talked about that, and I'm just going to reinforce it. We've had some decrease in expenses, expenses with sales, SG&A. Over last year, this year, we have also a provision of bonuses, and it explains the increase we have observed during the second quarter. Considering expenses, we have a different model of bad debt provision, different from last year. We've revisited our estimate of losses aligned with the adjustments we had in accounts receivables.
As we have been doing since the first quarter of this year, we have higher levels of bad debt provision. They don't have any cash effect, but they affect, of course, the comparison over last year. Still, we have shown a reduction in the main line of expenses. With the combination of increase of gross profit and reduction of expenses, we've expanded our EBITDA margin. In the second quarter, EBITDA was stable, but with an expansion of EBITDA margin when you adjust it to CMAD effect, which was significant. Year to date, first half, our gross margin grew ex CMAD as well as within the reported figures. It is the second consecutive quarter that we can see our plans turning into reality. I think that we've already covered the most critical phase of contract renegotiation.
Now we are going into the second half of the year with important challenges for execution, but the main things that we have to do have already been put into action. Financial results. There was a 7% drop over last year, the same period last year. It's important to highlight the repurchase of the benches, which have offset partially some of the increases of expenses due to increase in interest rate, what we've observed throughout the first half of the year, and also the renegotiation of the covenant terms that were made last year. Adjusted net profit shows a loss of BRL 44 million in the second quarter, BRL 65 million in the first half of 2025. Cash flow. One more quarter of cash generation.
There is some seasonality which tends to be negative in the first half of the year when we consider cash flow and working capital indicators, especially because of forming inventory levels for CMAD and others. Still, we have generated $124 million of cash, which is very positive, considering that the first half of the year is not the strongest one for cash generation. The second half is where we have cash generation. The working capital tends to be more stable in the second half of the year. Here we can show you the progression of our cash cycle. The first half of the year usually observes a difference in working capital because of inventory levels due to CMAD price adjustments. March is very atypical. We tend to have higher inventory levels. Over 50% of our accounts are due to inventory levels in that specific month.
Here in the second quarter, in terms of cash cycle, we've brought the inventory levels back to normalized levels. We have 10 days less inventory, so 10 days less in our inventory cycles. Our accounts payable is not 100% yet because with the reduction of inventory levels, which was substantial, our inventory to suppliers ends up going into the third quarter. The third quarter month tends to make sales very similar. There is very little seasonality in other words. It indicates a very promising next quarter in terms of cash generation. Our working capital over net revenue has resumed very healthy levels of about 17.5% at the end of the second quarter. Now, finally, indebtedness level. Since the end of last year, we've been working diligently in the company to reduce leverage. In the second quarter, there was a small reduction in net debt compared to the first quarter.
Combined with EBITDA, which increased because LTM, including proforma and the backlog, has brought us to a proforma leverage of 4.33 x, below the covenants that have been agreed for the second quarter of 4.75 x. As you can see, there is a reduction in our leverage. As we had told you before, we've created a curve of decreasing covenant. The second quarter was exactly the first drop from 5x to 4.75x, and we are clearly showing you that the company's leverage starts to be reduced. Initially, at smaller amounts, but originally, we didn't even expect a reduction in leverage in the first half of 2025 because it's not the strongest half in terms of cash generation. The second half, we expect to have a significant reduction of leverage as cash generation improves. LTM EBITDA will go into more favorable bases.
Those were the key highlights concerning our financial performance in the second quarter of 2025, and I would like to open for the question and answer session. Thank you very much. Let's start our Q&A session now. To ask a question, please select Q&A on the lower portion of the screen. Write down your question and join our list. When your name is called, you are going to get a message on the screen. Unmute your mic and ask your question. Please ask all your questions at once. First question, Gustavo Tizio, Bank of America. Good morning, Leo, Fred, team. Thank you very much for taking my two questions. First, we'd like to know more about a strategy. That part of margin expansion, can we expect something like 15% or something higher than that? Cash generation and pay your debts. Considering these three points, what are you projecting?
Second point, gross margin was quite higher in the second quarter. What was the main impact? There was an increase in retail, which has really good margins compared to distribution. We'd like to know how much of the increase came from retail and how much came from distribution year- over- year. Those are my two questions. Thank you. Good morning. Thank you for your participation. I'm going to start, and then Fred can jump in. Dynamics for the second half. We've done our homework, renegotiating contracts, commercial policies in terms of prices, terms, and focusing on efficiency and reducing expenses. What can we expect for the second half of the year? Increased growth in businesses of higher margin and higher ROIC. As contracts have been renegotiated, especially in hospital distribution, now we are going to focus on having growth with profitability from this business.
We want to pick up growth thanks to the renegotiation of contracts. Focusing on cash generation, as Fred pointed out, as cycles are all properly matched. Inventory will be supported by accounts payable. Accounts receivables will have a different kind of picture in the third quarter. Growth will be on cash generation and reduction of leverage in the second half. We are very confident on our plan and our deleveraging curve for the company, taking us back in June 2027 below 3.5 x, which is our original covenant. The curve will start going down in the next half. Yes, we are going to have cash generation and deleveraging resulting from cycle, cash generation, and the impact of LTM EBITDA going up. We wanted to have the reorganization of our commercial terms in the first half.
