Earnings call transcript: CM Hospitalar Q3 2025 shows stock surge despite revenue miss

CM Hospitalar SA reported its third-quarter 2025 earnings, revealing a mixed financial performance. The company posted an earnings per share (EPS) of -0.15 USD, surpassing the forecasted -0.1807 USD. However, revenue fell short of expectations, coming in at 2.83 billion USD against a forecast of 2.98 billion USD. Despite the revenue miss, the company’s stock surged by 13.64% following the announcement, reflecting positive investor sentiment.

Key Takeaways

• EPS exceeded expectations by 16.99%.
• Revenue fell short by 5.03%.
• Stock price increased by 13.64% post-earnings announcement.
• Improved EBITDA and cash generation.
• Strategic focus on high-margin business lines and operational efficiency.

Company Performance

CM Hospitalar demonstrated resilience in its third-quarter performance, with significant improvements in operational metrics. The company reported an adjusted EBITDA of 273 million BRL, up from 153 million BRL in the same quarter last year. The EBITDA margin improved to 6.1% from 5.2%, and gross margin expanded by 1.4 percentage points year-over-year. These improvements highlight the company’s successful operational turnaround efforts.

Financial Highlights

• Revenue: 2.83 billion USD (missed forecast of 2.98 billion USD)
• Earnings per share: -0.15 USD (beat forecast of -0.1807 USD)
• Adjusted EBITDA: 273 million BRL (up from 153 million BRL in Q3 2024)
• Cash generation: 167 million BRL (nearly 30% improvement year-over-year)
• Net debt: reduced to 2.8 billion BRL

Earnings vs. Forecast

CM Hospitalar’s EPS of -0.15 USD surpassed the anticipated -0.1807 USD, marking a 16.99% surprise. Despite the positive earnings surprise, revenue fell short by 5.03%, reflecting challenges in meeting sales expectations. This mixed result is consistent with the company’s historical trend of fluctuating performance metrics.

Market Reaction

Following the earnings announcement, CM Hospitalar’s stock surged by 13.64%, closing at 1.50 USD. This positive market reaction suggests investor confidence in the company’s strategic direction and operational improvements, despite the revenue shortfall. The stock’s performance is notable given its 52-week range, with a high of 2.33 USD and a low of 0.83 USD.

Outlook & Guidance

Looking ahead, CM Hospitalar remains focused on expense reduction and improving working capital management. The company aims to achieve a leverage ratio of 3.5 by 2026 and expects further margin improvements. Strategic initiatives include continued growth in the laboratories and vaccines segment and optimizing accounts receivable and inventory management.

Executive Commentary

CEO Leonardo Biro emphasized the company’s operational turnaround, stating, "We closed 2024 and started 2025 with full focus on the operational turnaround." VP Finance Federico Donni expressed confidence in achieving the target leverage ratio, saying, "We are on the right track to go back to a leverage of 3.5 in 2026." Biro also highlighted market growth opportunities, noting, "The market is still growing. There is growth to be captured."

Risks and Challenges

• Revenue shortfall and sales challenges.
• Maintaining operational efficiency amid market competition.
• Achieving targeted leverage ratio in a volatile economic environment.
• Managing supply chain disruptions and inventory levels.
• Navigating macroeconomic pressures affecting healthcare spending.

Q&A

During the earnings call, analysts inquired about the company’s business seasonality and potential for further gross margin improvements. Management confirmed ongoing efforts to optimize accounts receivable and inventory management and plans to refinance debt in Q4 2025/Q1 2026. These initiatives aim to strengthen the company’s financial position and support long-term growth.

Full transcript - CM Hospitalar SA (VVEO3) Q3 2025:

Conference Moderator, Viview: Good morning, everyone. Thank you for waiting. Welcome to the conference call to release the results of the 2025 of Viview. Those who need simultaneous interpretation, this tool is available on the platform. To access, just click on the interpretation button through the globe icon at the bottom of your screen and choose your preferred language.

For those listening to the video conference in English, there is an option to mute the original audio in Portuguese by clicking on mute original audio. This conference call is being recorded and will be made available on the company’s Investor relations website at www.vivio.com.br/ri, where the complete material of our earnings release is available. You can also download the slide deck at the chat icon even in English. The Information contained on this presentation and any statements made during this conference call related to the business perspectives, projections, operational and financial goals of Vivo are beliefs and assumptions of the company’s management and are based on information currently available. Forward looking statements are not guarantee of performance.

