Rede D'Or São Luiz S.A. (RDOR3) Earnings Call Transcript

Good morning, everyone. Welcome to the earnings call of the second quarter of 2026 of Rede D'Or. We are here today with us Mr. Paulo Moll, President; Rodrigo Gavina, CEO of Hospitals; Otavio Lazcano, VP of Finance and IR; and Raquel Reis, CEO of Healthcare and Dental of SulAmérica. This event would take about 1 hour, and the recording will be available at the IR website. [Operator Instructions] Before we should continue, we would like to clarify that any forward-looking statements that are done during the earnings call regarding the business perspectives of Rede D'Or projections and operational goals, financial goals are based on beliefs and premises of the Board of Directors based on information that is currently available. Forward-looking statements are not a guarantee of performance, and they involve risks and uncertainties. They refer to things that may occur or not. General economic conditions, industry conditions and other operational factors may affect the performance of the company and may lead to results that are materially different from those expressed in the forward-looking statements. Now I'd like to give the floor to Mr. Paulo Moll. He will start the earnings call. Please, the floor is yours.

Thank you. Good morning. It's a pleasure to be with you. We've had a quarter of good results are consistent, with an improvement in our financial indicators, the hospitals, even with an occupancy lower than the second quarter of '25%, we've had a gain of margin, which stems from the work that we've performed, the operational efficiency in several fronts. We have a focus in procurement processes, systems, technology, and we would like to highlight that we still have a big journey up ahead. The benefits of all of this, we have a strong growth in oncology. As we've observed in the previous quarters, we see oncology as an important measure of growth and an opportunity to grow strongly. Recently, we've affirmed our expansion at the new hospitals or the brownfields. Focusing on the hospitals that we have a higher occupancy. It's important so we can have the perspective and to continue to grow, grow the company and grow our portfolio. At SulAmérica, we have a great improvement with the portfolio of clients. And I think it's interesting that we have a long-term view so we can create value for the company. For the consistency of the delivery of growth, we have the IPO in -- we had the IPO in 2020, and in the 5.5 years, when we look at the growth of revenue, EBITDA from the view of 2 years ago, we were talking about a growth of the revenue of BRL 15 billion to BRL 60 billion. We're talking about the adjusted EBITDA that grew from BRL 3.2 billion to 12.7 billion over the last months, and the net income that grew to over BRL 5 billion. I would like to congratulate our teams. Few months ago, we've had an award from Newsweek of Best Hospitals in the World. Rede D'Or was the network that got the most awards, and now we've had the news that in the ranking of sustainable green hospitals at Newsweek, Rede D'Or has 29 of the 250 hospitals that are most sustainable in the world. It's fundamental to highlight the work of all the employees. So now I'd like to give the floor to Raquel. I will be available at the Q&A session. Thank you.

Thank you, Paulo. Let's talk about the main highlights of SulAmérica in the quarter. We have 6.1 million lives in dental, a record in 9.7% in 2 months. In health care, 3.2 million beneficiaries, 136,000 additions net last year. Going to the quarter, this quarter, we had a movement of one contract in the administered segment that reduced 50,000 lives, while the other portfolios prepayment, we had an addition of about 40,000 lives. When we compare the 40,000 addition with the first quarter of '26, last quarter, this was 17,000. It shows a clear growth in the second quarter. So consolidated claims in just dental and health had a gain of 3 percentage points when you compare it to the second quarter of '25 and the comparison, but the first one, we had a worsening of 29%, but it's the seasonality that we know, and it's more and more associated to the pre-pandemic scenario. Here, we would like to look at a different number. The consolidated loss ratio with a basis growing 9.7%, this is irrefutable of a more controlled consolidated loss ratio. So when we like to look at the movies more than the picture, this is not just one quarter. This is stemming from 2023 reimbursement, for example, modular. We have over 1 million lives in this segment. The growth of corporation, renegotiation of providers, fighting frauds, consolidated of care and the synergies with Rede D'Or, well, nothing changes in our mantra: growing with profitability and being responsible in sustainability. This is it. Now I will give the floor to Gavina.

