Fleury S.A. (FLRY3) Earnings Call Transcript

Good morning. I would like to welcome all of you to the earnings release call of Fleury for the third quarter of 2026. We have here with us today, Jeane Tsutsui, CEO of the company; Jose Filippo, CFO of the company; and Mr. Renato Braun, IR Director. I would like to take this opportunity to inform that this event is being recorded and that we are also providing simultaneous translation into English. First, there's going to be the presentation of company's results, followed by the question-and-answer session. In the end of the session, Ms. Su will make final remarks. All the numbers are going to be mentioned here are comparable to the same period in the year 2025 unless otherwise specified, and they have been rounded up to the nearest thousand. Before proceeding, I would like to clarify that this presentation may contain information about future events. -- such information are not just historical facts, but would reflect the wishes and expectations of the company's management. The words believe, expect, plan, forecast, estimate, project, target and similar are intended to identify statements that necessarily involve known and unknown risks. Known risks include uncertainties, which are not limited to the impact of competitiveness of prices and services. Uncertainties also include market acceptance of services, service transactions of the company and its competitors regulatory approval, currency fluctuation, changes in the mix of services offered and other risks described in the company's reports. I would like now to hand it over to Ms. Jeane Tsutsui.

Good morning, everyone. Welcome to the Grupo Fleury Third Quarter 2026 Earnings Release Call. In our agenda today, we will present an overview of our performance in the quarter. Then we'll show our initiatives in the area of diagnostic medicine and precision oncology, and we will close with the financial highlights and the Q&A session. Slide 5. We see that in the third quarter of 2026, Grupo Fleury once again delivered consistent results, combining robust organic growth, market share gains strong profitability and expansion of return on invested capital. Grupo Fleury gross revenue reached BRL 2.7 billion in the third quarter, growth of 13.3%. Considering organic growth, the expansion was 9.9%. This organic growth reflects increasing volumes and also capture of commercial opportunities in different regions. Reinforcing robustness of our multi-brand portfolio and the differentiation of our service model at Grupo Fleury. B2C unit, which is comprised of diagnostic medicine units of different brands in 13 states and the Federal District of Brazil advanced 14.1% or 9.3% if recent acquisitions are excluded. The quarter's results reflect consistent gains in market share in several geographies and segments. We observed the evolution in both the premium and in intermediate brands, supported by the expansion of installed capacity, medical excellence and increased product and service offerings. Fleury brand grew 8.9% compared to the third quarter of last year, and it has accumulated 11% growth in the past 9 months. The other brands in Sao Paulo, Greece -- grew 31.9%, performance driven by our acquisitions of FEM and Laboratorios and Lucas and 10.6%, considering only organic growth. In Rio de Janeiro, B2C operations grew 8.9%. And in Miniseries, the advance was 16.4%, and of which 12.6% was organic growth results that show our strength in the largest markets outside Sao Paulo. Our B2B unit comprised of lab-to-lab and diagnostic medicine operations for hospitals expanded 12.7% and unit Novels grew 8.4% in the period. EBITDA reached BRL 672.2 million in the quarter, growth of 12.2% with EBITDA margin of 27.1%. Net income was BRL 262.3 million, with sizable growth of 42.9%. Our net margin was 10.6%, 220 basis points higher than what was obtained in the third quarter, '25. Finally, our ROIC reached 18.7%, 470 basis points higher than in the second quarter of 2023, when we completed the transaction with Instituto Hermes Pardini, a demonstration of our discipline in capital allocation. Slide 6 shows the transformation that Grupo Fleury has been undergoing in 2 fundamental aspects of our strategy, consistent growth and diversification of revenue sources. On the left side of the slide, we see the advance in our revenues. Since 2021, we have more than doubled our revenue from BRL 4.2 billion to BRL 9.9 billion in the last 12 months. Our CAGR has been 13.7% since 2012 with strong results in all business units, brands and regions in which we operate. On the right, we show the results of geographic diversification and operations. The share of B2C went from 83% to the current 70%. We green places such as Mine Gerais, Rio de Janeiro and the England areas of Sao Paulo, creating a multi-brand portfolio with strength in several markets. The B2B unit currently represents 22% of our revenues, and Novo sales contribute significantly to it. There's new sources of revenue may group of lari even healthier and more resilient and enhance our growth. On Slide 8, we present our initiatives in an increasingly strategic area, precision oncology. Grupo Fleury offers a complete portfolio of diagnostic medicine for oncology, including clinical analysis, imaging, pathological anatomy and genomics. More recently, we have expanded the offer of novated solutions for prevention, early diagnosis and customization of cancer treatment. Last month, we started offering gallery. The first multi-cancer early protection test in Brazil, capable of identifying signs of more than 50 types of cancer, including tumors that do not have screening methods. The test has arrived in the country through Genesis, our joint venture with Albert Einstein Hospital. In June, we have also taken over the commercial operational logistics of foundation on trials throughout Brazil, developed by Foundation Medicine, an independent Roche affiliate, Foundation One is based on precision genomics and assist oncologists and hematologists in deciding on the best treatment strategy for the patients. The test was introduced in the country in 2014 and has since then contributed to the most accurate treatment of 25,000 patients. Let me remind you that we have been pioneers in Brazil with Oncotype DX, a test that evaluates the risk of recurrence and predicts the benefit or not of chemotherapy in the early stages of breast cancer, which is 1 of the most recurrent cancer types among Brazilian women. With more than 580 units and 9,300 partnering labs Grupo Fleury brings together infrastructure, scientific knowledge and international partnerships to expand access to new technologies. This advance reinforced the company's role in fighting cancer, contributing to better prognosis, greater longevity and the sustainability of the health system. I now hand it over to Jose Filippo, our Chief Financial and Investor Relations Officer, to present the financial highlights of the third quarter.