They involve risks, uncertainties, and assumptions because 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 vView and may lead to results that will be materially different from those expressed in such forward looking statements. Now, we have here with us Mr. Leonardo Biro, CEO, Federico Donni, Financial Donnie, Vice President for Finance and Administration and other Executive Directors. Now I would like to turn the conference over to Mr.

Biro, CEO. Please, Mr. Biro, you may start. Good morning, everyone, and thank you very much for being here, for the announcement of the results of the 2025. First of all, I would like to tell you at the beginning of the year, what it was like.

We closed 2024 and started 2025 with full focus on the operational turnaround that we defined in 2024. And they are based on three pillars: working capital, going recovering our cash generation. That was the top priority, quality versus quality. And after many years of very fast growth, both organic and through acquisitions, we understand now the time is to focus on quality, quality of our sales, internal processes, delivery, service level and last, operational excellence. So to do more with less, to be able to improve our processes, and our systems so that we will, recover the service level during 2025.

Based on that priorities, we defined a few goals and improvements expected during the year. Number one, reduce the growth pace adjusting our operation, focusing on efficiency and cash generation. Number two, we needed to look at all the businesses we joined and started operating, over the past few years to understand which ones have below expected ROIC and to focus on those with better margins and improve the margins of all our business lines. Number three, reduce expenses and costs in line with the efficiency project that we designed during 2024 in partnership with Galeasi. This was only going to be possible after all the mergers and integrations that took place after 2025.

It was more than 18 new companies, nine distribution centers. A lot happened in 2024, and this would enable our cost reduction and efficiency process. Number two, rebalancing our working capital, focusing on improving the cash conversion cycle. Number one, reduction of absolute inventories of the company. While accrued revenue dropped by 3%, absolute inventory reduced by more than 200,000,000 or 13% if we look at the snapshot one year ago, all of that improving service level that is acknowledged by our customers on the front end.

We recover excellence in service at the same time as reducing inventories significantly. At the same time, we wanted to extend our permit payment terms to suppliers. Now we have the funded inventories. We want to reduce accounts receivable. We renegotiated most of our contracts with our customers and partners along the second quarter, reestablishing terms and times that were much more sustainable and appropriate to the reality than our business today.

And lastly, the result of everything is a gradual improvement of our EBITDA margin that we saw happening along the first and second quarters, but now more markedly after Q3. Many actions are still going on. And the main strategic projects, we still have many captures to that will come along future quarters. And I would like to highlight some here. Number one, inventory management.

We have come a long way. Today, we have inventory levels appropriate to our level of activity where we should be, but there is still room to improve even further our efficiency inventory management. Portfolio and pricing. We have improved the gross margin of all our businesses. In addition to improving margins through the mix, we also had individual improvements in each one of them, but we still have lots of room for more intelligent pricing to improve the group sales of so many products that we have.

Contract renegotiation with customers, especially in accounts receivable, we have benefits to capture, especially in 4Q this year. And we are going to go into 2026, seeking renegotiating even better and more sustainable levels. SG and A reduction. We still have other opportunities to further reduce our expenses along future quarters, not just to optimize freighting, where we have invested a lot in technology along 2025 to improve visibility and management of freights, but also in sourcing a freighting partner that we did in the second half of the year. We still have many benefits to capture from that along 2026.

So many of these projects are still going on and still producing gains, not just in the fourth quarter, but also in the 2026. As highlights of the quarter, and Fred is going to give you more details about this. Number one, the gross margin. We have reached 1.4 percentage points in expansion in the gross margin as compared to one year ago. And the fourth improvement in a sequence.

So improving pricing, improving profitability of each one of our businesses and still grow in those ones with better margin. And so this leads to continuing improvement of our gross margin. And then combined with expenses that grew below inflation this year, for the fourth quarter in a row, we see the EBITDA margin going from 5.2% in Q3 ’twenty four to BRL6.1 billion in 3Q ’twenty five. Cash cycle, once again, with two days shorter than it was in the 2025, and cash generation was BRL167 million in the 2025. If we take all advances of receivables and everything else, we had almost 29% increase in cash generation in 3Q versus the same quarter last year.

