Rede D'Or Sao Luiz SA

BOVESPA:RDOR3

Q2-2025 Earnings Call

[Operator]

Good morning, everyone. Welcome to the earnings call of the Second Quarter of 2025 of Rede D'Or. We have Mr. Paulo Moll, President; Rodrigo Gavina, CEO; Otavio Lazcano, VP of Investor Relations; and Raquel Reis, Healthcare and Dental VP of SulAmérica.

The recording will be available at the IR website of the company. We will start the Q&A after the presentation. Before continuing, any forward-looking statements that are done during the conference call regarding the business perspectives of Rede D'Or projections, operational goals are based on beliefs of the Board of Directors available -- based on the information that is available now, and they involve risks and uncertainties, and they refer to circumstances that may or may not occur.

Investors should understand that general economic conditions, industry conditions and other operational factors might affect the future performance of the company, and we might have different results in the future. Now we'd like to give the floor to Mr. Paulo Moll. He will start. The floor is yours.

[Paulo Moll, executive]

Thank you, everyone. It's a pleasure to be with you once again to talk about our results of the second quarter. As all of you seen, the company had strong results. I would like to highlight the main ones. And then with more details, Raquel, Gavina, Otavio will go over the details, but our revenue growing 11.5% on the second quarter of 2024, getting to BRL 15.1 billion. Consolidated EBITDA, BRL 2.5 billion, growth of 18.4% and the net revenue already excluding the amortization of SulAmérica portfolio [indiscernible] growing, growth of 16.7%.

In the hospitals, we, in the semester, grew the operational beds, 10,413. It's a growth of 556 (sic) [ 552 ] operational beds. At SulAmérica, we would like to highlight the growth of lives, [ 128,000 ] lives in health, 2.4% of good growth in the first quarter. Good dynamic of cash generation, good working capital, reduction of leverage, and then we can go over with more details in the operation. But it places us at an operation that is very good to evaluate other opportunities, other projects that we have in our organic expansion or inorganic movement.

I'd like to congratulate the entirety of the team of Rede D'Or. And I'd like to give the floor to you to talk about what we see in terms of opportunity and future gains. Besides the organic expansion that we have announced, 3,000 beds announced until 2028, we see great opportunities for gains of operational efficiency.

We are reaching these results. The healthy margin doesn't mean that we do not have an important set of projects and actions for efficiency gains. For example, we still have 26 hospitals with legacy systems. We're still migrating and we're still going through a process of another 2.5 years to get all these systems and processes that are standard of the company and that will bring relevant gains for the operation of these units.

We, in our revenue cycle, are in a path of automation, digitalization and robotization, certainly with the possibility that is important. We still live with invoicing losses that could have been avoided, and we still -- and we have the best practices within the network itself, running in part the operations. And the rollout is going to be for the rest of the operation that is going to give us important gains.

And I'd like to highlight that our operational model, our sector will be positively impacted by artificial intelligence. With administrative gains that are important of productivity and with the hospitals with the reduction of time, that is spent with bureaucracy. Certainly, this is going to help with the assistance and gains of productivity that is important. We started the project. We're very excited with what we can build in the future.

At the insurance company, I think that artificial intelligence will be fundamental to increase our effectiveness in the detection of fraud, bringing benefits for our operation. To exemplify the opportunities of tomorrow -- in the future, we have 9 hospitals in ramp-up. When we see the potential margins that we should get in the next 24 months, once we get to this margin, we're going to have a contribution of over 2 points in the gross margin of the company.

Just to show you the type of gains and the focus of the operations. And also, I would like to highlight, I'd like to congratulate the teams, we got to 67 points of NPS. It's a level that we haven't reached for some time, especially in the acquired units. But also, we see that the maturing of some units with NPS below our average, we can briefly go over the 70 points of NPS, highlighting that our reference units got NPSs above 90 points.

So I'd like to reinforce to all of you that regardless of the good results, we have a commitment that is very strong to work with the entirety of the team, seeking a stronger company, and we're not going to accommodate facing all the opportunities of improvement that we have up ahead.

Now I'll give the floor to Raquel to continue with our presentation, and Gavina and Otavio, and I'll be back for the Q&A.

[Raquel Reis Giglio, executive]

Thank you, Paulo. Good morning. Very happy to be here once again. And now to talk about the results of the second quarter. Once again, very positive in our evaluation. Once again, the highlight is for our capacity to continue to grow with an improvement of profitability, which has been the mantra quarter after quarter. We added almost 150,000 new beneficiaries in this quarter, 65,000 in health, 84,000 in dental. We've kept the rhythm of growth over the last period.

And this reinforces the proposal, value proposition, the commercial policy, the strategy for the retention of clients with the creation of [indiscernible] Board of Directors and the partnerships with the salesmen that we have throughout our history, all the strategy that has been very on point. In regards to the claims, we have another gain in regards to the previous year, 2.4 points. We have an improvement. And in regards to the previous quarter, as you know, we have seasonality.