[Interpreted] Thank you, Jeane. Good morning to all. We'll continue with the breakdown of financial information for the third quarter, '26. Starting from Slide 10, we see that gross revenue grew 13.3% compared to the third quarter of 25%, reaching BRL 2.66 billion. All our business units performed strongly. With B2C growing 14.1%, B2B advanced 12.7%, and of Zelos increased 8.4%. In the first 9 months, gross revenue grew 12.6%, reaching BRL 7.6 billion. Slide 11 shows the unit of our B2C unit, which represents very good performance in all different areas and brands. We had BRL 1.9 revenues or 18.1% growth compared to the third quarter '25. Excluding the effect of acquisitions of Femi and laboratories and Lucas in Sao Paulo and Hamlin Lima in Minas Gerais, we had growth of 9.3%. In the period, we gained market share in Sao Paulo and in markets such as religion, euromillion do which is a reflection of the power of our brands and actions such as the expansion and optimization of our installed capacity, both in Sao Paulo and in Rio de Janeiro. We had 4.9 million encounters in our B2C unit as an increase of 15.5%. On slide 12, we analyze our B2B unit, which had in the quarter, growth of 12.7% in revenue, reaching BRL 576.4 million. In our B2B unit, lab-to-lab business had strong performance explained by the growth of our customer bases, showing commercial actions, more outsourcing of basic exams. In 2026, the revenues of the unit reached BRL 1.6 growth of 10.2%. Now moving on to Slide 13. We can see that business unit Novos Elos grew 8.4% in the third quarter, BRL 221.4 million revenues. The performance was driven by infusion of noncancer drugs. In the 91st months of 2026, the revenues has reached BRL 617.2 million. The next slide, Slide 14, we show you gross profit, which grew 16.6% in the quarter and was BRL 718 million. Gross margin was 28.9%, increase of 79 basis points. The change in the company's CapEx profile with lower volume investments in IT and digital had a positive impact on the margin as well as the dilution of costs in personnel and medical services, which was caused by the increasing volume of clinical analysis with automated processing. On the other hand, the increase in cost of direct material intermediation of exams decreased the margin by 22 basis points due to the strong growth in the volume of clinical analysis. On the 91st months of 2026, gross profit reached BRL 1.99 billion, growth of 16%. Now moving on to the next slide, Slide 15, we see that operating expenses fell as a proportion of net revenue. 11.1% in the third quarter, '26, over 11.4% in 2025. This variation is a consequence of the operational leverage, resulting from expansion in revenue. Considering the increase in operational expenses, there is an increase in lab-to-lab, which lead to an increase in commercial expenses line, explained by variable compensation of our commercial team. The next slide, Slide 16, we analyzed EBITDA, which reached BRL 672.2 million in the quarter, growth of 12.2% as a result of the increase in operating profit. The margin represented 27.1%, slightly below 2025 because of a decrease in depreciation and amortization in addition to one-off expenses in the integration of Femi. The 9 months of 2026 to present, there was BRL 1.8 billion reached with 12.6% growth and a margin of 26.9%. Slide 17, we see the net income, which was BRL 264.3 million in the quarter, growth of 42.9% over '25. Net margin was 10.6% and over the third quarter last year to present net income reached EUR 687 million, which has an increase compared to 2025. Now Slide 18, talking about investments. CapEx totaled BRL 102.8 million in the quarter reduction of 18.4% over the previous year with less investments in IT, digital, which are more operational and greater focus on expanding the supply and capacity of technical areas. In 2026, CapEx reached BRL 239.1 million. Next slide, Slide 19, we show you the operating cash generation, which grew 11.1% in the quarter and reached BRL 798.5 million. To present Cash operation was [ BRL 1.758.9 ] with cash conversion, reaching and showing our cash generation, cash conversion was very significant. Next slide, Slide 20, we can see that in the quarter, the ROIC of the company grew once again showing our consistency and strategy to allocate capital and generate value for our shareholders. Since the business combination with Hermes Pardini, our ROIC has grown by 470 basis points, reaching the current 18.7%. The leverage in the end of the quarter was low.1x EBITDA over net debt. Slide 21, we show you our cash position in the end of September was BRL 3.159 billion. And here, we have the amortization of our debt, showing a profile with no concentration of payments. in a hypothesis, our current cash will be able to on all our debt maturities for nearly 4 years. Before we start the Q&A session, let me hand it back to Jeane for the conclusion of the presentation.