And our net debt, which peaked in March at 4.5%. And as a reminder, we asked for a covenant waiver up to 5%, but we never got there. We have reversed the curve. We are at 4.17, and we are sure that this curve is in a downward trend. Last, default, which is an important piece of news this quarter, And we have always had a great, trust in the recommendations of our lawyers, and we always understood that this was not a due, charge.

But at the ’24, despite that understanding, we were conservative, and we provisioned more than $350,000,000 in Q4 last year for that. And now with definitive decision, in line with what we always believed, are reversing almost BRL three fifteen million this quarter. This not only gives us the assurance that this is not something that will come back in the future, but also, we know that what we were doing is what we believed in. And then the team can give you more details about the main differences, how we allocate the default. And now I would like to give the floor to Fred to go into the details of the financial result, and I will be back for the Q and A.

Good morning, everyone. I’m going to start on Slide number nine, talking about the revenues of our main businesses. So starting in hospitals and clinics, there was a reduction of 8.6% with BRL 2,000,000,000 in revenue. And we talked a lot about this, that this movement would happen especially after the third quarter, considering that during the second quarter, we implemented the renegotiation of new contracts. And then we decided to give up contracts that, in our understanding, did not have good terms in terms of times, profitability or ROIC.

They are not providing the returns that we thought were the best for us to continue with them. So this was very much expected, anticipated. And you can see that the effect, despite the drop in revenue, the gross profit was higher with an increase in the gross margin as you’re going to see. Now in laboratories and vaccines, we are robust. We have been growing over the last few quarters.

And here, the growth has been driven especially by many launches that we are having on this segment. And also most of this is focused on adults, which is not so common. Vaccines are usually very much focused on children, but we have launches for the adult population. And this explains the robust growth that we are having on this channel this year. Now continuing, you can see retail.

So in retail, we resumed a more robust growth along the third quarter. And here, there are many categories, where we are seeing a significant growth. And this segment has gross margins that are much higher than what we see in other business lines, And we are confident that we are on a significant path for growth in this business line. Lastly, the service business line, we saw some resumption below the potential in our opinion. But I think we see indications that we have been able to stop the drop in revenue that we have been seeing along several quarters.

So service is an important channel. It’s smaller, but it is a channel that is part of our strategy, and we really bet on the future of this segment. Now continuing our gross profit. As I said before, we grew 6.5% despite, the shrinking in revenue. So here, we can clearly see our trajectory of growth in gross margin.

So here, in this chart, you can see XMED, we have been growing consistently from the beginning of this year. So we were flat, in the second half of last year. And as I said, with all the actions, we have been growing consistently quarter after quarter, in gross margin. It’s also important to mention here that we are not increasing gross profit because of mix. What we see here is the growth the growth in gross margin, then we have grown in practically all segments in addition to the mix helping because of the growth in retail.

And in the year, you see a growth of about 0.8 percentage points, growth that is quite significant and in line with the company’s strategy, strategy that we have been adopting since late last year. So as to expenses. So here on expenses, considering the impacts that we have, the default, So the lines are kind of messy, but part of default goes to different lines, especially legal fees going to SG and A. So the lines in the quarter are kind of polluted. But when we look at the expenses, ex nonrecurring effects and depreciation, you can see a growth that’s significantly below inflation.

We grew 1.8% in the quarter. And in year to date, we grew 2.3%. So expenses are very much under control. And as Leo said, we are still seeing opportunities to capture additional savings in expenses and especially in some specific lines such as freight. We still have in logistics.

We’re still reviewing our, distribution structure, and we believe, we still have space to be able to capture more efficiencies in our, expense lines. In EBITDA, in a sequence, we have been improving EBITDA margins. So we went from 5.2% of margin in the third quarter last year, but and we are getting slightly above to that with a growth quarter after quarter. Also a significant growth in nominal EBITDA, 153 in the third quarter last year, two seventy three in third quarter this year. So it’s slightly below the second quarter.

But this quarter, there’s no cement, so this is a very good result. It’s very good, and it is in line with what we have been saying in terms of gradual recovery of results along the year. So it’s three consecutive quarters of better performance, and this is very much in line with everything that we discussed along the year and at the end of last year when we, implemented the plan to recover the company’s results. So $500,000,000 of $510,000,000 of adjusted EBITDA in the first nine months of this year, a growth of 4.6% and the margin expanding from to 6.1. And then financial results, it was affected positively, by two effects, so partly by the default and partly correction, and then the correction affects the net investment income.