Hello. Good morning. Great to be with you. Paulo was talking about the results. I share the same idea. So I would like to thank the employees, physicians, our full team and our patients that choose us ever more every month, our investors and the other stakeholders that are with us. So talking about -- I'm on Page 5. Talking about our issues of volume and occupancy. Paulo mentioned, if we compare the volume of patients in regards to the previous quarter, we rose 6%, we got 770,000 patient days, but if you compare it to the same time of last year, we dropped a bit. We have to remember the seasonality. There was more diseases last year than this year, so the seasonality happens year-on-year. And besides that, you will remember a situation of Paulo, we reduced exposure, and it had a reflection in this volume of patient days, and therefore, an occupancy that is slightly less. We continue to grow the volumes on lives and other procedures, volume of surgery, 10%. And if we look just at the elective surgeries, we grew 11%. So more patients, physicians, they believe in quality and they look for us with a higher volume of elective procedures, so we are verifying that, in general, in our operations. 11,000 Brazilians that were born in this quarter. The number is not huge, but it represents something for our society that is very important. We're also happy with that. It's the moment that the hospitals work with -- one can say with happiness, with a party, and most of the times, this is a volume that brings a lot of happiness. Sometimes you'll get worried, of course, but it's a moment of a great pride and joy for the families. I'm on Page 6. Let's talk about the evolution of the hospital beds. We got to 13,617 hospital total beds. We grew 183 beds year-on-year. We're always growing beds and with responsibility. We grow beds wherever they are needed, where the occupancy allows. And our record shows that we are growing with responsibility where there is demand. But the fact is that we grew 183 beds year-on-year, 110 beds on the last quarter. So I'd like to highlight that we are working firmly and reinforcing the words of Paulo in the continuous search for efficiency. We are getting to a better margin, and the result in the last line is better, even financial. It's a reflection of all of this movement. And also guaranteeing safety and quality for our users so that more and more people choose Rede D'Or and Rede D'Or being an option for our patients, our physicians, guarantees of security and efficiency. And in the search of that efficiency to control the waste in the system. Well, that's it. Thank you very much. And I'll give the floor to Otavio.