[Interpreted] Thank you. Thank you, Filippo. I would like to close this presentation by restating the quality of the results we have delivered -- we grew in all our business verticals and in different geographies. We are keeping the pace and preparing Fleury for the future. We have advanced in the integration in record time of Femi, a diagnostic network focused on the female audience that we have acquired in May. In early October, we announced the acquisition of Unilab, the largest network of clinical analysis, [ Lainate Bay ]. The acquisition reinforces our position in the inland area of Sao Paulo, a region with high socioeconomic development and private health care coverage. Our strong cash generation and profitability coupled -- with discipline in capital allocation shows that we have -- we are prepared to continue advancing the outpatient offer of health services. It's worth mentioning that our financial discipline keeps our leverage at very low levels, even after the series of acquisitions we have made. We believe that continuous expansion of our operations is closely related to the focus on preventive medicine and outpatient follow-up of chronic diseases, which are the pillars of the future of the industry. In a country that is aging rapidly, and with the desire to gain years of life with quality and autonomy is increasingly present, a model that prioritize a more proactive system with early diagnosis of diseases, and that provides personalized and accurate treatment becomes an asset for the industry and the society. We aim to contribute to sustainability of the system and the increase in access to health. Constancy and solidity of our results in 1 more quarter, strengthen our conviction that we are on the right track. Thank you. And now we are ready for the question-and-answer session. Thank you.

Well, ladies and gentlemen, we are going to start now our Q&A session. [Operator Instructions] Let me now invite Renato Brown, who is going to carry on this session.

First question, UBS, Olavo.

Good morning I have 2 questions. The first 1 about operational leverage. Commercial expenses increased year-over-year because of variable compensation in Lab-to-Lab and Leble has been increasing significantly with a lower ticket. Therefore, my question is in terms of leverage. With this kind of mix, where can you see margin expansion in 2027? And if you can please give us some more details about the level of commercial expenses over revenue, thinking about the mix. Second question about capital. We've seen strong cash position that you have and the leverage at 1 time also the interest on equity and everything. In this new situation after the presidential elections, and thinking about the monetary policies from now on in Brazil. What can you share with us in terms of priorities, thinking about M&A in regions maybe in Sao Poland and also the return on shareholders with further sharing of dividends. Thank you.