And, there are other factors that helped improve the investment income. And when we look at the last line, the adjusted net income, even if we clear out non all nonrecurring one off effects of default, so the adjusted result is BRL42 million this quarter, significant improvement, compared to the third quarter last year. And in the year to date, numbers are also better than we had last year despite interest rates that are considerably higher, which somehow harm the bottom line of the company. Now going into cash generation indicated in working capital, we generated about BRL 167,000,000 of free cash this quarter, even discounting and adjusting in advanced receivables. It was the same as we had the previous quarter.

There’s no difference in cash generation. Cash generation ex receivables, advanced receivables. This is better than the third quarter last year, almost 30% improvement. Also in year to date numbers, $211,000,000 cash generation versus BRL 169,000,000 last year, 25% increase in cash generation. And we continue with expected cash generation that is very solid for the fourth quarter this year.

And cash generation that, in our opinion, is sufficient to cover all the service of the debt despite the highest interest rate levels that we have had in the last decade, at least. So numbers today are solid. Our cash generation has gotten better and will continue to get better. And, we still have benefits to capture in working capital management, which will help even further, the results of the fourth quarter. As to cash cycle, we have had an improvement of about two days in our cash cycle ex, accounts receivable, anticipation, and one day in the same period last year.

So when we look at our working capital, in, over net revenue, we’re also getting better. We were at 18% last year, and now we are almost one percentage points, better. So we are at about 17%, low 17% in terms of working capital over net revenue. And this is a significant improvement in relation to previous quarters. Now our debt.

So the net debt ended at BRL 2,800,000,000.0. So this is important. We reduced almost BRL 50,000,000, the company’s debt. And here, there are some positive effects in terms of the repurchase of debentures. And what we are seeing is that the company’s net debt, is already in a downfall trajectory.

Of course, it’s still small, but combining the reduction of the debt with better operational results, we have a leverage, that is 4.17, well below what we have well below our covenant for the fourth quarter. And we are on the right track to go back to a leverage of 3.5, in the 2026, which is what we have negotiated with the debentures last year. So as to the results, these are the main highlights. And now, we can move to our questions and answer session. Are now going to start our questions and answer session.

As a reminder, if you want to ask a question, please click on the q and a icon at the bottom of your Zoom screen and type, your question or click on the raise hand button. Once your name is announced, you’re going to see a pop up to open your microphone. You need to click it, open your microphone and ask your question. We kindly request, that you ask all your questions at once. Please wait while we collect questions.

Our first question comes from Felipe Amansu from Itau BBA. Felipe, your microphone is open. Hello. Good morning, everyone. I have two questions.

Number one is about cash generation. I remember there was a discussion, related to seasonality. In the first quarter, we’d take up lots of cash, and this got better and better until you got to the fourth quarter. And even though the seasonality was kind of lost in recent quarters, once you normalize result, does it make sense for us to think that the seasonal dynamics will come back? This is question number one.

And the second question is about profitability. The company has demonstrated an improvement in gross margin along the quarters. But how do you see possible gains in efficiency? And also considering the company’s mix, what’s the structural margin mix that you think is the healthiest for the business? Thank you very much.

Well, Philippe, how are you? Thank you for the presence. Thank you for your questions. I’m going to start answering. As to cash generation, yes, the business seasonality still exists, even though it was not so present.

We have a seasonality in the first quarter when we build inventory with cement turning from March to April. So in the first, quarter, it takes up inventory, strong sales in March, and then accounts receivable is sixty days. So there is a strong cash generation in the second quarter. And then along the second quarter, these effects are no longer present, and there is a growing cash generation along the year. So there’s still there.

And as Fred said, we can see in the fourth quarter a continuation of the company’s cash generation. As to profitability, yes, we do see room for the gross margin to get better and better along the future quarters, also, maturing some initiatives that we haven’t yet captured, fully and also better mix. So for example, our retail business. So the wipes factory, our main category, we it turned around in the June. We’re still in ramping up for this operation, and we are going to capture margin improvements that are more pricing initiatives, revision of product portfolio for us to prioritize lines and categories with higher margins.