Thank you, Gavina. I'm on Page 7. The average ticket growth in the hospital services, the company reported in the second quarter of 2026 in the segment, BRL 9,869 million, a growth of 9.9% in the year-on-year and the increase of a ticket and the reduction of the day-to-day patients. The quarterly comparison, 7.8%, an increase of the average ticket and then an increase of the patient days in 6%. In the center, the accumulated in the 6 months. In the FY, the total revenue, BRL 19 billion, a growth of 12.5% in the same period and a result in the increase of the average ticket, 11.5% and an increase of 1.3% patient days. Here the average -- the evolution of the LTM average figure since June 2020. CAGR, 7.3%, the CAGR of IPCA tax in this time frame is 6.1%. Page 8, same set of information for oncology, infusion and therapies. Second quarter of '26, the company reported a gross revenue of BRL 1,149 million, a growth of 22.3% in the annual comparison, an increase of the ticket, 6%, and an increase in 15.2% in volume comparison quarterly, an increase of the average ticket 2.9%, and an increase of volume 3.9%. In this segment accumulated in the 6 months in this FY, the gross revenue of BRL 2.2 billion, so growing 23%, an increase of average ticket of 6.4%, increase of the volume of 15.6%. On the page on the right, the evolution of the average ticket of the segment since the second quarter of 2025. Page 9, the cost and expenses of hospital services. Company reported for the second quarter, total cost of this segment BRL 6,423 million, a growth of 6.5%, and annual growth of 2.2% in the comparison with the previous quarter. The gross revenue in the two time frames that grew faster than the expenses so that allowed us for the expansion of the gross margin of the company and 2.3 percentage points in the annual comparison or 4.1 percentage points in the quarterly comparison of margin of 6.1%. The net revenue grew 21% year-on-year comparison. We saw a reduction of the relevance of the lines of expenses of the company once you measure as a percentage of the gross revenue. On you're right, we present graphically the general and administrative expenses. In the second quarter of '26, we registered BRL 402 million in general expenses and the cold analysis of the numbers they point to a growth of 23.1% annual comparison, 10.5% in the quarterly comparison. The other date of this record are polluted, impacted positively by nonrecurring events, all positive. Once you do the necessary adjustments to allow for the interpretation of the numbers, we have a growth of 12% and a growth of 2.3%, a growth that is inferior to the growth of the revenue in that timeframe. The SG&A, it's still stable in the second quarter of '25 with these adjustments, 3.7% of fourth quarter of 26.6%. Now on the right, we have accumulated in the 6 months of '26 the expenses of BRL 765 million, a growth of 17.2%, but with the same adjustments to allow for the correct analysis, there is a growth of 11.2%. Now the next page. EBITDA and net income once again in the segment of hospital services, always starting with the information on your left, company reported in the second quarter of '26 an EBITDA of the segment accounting of BRL 2,291 million, a growth of 11.3% year-on-year comparison. A growth of 8.1% in the quarterly, and the margin EBITDA in the quarter of 26%. For the adjustments of the elimination of the nonrecurring events, we have a growth of 18.3%, a growth in the quarterly comparison of 25.7% and an EBITDA margin of 26.6%. Center of the page, the accumulated EBITDA by the segment in the first 6 months BRL 4,411 million, a growth of 18.2% and margin EBITDA of 26.2%. On your right, we have the net revenue consolidated. Here, we have a net income adjusted for amortization. The portfolios of SulAmérica at the time of incorporation in '23, BRL 1,239 million, so BRL 1,283 million, respectively. The net income had a growth of 9.7% and in the comparison annual or 6.9% in the quarterly comparison. Here is a highlight in the second quarter of '25. We've had two one-offs positive adding BRL 74 million during this adjustment. Once again, the net income of the company in the second quarter of '26 had a growth of 17.9%, when the necessary adjustments for the analysis of the data is present. On your right, the net income adjusted reported in the first 6 months of '26 was BRL 2,398 million and BRL 2,487 million, respectively. Now I'm going to Page 11, data on SulAmérica. Paulo and Raquel already talked about the numbers, and let's start with the graph on the top on the left. We have a net income, net revenue of BRL 8,706 million, a growth of 6.9% in the annual comparison. Moving clockwise, the consolidated loss ratio in the second quarter of 78.1%, 3.2 percentage points lower than the second quarter of '25. On your right, at the bottom, we have a growth in the beneficiary and dental -- health and dental beneficiaries of growth. And on the left, the adjusted EBITDA in the second quarter of '26 of the segment SulAmérica, BRL 1,117 million, a growth of 53.2% when compared to the same metric reported in the second quarter of '25. The consolidated EBITDA in the second quarter was BRL 2,904 million, a growth of 18.2%. In the comparison annual, the consolidated EBITDA adjusted by the financial revenues over the consolidated assets was BRL 3,392 million, a growth that is 23.6%. Page 12, debt profile. On your left, we see a cash position of BRL 47,864 million. And technical reserves of BRL 28 billion, a gross debt -- a net debt of BRL 22 billion and the net debt over EBITDA, 1.71x, stable when you compare it to the last two quarters. The analysis of the exposure of this company to monetary shocks and interest rates in the local economy, we have to add the technical provisions of insurers, the cash position and recalculate the net debt of our EBITDA because the technical provisions represent an asset that is relevant for the company and generate a return of Selic and the spread over the IGP-M. So the adjustment of EBITDA of 12 months, 1.1x. Center of the page, we see the data amortization of 6 years. The stability, the average term of 6 years. We have total assets of BRL 113 billion, all substantially are free of any pledge agreement, collateral. The company doesn't have covenants which allows us to do the financial management of the company. And the company is very net, very -- with a lot of liquidity to navigate the scenarios and geopolitical scenarios that are more cumbersome, which is evident when we compare the schedule of amortization, the information is on the right. The cash for the technical provisions, they allow to phase the amortization of the debt until 2032 included. Last page, 13, where we show the reconciliation of the EBITDA of 6 months with the cash flow, and on the left, reported EBITDA for 6 months, BRL 5.8 billion. Then we have the variation of the working capital of BRL 199 million. Here, Rede D'Or consumed BRL 340 million from the nature of the business. SulAmérica contributed with the positive of BRL 579 million. Then we have other balance sheets, negative BRL 214 million. Basically, here, we eliminated the EBITDA, the impact the transference Glória Hospital and the maternity, and we have the payment of rent, BRL 393 million leasing. Then we have BRL 802 million for the payment of taxes. In the first quarter, we added amount Rede D'Or in SulAmérica of BRL 586 million, second quarter, BRL 217 million. Then we have the financial activities variation, a positive BRL 1.7 billion. This is the result of captures of BRL 5.3 billion in the semester, amortization of debt, BRL 266 million, repurchasing of shares, BRL 907 million, the disbursement, the payment of interest of our capital, BRL 1.2 billion, and the financial expenses net in the company of BRL 1.84 billion. Then cash valuation derived from investments, negative BRL 1 billion Here, we have investments in maintenance, BRL 238 million; big and small expenses, BRL 1.3 billion; acquisition of Biocor, BRL 129 million. Here, we have the receivables on the D'Or consultancy 1 year ago and the transference the cash impact of the Glória Hospital positive in BRL 676 million, we got to a cash variation of the company of BRL 5 billion without the effects of the technical provisions and BRL 5 billion. Here, I will close the presentation and we are open to receive your questions. Thank you.