Olavo, thank you for the questions. You are right. Our operational leverage is provided by the volume we currently hold. You mentioned lab-to-lab, but B2C is also part of that. We've grown more in clinical labs, clinical analysis tests, the ticket is lower by test, but we bring very interesting volumes and good margins in clinical analysis. Lab-to-lab B2C have increased the proportion of the share of the stat over the margin, which brings us an operational leverage. And therefore, our margin -- our gross margin benefits from that. Now moving ahead, we believe and of course, not giving you any guidance. But we believe that we will keep on following the same understanding. Growth which results from organic growth, primarily 2 year, we had -- to date, we have 10% organic growth. B2C steel growth but lab-to-lab is also growing -- we have expanded technical areas. We are benefiting from our very good commercial team, -- and yes, there is variable compensation. And we've been restructuring our lab-to-lab commercial teams to gain more markets. But in general, our margin is very healthy. Year-to-date, we've delivered 26.9% EBITDA margin. It was 27.1%, but with an impact of semi integration, and we have put in place a number of actions to capture the synergy with this new acquisition. Moving ahead, we will have gains in efficiency. We'll keep on obtaining synergy from the most recent acquisitions. We've made investments in digital technology, and we are already benefiting from that. Over 50% of schedulings in the state of Sao Paulo are made through digital scheduling, which is also very helpful in terms of gaining efficiency. As you can see, it's a very good path always analyzing top line growth of income, improved margins, very much part of our focus. But there is also ROIC -- our ROIC has been growing quarter-over-quarter. Lab-to-lab has a somewhat lower margin compared to B2C. But the ROIC is very good dispensing additional investments. Therefore, it is a combination, a healthy 1 and we'll focus on maintaining healthier margins in our businesses. Concerning your question about capital, yes, we've generated a significant amount of cash. There are some payments of interest on equity and a payout that was quite high in the past. But considering -- the post-election status and considering the macroeconomic reality, I believe we are really well prepared. We have low leverage. We are always considering M&A and responsibilities. We do not depend on M&A. Our growth is primarily organic -- but yes, we are always open to potential M&As with the same disciplines we've always employed. Thinking about strategic pillar, culture, and discipline in economic financial parameters. I don't know if Filippo would like to add anything.

We'll have concerning capital allocation, we are very much concerned about financial discipline. This is the way we manage, and it's been so for a while. Elevated cost of capital -- we don't think it's going to change in the short term. Therefore, capital allocation will be maintained the same guidelines that we have had expanded ROIC as we've heard, but we are also going to make the necessary capital investments really to offer the best support to our businesses. Especially after the combination of businesses, we've required additional investments in the area of IT and digital technology because of the whole integration. Now we can see some more maturation right, of these investments even though which does need some additional updates and maintenance. But we can see a different kind of allocation -- what we have today in these lines is just a retrofit of our units and some maintenance of equipment. Of course, CapEx is required to meet the needs of operation and growth. In terms of payout, we've had high payout rates because of opportunities in terms of profit and cash position. But this is a decision that is made at the end of the fiscal year. So probably in the beginning of next year, we are going to revisit the situation the decision of the Board. The reference is the leverage company leverage our strategies to maintain lower leverage rates. And this is the metric that we use when considering capital allocation as it has been so -- and this is how we analyze with discipline, with concern to have appropriate control over it. Thank you, Olavo.

The next question by JPMorgan, Gilliam.

Good morning. First, about the change in the working hours, 6 I know physicians are service providers, but I'd like to know about nursing staff, clybiologies. And can you just adapt that? Can you just deal with the new legislation, it might impact your cost in 2027. So what have you been anticipating? Second question about FEM and M&A. What is the ramp up we can anticipate? How have you observed the synergies? And what can we expect in terms of margins for the next quarters?