So So yes, we can expect improvements in the gross margin in future quarters and in 2026. Great. Thank you so much. Our next question comes from Gustavo Miele from Goldman Sachs. Mr.

Miele, please, you may ask your question. Hello, Leo, Fred. Thank you very much for the presentation. I have two questions to ask. Question number one is about the business units of hospitals and clinics.

I think that this reduction in growth year on year, as you said, is apparently the result of much more of streamlining, so to speak, of contracts that you have on this business line. My question is, what about the KPIs in the contracts that you decided to keep? Could you tell us about price renegotiations and maybe increasing the scope of the products that you are distributing to your partner hospitals? So I think it would be interesting so that we have an idea of how this vertical is evolving on a comparable basis versus the quarter in the 2024? And the second question more related to leverage and cash position.

When we look at the debt amortization contract of the company, not just financial debt, there is something close to BRL1 million maturing in the short term for 2026 versus the company’s cash position that is still slightly lower. So what are the liability management plans like for future months when, the rolling of the debt so that amortizations can be met within those times. Well, first, the hospital and clinic business unit, and then I’ll talk about leverage. So this is the business that we have increased the most our commercial discipline and have reduced our sales during the year with a 6% drop in year to date numbers in revenue so that we have the necessary commercial discipline and renegotiate, not just considering margins, but also times. And we think that we were very successful in doing that, especially in the second quarter this year.

The market is still growing. There is growth to be captured in this market. We decided to organize things not to grow right now. And the good news is that when we look at September and October, in September, we are, even as compared to the previous period in October, we have had a significant growth in hospitals and clinics, growth in margin levels and with appropriate working capital levels. And now from now on, yes, we can expect a gradual recovery of growth in the segment of hospitals and clinics, considering what is suitable to our cash generation and our deleveraging process.

As to the KPIs, well, there are many things that we monitor. Service level of the contracts that they are very demanding. And the good news is that we have very positive feedback of improvement in our services. So the margins of our products compliance with the mix. So if the contracted mix complies or not with the mix that we are selling on a day to day and many others that we analyze internally and sit down to discuss with our customers every month.

But the overall message is this is that, yes, we are going to recover growth in this channel to at an appropriate ROIC level. As to maturity dates after next year. So every period, there are important, maturities over the next five years, 1,000,000 next year, and then a volume slightly below that in ’27. In the company’s vision, all of this is going to be refinanced. We haven’t yet started conversations with our creditors to work on that financing, but our idea is to start this work after the third quarter.

And we haven’t started these discussions because in our understanding, we needed at least to have a three or four quarters with consistent results considering what we discussed last year when we asked the renegotiation of our covenants. We have been delivering strictly what was discussed and even slightly better. So we think that from now on, we are at a result level that allows us to sit down, with our main and to rediscuss the refinancing after 2026. And we are going to start on the fourth quarter, and this will be discussed along the first quarter next year. Our next question comes from Gustavo Dizio from the Bank of America.

Gustavo, please. Morning, Biro and Oldani. Thank you very much for taking my question. I have two questions. One about cash generation and the other one about the fourth quarter.

We have seen providers with a very high volume of procedures that may have helped the industry as a whole to be slightly stronger. Do you see any seasonality in the third quarter that may have helped you with your margins, maybe to structure better in terms of cash generation? Or is it just a flow that this is what you have redirected, there’s a whole work and margins will be slightly more structural in the future. And the second is related to structural cash generation from now on. So you have better margins, and that might come up, in the future.

But if you look at receivables, you mentioned during the call, how much space is there for improvement looking into the future? Can you reduce it by five or six days so that we just have a feeling of the potential reduction to try and match the evolution in cash generation and to understand, it slightly better. Thank you very much. Thank you, Tizio, for, your questions and for being here. So the seasonality, we didn’t see much difference in the third quarter.

This improvement in margin and mix is much more related to our internal work to look at each product category, each business unit, each contract to improve the mix. We didn’t see seasonality. September was a good month for us, and October going to the fourth quarter was also a very strong month and same thing as September, and we are seeing November at the same levels. So, yes, there is an improvement of procedures and everything, but we don’t understand that the results of the third fourth quarter will have any impact. And we think that the market has been going at double digits, and we can, go back to capturing market share at ROIC levels much better than we had last year in the beginning of this year.