[Operator Instructions] Our first question is Samuel Alves, BTG Pactual.

Two questions, two on the hospital part. First, on the operational ramp-up of which is concentrated, that ramp-up would be the occupancy and drop to see -- where do we ramp up? Would love to get more color. Second question is margin of hospitals, medical materials. You mentioned a movement for the mix of surgery, and here, the number improved a lot. So to understand well if you think that the quarterly logic is more adequate to project for the future, what really happened in the second quarter? Was it a mix but more favorable but you do that comparison in the medical materials over the revenue in the first quarter and the second quarter?

Thank you, Samuel. In the second, medical materials. So at the end of the question, you gave the answer. We suggest that you'll look at longer periods to avoid oscillations in the quarter. Of course, we have a strong work of recording new products stimulating products that are not in Brazil, and that we have quality and that have worked in expanding our relationship with a lot of the big providers that have the potential of bringing more complete line, we are working with that, and we are getting great results in our negotiations. What ends up influencing this number over the revenue is a mix. And that mix, we can have variations according to -- well, as oncology gains more representativeness and more surgeries. It's a number that for us to normalize the trends, it's better that you look at longer periods. In regards to the growth of beds ramp-up, we have a concentration in a few hospitals that have a high occupancy. If you look in a way that you'll add to the company in São Paulo, Rio, and the Federal District, where we have a bigger concentration that we ran with assets with high occupancy, and we have the expansion of those beds. And some specific assets in the Northeast, we had an impact in discontinuing a few contracts, and for these hospitals, there is some representativeness and there is a negative effect. So when you look at the aggregate, sometimes you have the question, how are you building the bed, and how do you have places that you discontinue contracts, but the management has to do hospital by hospital to capture the opportunity of capturing the hospital and you have those pinpoint adjustments. You know how much we try to be specifical with the relationship with the operators to protect our receivables. The cycle, we have -- well, you're giving credit to the operator, and we are very careful with this management. And we have to make a few decisions to discontinue the contracts along the lines of what we've done before, an impact that is more concentrated in a few units, and we have the impacts of looking at year-on-year and the second quarter.

Next question, Vinicius Figueiredo, Itaú BBA.

So I wanted to explore the results of SulAmérica. Something that really brought our attention looking at this quarter was the consolidated loss ratio showing quarter-on-quarter a result that is better. Looking at a quarter of advancements of improvements, when you can see your competitors not showing that trend of the cost benefit. So I wanted to understand how is your posture, especially in the dynamics of pricing where we have other players that are with a worsening of consolidated loss ratio, and even the point that we've observed, the representative of Rede D'Or is growing, and this does not hinder the consolidated loss ratio. There is the judicialization. I wanted to understand the qualitative, so it's something sectorial, natural that you've pinpointed. But I wanted to understand what has been the main contributing factors for this increase? Did you see any impact because of the changes in the judicial powers? There is more rationality in the sector, in the industry, those are the points.