Good morning, Gilmane you concerning the change of working scale from 6 to 5 to 2, we know it has been approved, but there are a number of uncertainties, especially concerning some specific areas. Health care is being discussed through Armed Anapai Saudi. What would be the impact on health care at large -- these uncertainties still are not solved. We've been monitoring the conversation. We have an active role in these discussions, but there is still no clear definition. In the meantime, we've been working with different scenarios to mitigate the impact. There are some people within hospitals, for example, that work 12 by 36 in terms of their work scale. And we would have to analyze if all units would have to be opened, let's say, during Sunday, for example. So it's a broader discussion. You see in terms of health care. And this is what's been conducted by different organizations. I think health care as it's a very sensitive area because we provide services to the population, we were going to have this broader discussion. Concerning FEM, we've already shared the results of FEM for this quarter. What has led to the growth of other brands reaching 31.9%, and there was an impact on the margin. But -- we are very glad with the process of integration between the companies. There was some time where we planned all the analysis of synergies because there was this period in which the trusty authorities, we're analyzing that. Once we got the okay that the business could be flows, then we started working. So you see as of October, the systems are integrated, scheduling, services and also ERP fully integrated. The important point is there are a number of opportunities in Femi, and we said that during the acquisition, the drop in multiples post synergy will be very important -- and we've been working since day 1 concerning changes in processes, expansion of medical schedule. Femi has a very important brand recall with women, and it offers a number of imaging tests and also clinical labs. Femi used to outsource their labs. It means that now we are going to process it. We have been speeding up the integration of Femi. We are very glad with the results we've reached so far. We have already reduced by 50% the time taken to start and register a patient, right, into the system just by coordinating with our system. And Femi will also have opportunities of growth of offering more tests and also offering more availability of time and test, thanks to the optimization. We are fully dedicated on capturing the synergies from Femi as quickly as possible. And during the fourth quarter, we will certainly have the results of Unilab in a buyer, an acquisition that was made now in the beginning of October. It is an asset that doesn't have to be approved by the trustee authorities. So we are working on the integration with this company. This position that we have in the state of Sao Paulo is really strong Fleury brand is widely recognized and it's been growing significantly. There are other brands in Sao Paulo, which also have observed double-digit organic growth. And now we are even stronger in the inland area of Sao Paulo because there was Confiance acquisition in Campinas, then San Lucas in Rio Claro and now as of the fourth quarter, Unilab in Atibaia and region and Femi here in the city of Sao Paulo. As you can see, we are getting stronger and stronger. Especially in a market that has a very good potential of full coverage of private health care services. The process of integration has been learned throughout time. So now we can do it faster. And certainly, we will see benefits to our group in upcoming quarters and years. Thank you.

Great. The next question comes from Safra Tiago, Mangum.

Good morning, everyone. Great results. I have 2 questions. First, about tax. The tax rate in the quarter was 17%, a significant improvement compared to what we had expected. And we've also noticed a significant decrease of tax rate in recent results. And I believe the company has explained the better use of Lean and also interest on equity. How much of that lower tax rate can show adjustments to previous quarters? And what is the expected level from now on? Is the fourth quarter has different seasonality. Maybe the 9-month rate '26 would be a reference for the run rate from now on. I don't know, if you could give us some indication about that. Second question, CapEx and depreciation. We've been observing a change in CapEx profile for a while, less investments in digital and IT and more investments in the physical or the different assets of the company. How do you anticipate the CapEx investments in upcoming years? And how is that going to impact depreciation and amortization lines maybe the D&A level is a good reference, current one? Or should we expect changes in these lines as well?