As to, the generation of structural cash, Fred is going to comment on that. Okay. As to improvement in the cash cycle. Yes. We do see improvements.

It’s not so much. These are more one off effects, one, two, three days sometimes. So inventory, we are still seeing some between one or two days, and it’s not going to be just one quarter. And we have been working very hard to have an accuracy level that will be much better. And so we are at a very good level already, but maybe we still have one or two days to improve in terms of inventory.

And accounts receivable, the renegotiation that we had this year was very important but has not yet led us to the levels that we would like to have. But for example, I have no more. I only have a few times, of, ninety days. But the idea is that next year, we will no longer have any, payment times greater than sixty days. We didn’t want to go straight from, 01/2020 to 60 because this is a very big impact for our customers, but we want to take it down further and further, closer and closer to sixty days.

And this is going to happen next year in the second half of next year when we move on to the renegotiation, round. However, accounts receivable is related to current days. Inventory, not. We are improving it gradually along the quarters, and this is related to internal management and accounts receivable. We are going to have a very good cycle next year.

Of course. Yes. Thank you very much. Our next question comes from Renam Pratta from Citibank. Mr.

Prata, please, you may ask your question. Hello, good morning. Very thank you very much for taking my question. Number one is just a follow-up on the presentation. I think the beginning of the presentation, Leo said that you still have 95,000,000 in provisions of default, related to 2021.

Can you explain that to me, please? Why didn’t you reverse it now? Is it going to be reversed or not? Just a quick follow-up on that. And the other, is the competition in hospitals and clinics.

So you say they’re still growing at double digits, but we see both Vivo and a few other players with a slight slowdown in the growth in that segment. So what is the competition like? How do you see competition in that segment? Well, Rena, I’m going to start with default, and then Leo is going to go into the second part of the question. So the trial in the Supreme Court was related to 2022.

It was not related to default ’21. Default ’21, the discussion is state by state state. It’s different from default. It’s related to the, Supreme Court modulation. So if you cancel the collections of everyone that had a lawsuit for the 2021, it’s different state by state.

So in some states, we had favorable decisions. So why do we still have provisions? Because in some states, we are expecting to win, but in some states, we are forecasting that we will lose. So this amount is related to states where we might lose that we still have default ’21. We think that in the next two years, we will have 100% of the court decisions finalized.

So it’s important to make it clear that the Fund ’22, which was the highest amount, It was closed with a final decision by the Supreme Court now in the October. Now as to the competition, as I said, our business is a business of operational excellence, low margins to make the everyday happen, but there is a growth. The market is still growing at dual digits. We see this not just in medications, but also in materials. In materials, we have been growing a lot during the year.

In materials, for example, we have been growing a lot this year in government, too, growing, and we are very selective for whom we sell in the government. In many other categories, we are still growing. For the competition, what we saw happening along the years that our movement of commercial discipline has led many to follow us in this movement, and we’re able to follow this trajectory, also relieving in terms of interest rates and dynamics. So we have one competitor that is usually more aggressive than us in terms of payments and prices. But on the average, we have seen the competition being more disciplined following our movement of leadership and making that happen.

And we expect this to happen next year, too, so that we are still within the line of discipline that Fred has just mentioned, seeking better negotiations of commercial times and terms, and the competition will follow us in this movement. So we think that it is better than it was one year ago. Our questions and answer session has now ended. Now I would like to turn the conference over for the company’s closing remarks. Well, once again, I would like to thank everyone for your presence here today.

I would like to end saying that the 2024 make us confident that the improvement that all operational indicators that improved in the third quarter will continue to improve better cash generation, as we said, for the fourth quarter. And for 2026, our priority is to continue reducing expenses, many initiatives that will improve our efficiency and reduce expenses during the first quarter of next year initiatives to improve the working capital either by the absolute reduction of inventory, better funding of accounts receivable and a few days to seek in accounts receivable and a renegotiation of the times and contracts for next year and the gradual recovery of the growth in the segment of hospitals and clinics with ROIC and profitability that are suitable to the company’s levels. And thank you very much once again, and we are available to any questions you may have in the future. Goodbye. Vivo, video conference has now ended.

We thank you very much for your participation, and have a nice day.

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