Thank you for the question. In the results that we are presenting, when we compare to the other players in the market. So as I told you, we always talk about the same thing. We don't have a silver bullet. There is a regulation that is very consistent. It doesn't matter that you fight fraud if you don't have the other points. So a series of things that we've done for many times. We involve the service providers in new models of remuneration for sharing the risks and to have a sustainable result, to have a description that is rigid, is the word. We've used that. We had a zero tolerance to fraud, that is connecting to your second question, to digitalization. New products, exploring regions that are not obvious. And we -- when we add these points, in fact, it makes us very happy. The main point is that there is a reduction in consolidated loss ratio, but there is a passing of that gain to the beneficiary, so we see a readjustment to the beneficiary that generates a higher permanence of these beneficiaries and an increment in lives. And here, I can add the readjustments that year-on-year, we dropped 4 points. And because of everything that we see, we don't see a trend of an inversion of curves. Another point that we've discussed is co-participation. It was an absolute truth for the new selling and co-participation, but that is truth in collective contracts, 100% of the sales, 60% of the -- in the PME, which is more challenging, more complex for the seller, we see an important elevation of 35% in the small companies, which are the contracts, 30 to 190 lives, 50% come with co-participation. Over 1 million lives implemented with modular reimbursement, a logic of utilization that is less acceptable to fraud, adding reimbursement where it's due, especially for appointments and on our area still getting the part of exams that is combined. And we're getting close to the seasonalities that we've seen. In regards to judicialization, your evaluation is correct. We have reviews for contingencies, they've increased, and that reflects the environment of the judicialization of the sector as a whole. There is a change in the behavior. But there is an important growth in wholesale -- retail, sorry, which is a niche with a consolidated loss ratio that is better. But it brings more litigation, so when we look at the economic math, it's no surprises. And it's not different from the strategy that we are pursuing.

Our next question is Flavio Yoshida, Bank of America.

I wanted to talk about the impact of the high management. When you remove those, we understand that movement, so what is the occupancy? And maybe if you kept more recurring volume to talk about the impact of that, and if there's any operator that can follow that path in the short to long term? My second question is in regards to the second quarter. In the third quarter was very strong. It was a positive effect that is repeated in the third quarter of this year, so I wanted to understand if this is an important quarter. We have the comparison very high, but I understand that there are some favorable wins. So I want to know if there is something that maybe can go against that trend?

Okay. If it wasn't for these contracts, we would have had a healthy growth of patient days in the second quarter, so this is the direction that we can give you. As the third quarter, we don't have any information to share with you. You know that the second and third quarter are the ones that for the hospital, but we don't have any information to anticipate.

Next question, Gustavo Miele, Goldman Sachs.

I wanted to explore two themes. First, regarding the ticket. We come from a few quarters that the discussion of the ticket is very much focused in the -- while the surgery is getting more, but I wanted to get more of a ticket in the optics of the readjustments with the operators. Paulo did a reflection on the -- at the beginning of the call, so maybe a qualitative reflection is that the assortment of services of Rede D'Or is broader. We see a gain of market share, not only in the hospital part but also in oncology. That leads me to believe that today, you're a partner that is ever more important for the paying parties that we have here in the country. So I wanted to understand that at least in the short to middle term, can we think about the company passing on the price and at a higher threshold more than what your comment with the market? The IPCA, you -- do you position yourself as a player with more bargaining in the sector? And is that something that can play in favor to the ticket, again, not in the shortest term, but more for 2027? That would be the first question. Second theme, maybe is a question that has been asked many times, what is even more relevant for every quarter? The allocation of capital. We have another quarter, deleveraging once again. We know that in the second quarter, we have a payment that is relevant for the dividends, extraordinary dividends, so we have an oscillation at the end of the year, but it seems at a level of threshold that leads us to believe that other decisions for capital allocation should be taken, so I wanted to understand if this makes sense, and do you see opportunities that are more interesting for the rest of 2026?