Tiago, let me start from your first point. Effective tax rate. We work with always thinking about our budget in the beginning of the year. And as we move on, we try to see how well we are performing, how we can use interest on equity, different investments that would be applicable according to all the benefits of the government. So there is a natural alignment. You tend to be more conservative in the beginning of the year. And as we gather more and more information, we make the adjustments -- what we saw in the third quarter was an adjustment within this, let's say, calibration of numbers, and it took us to an effective rate of the year of 20.1%. This is the number you make reference to. So 17% in the quarter, but 20% year all over year. Last year, the tax rate was 20.8%. So we have maintained the same level. It depends a little bit on the results on interest on equity, et cetera. We can give you really what would be the trend from now on. But considering how we've calculated that and previous year's performance, that can be a helpful reference. And always using all doing all we can to capture benefits. In terms of CapEx and depreciation and you talked about that, it always starts from CapEx, right? Always starts from investment. And as we've just said, in recent years, we've made higher investments in IT and digital because of combination of business and other aspects. This kind of investments just go over the assets and have a faster amortization and the CapEx is now being translated into depreciation and amortization. When we get to the level in which the requirements are going down, and we've seen that year-to-date in '26 lower percentage because of less investment in IT and digital, there is less depreciation and amortization. This is what we've been experiencing -- this is our current standard. And to some extent, this is what we can anticipate as the expected profile. It always depends, of course, on the needs of investment and the amortization time. Depreciation is reflecting this profile. The current level is what would be expected because of the investment lines we've made. That's it. Thank you.

Thank you. Next question comes from Gustavo Tiseo.

Thank you. I have 2 questions. Shane has talked about it, but I'd like to go further. Integrated medicine is an advantage, it's improving margins. I'd like to understand the history, the track record and what's going to make the margins change? Integrated medicine had some more challenging years. 1 year, 1.5 years ago, and now it's speeding up growth. Can you please give us some more details? And what we can expect in terms of margins. We can see some positive indications. What can we expect from now on? 10%, 12%, 15% margin by the end of 2027. Just to understand what you've been thinking about? And secondly, more in the short term, short-term volumes for the fourth quarter. Is it aligned with the third quarter, beginning of October, November? Just to understand if you've maintained strong volumes as we've seen in previous quarters. That's it. Thank you.

Thank you for the questions. So yes, integrated medicine -- and we have diagnostic medicine, primarily B2C, an integrated medicine brings on board a number of businesses such as lab-to-lab, Novoselos and new small businesses. Throughout time, we've been improving our margin as you observed yourself. And this is the trend. Yes, there was some impact from previous years and quarters. The change in our hospital portfolio, for example, whenever we go into a new hospital, we tend to increase volume gradually, reducing costs and improving margins. Likewise, in Novoselos, we have faced some challenges. A competitive scenario, which was stronger in the past in the infusion of immunobiologicals. Now we can see better situation -- we had told you that we are not going to reduce prices to gain volume. We believe that it's important to maintain business profitability. This is what we did. We've done, I mean. And now we can see that a more positive perspective. And in lab-to-lab, spending volumes. Lab-to-lab is a business in which the volume makes a difference. We've developed new technical areas -- the investments in the south of Brazil in for Rappis a large technical area, all focused on lab-to-lab and the whole floor here in Sao Paulo in our operational technical center Polar is all focused on lab to lab. So there is fixed cost at first. But as you grow in volume, there is a dilution of such costs. Even though we are not going to give you any guidance, we see our performance towards improving margins in integrated medicine. The second point concerning our short-term perspective, once again, no guidance being given to you. What we've observed is that the beginning of the fourth quarter is as expected. The fourth quarter and you know it is subject to seasonality because of the holidays, right? The year-end holidays. We tend to speed up some on our investments. Filippo has already talked about CapEx. But in general, there is some level of seasonality -- then we have unit retrofit period of the year. We replaced large devices just taking the best of the holiday season, where there are fewer patients. But the fourth quarter so far has been within the expectations. No changes concerning what we have observed. Year-to-date, our 2 business, B2C and B2B, including lab-to-lab, have performed quite well. During these 9 months, we've delivered total growth of income of 12.6%. Even though there have been a changing mix, and Fleury Brand, our Centena brand amounts to 25% of our revenue growth is smaller than we have for B2C and other segments, including lab-to-lab. But still, we maintain an EBITDA margin of 26.9% year-to-date. And we also have an increase in ROIC because of our discipline in capital allocation. And because of increasing lab-to-lab. We are very confident in what is being observed in terms of capital allocation, market share gains and the combination of all different brands, all different businesses gives us more resilience and the possibility of capturing markets in different sites, different cities. This is really important moving ahead. It's important to have this resilience as an organization to keep on capturing all opportunities. Thank you.