Second half, we are going to have flat sales, as Fred said, less variation of revenues, but some businesses are going to grow more than the others. In terms of gross margin, especially from hospitals, that's where we have the main increase in margin. Retail had a positive margin aligned with what we had in the first half last year, and there was an increase of top line. The main result from increase in margin came from distribution, from vaccines, and segments in which we were more emphatic in changing our commercial practice and renegotiating contracts. Great. Thank you. Thank you for the answers. The next question comes from Samuel Alves, BTG. Good morning, Leo, Fred, everyone. I have two questions here. First, about receivables anticipation actions.
I would like to understand because I have the impression that you had 45 million of anticipation of receivables below what was done in the first quarter, just to validate if I got that straight from your results release. Ask whether the company intends to do it again in the future, considering your confidence in the deleveraging plan. My second question is about your deinvestment agenda. I know the top management is focused on this deleveraging contract you are working on, your debt covenant. Do you expect to have more disinvestments or not? I'm going to answer the first part. In this quarter, we had 250 million of anticipation of receivables. It had been 210 million in the first quarter, so BRL 40 million more than the first quarter. Thank you for your questions.
Reinforcing our plan of operational deleveraging of the company that we've agreed with all of you in the end of last year does not include the investment to include the company in all its operational indicators, but in our covenant below 3.5 net debt over EBITDA. We are on track to deliver that and very confident that we can deliver that in the second half of the year, beginning of next year, this plan that does not depend on the investments. That said, even executing operational improvements, we'll still have a company with a leverage level which will be high, considering the interest rates of the market. We are always paying attention to opportunities. If it makes sense to speed up the curve of deleveraging of the company, to release capital, to resume investments in businesses that have better ROIC and investment opportunities, we'll consider them as they can speed up deleveraging.
We don't depend on them to execute our operations. Great. Thank you very much. The next question comes from Felipe Amancio, Itaú BBA. Hello, good morning. I have two questions. First, concerning labs and vaccines in this industry. The performance was a highlight, 47% increase, and even last year, it grew significantly. What was the main driver of this growth in the quarter? Do you expect that the segment is going to get more and more share and improve margins? Secondly, about competition, especially hospitals and clinics. To understand whether there have been any players being more aggressive in terms of prices or whether we have had exactly a similar situation to previous quarters. Thank you, Felipe. I'm going to start answering your questions. Concerning labs and vaccines, let me set them apart because they have different systems. In vaccines, we've maintained our market share over 50% in the channel.
There had been no significant growth in share. We've grown aligned with new launches and penetration of vaccines, some for adult vaccines, as Fred has said, launched over the past 24 months, and a vaccine for bronchiolitis recently launched. I think we've been executing growth and maintaining market share with profitability. We've focused on profitability. We've improved substantially the margins of vaccine this year, not only with significant growth, but an increase of margins which was quite sizable. In labs, things are different. This is a result of our commercial dynamics, getting new contracts and having negotiations where we had no share, so now having more machinery, getting more market share in the channel. This is something that's going to gain more momentum in the second half. The negotiations that we've been making are going to be perceived in the results of the second half.
We are very excited with the partnerships of new suppliers and partners and some contracts that we have signed in the first half of the year. Concerning competition, there had been a positive dynamic. We did not know how it would work. We have taken a leadership role in obtaining profitability and changing the commercial dynamics, especially in the hospital channel. We were not sure really how the competition would behave, but we've seen that most competitors, most really of them, have followed our movement, have understood that things have to change, especially accounts, receivables, and terms offered to customers. We've taken the leadership. Competitors followed along. Even those that tend to be aggressive have somewhat reduced their initiatives.
I think the competition has followed our movement, something extremely successful as a strategy in the first quarter and first half of the year, bringing up our margins and our working capital. Great. Thank you very much for your answers and have a great day. Let me remind you that to ask a question, you should click on Q&A on the lower portion of the screen. Write down your name, company name, and join our queue. Please hold while we collect the questions. The next question comes from Rena Prata with CITI. Good morning. Thank you for taking my question. Very quick question indeed. About the repurchase of the bencher. Are you coming to the end of the plan? I'd like to ask about a follow-up on lab and vaccine.
I've realized it was strong vaccines explained by the expansion of market, new launches, but I would like to know about the perspective of growth for the second half of the year. Can we anticipate that kind of growth in the second half of the year? Thank you. Let me go first talking about the bench repurchase. The BRL 75 million that we have agreed on and have repurchased in the renegotiation of covenant have already been done. The program is still open, but now the execution will be made only when the company realizes our opportunities. We don't have any specific perspectives on following exactly what we had done in the first half of the year. It was BRL 5 million every week. Now it might happen, but at our own discretion, if we understand it makes sense. The focus on cash generation, deleveraging will open opportunities for new buying back.
In terms of lab and vaccine, yes, we can expect continuing growth, a two-digit growth of this channel for the second half of the year. That's what we've been observing, growth with profitability. The growth in vaccine had nothing to do with influenza vaccine, for example, which would be seasonal. It hasn't resulted from that. It has resulted from other vaccines. Labs and vaccines will continue to be channels contributing to our share and improved margins. Thank you very much. Once again, to ask a question, please click on the Q&A icon on the lower portion of the screen. Write down your name and company name to join our queue. Please hold while we collect the questions. Our Q&A session is closed now. We'd now like to hand it back for the closing remarks of the company.
I would like to thank all of you once again for joining us on behalf of our team. We are here at your disposal for any further clarifications. We are fully confident on the third quarter cash generation focused on growth with profitability and deleveraging of the company. Thank you very much. See you soon. The earnings release call concerning the second quarter of 2025 of Vivio is closed now. The investor relations area is at your availability for any further questions. Thank you all very much for your participation. Have a great day.