The flu and mosquitoes, and this is expected. We are going to continue to balance these with the profitability that is healthy for our clients. To close with balance, the administrative expenses are in a very controlled standard, keeping the focus in the operational efficiency. Well, we are not conformed still, and we want to improve.

And now I will give the floor to Gavina, and I will continue with you for any doubts. Thank you.

[Rodrigo da Cruz, executive]

Good morning, everyone. Page 5. Now I'd like to thank the Rede D'Or physicians, family members for the trust that you deposit in our services every single day and you bring to us. You take and you produce trust that is reciprocal. For us, it's very important, that credibility. If we see the table to the left, we realized that it was a record of patient days, 180,000 (sic) [ 780,000 ] with the occupation of 83%, which is a high occupancy, as you know.

So besides we grow in beds, as Paulo has said, we grow the beds, we kept them busy and we brought, because of all of this trust and safety, more patients, more physicians and more people to our system. And due to this, we can see to the right, we are growing the number of surgeries in a record number with over 130,000 surgeries and showing you the subproducts, so to speak, that we have that not always -- we have 11,000 Brazilians being born with us.

It's a very relevant number for any health care system. 11,000 new people came to light through our structure, physicians and collaborators. We service over 3 million people in our medical centers. So this is a very expressive number. This shows that the work and the trust is -- has more and more repercussion in our medical team and family members.

Page 6. Paulo already mentioned, we got to over 10,413 beds. We grew 256 (sic) [ 265 ] beds quarter-on-quarter. In the year, we grew over 11 -- almost 1,200 beds. We got total number of beds over 13,000. So the challenge is to sustain the quality, the trust so that more beds will come in places that are necessary for the system.

So we can do what we said with efficiency so that all of our operational efficiency, improvement of processes gives a better treatment for patients. Now I'll give to Otavio.

[Otavio de Garcia Lazcano, executive]

Thank you, Gavina. Once again, Page 7. Gross revenue and average ticket, hospital services. Starting with the graph on the left. We reported in the second quarter of this year, total gross revenue of BRL 8.982 billion with a growth of 13.8% comparison year-on-year. The increase of the average ticket in 10.4%, an increase of day patients, 3%. Growth of 13.4% in the quarterly comparison result that is an increase of the average ticket of 1.5% and an increase of patient days of 11.7%. Center of the page. Gross revenue accumulated in 6 months of BRL 16.905 billion, 10.4% higher than the one reported for the same period with the fiscal efficiency and is the result of the average ticket of 2% increase of the number of patient days of 8%. At the right, we present graphically the evolution of the average tickets in June of 2020, CAGR of 7% in this temporal window. And it's a strong evidence for once again reaffirming our model of [ pricing ] of the services provided and the IPCA 2 percentage points, we bring more complexity to our solutions. We see this playing a part.

Page 8. Gross revenue and average ticket in oncology. Once again, graph to the left. Company reported in the second quarter this year, gross revenue in this segment, BRL 940 million, a growth of 17.7% in the comparison year-on-year. The increase of the average ticket of 12.5%, an increase of the number of infusion of 4.9%.

Same way, growth of 8.1% in the quarterly comparison, an increase of the average ticket of 3.4%, an increase of the infusion numbers of 4.6%. In the middle of the page, gross revenue of this segment accumulated in 6 months, BRL 1.809 billion, 17.1% than the one recorded for the same period in the last year, an increase in the average ticket, 12.4%; an increase in infusion, 4.4%. On the right, graph presentation of the average ticket of this segment. Since the second quarter of '24, growth of 12.2% in the comparison year-on-year.

Once again, a growth of 3.4%, comparison -- quarterly comparison. Page 9. Costs and expenses, once again, just to hospital services. On your left, the company reported total cost of the second quarter of this fiscal year of BRL 6.033 billion. It's a growth of 15.7% in the comparison year-on-year, growth of 9.3% in the comparison quarter-on-quarter. Center on the page, accumulated costs in 6 months, BRL 11.553 billion. These are 12.9% higher than the ones reported for the same period of the fiscal -- previous fiscal year.

To the right, we see graphically administrative expenses in the second quarter of 2025 of BRL 326 million, absolutely stable in regards to the previous quarter, an instability in the historical series that was presented.

Accumulated in 6 months, administrative expenses of BRL 664 million -- BRL 654 million, sorry, growth of 18.7% in the annual comparison in regards to the period of 6 months of 2024, we had a few nonrecurrent events. A highlight for the reversal of provision in the amount of BRL 65 million with the historical cost of SulAmérica because of [ ENG ], the capital of the insurance company many years ago.

If it wasn't this event registered in the 6 months of '24, the growth of the administrative expenses in this comparison in this temporal window would be 6%. Let's see Page 10, EBITDA and net income. To your left, an EBITDA accounting of BRL 2.059 billion in the second quarter of '25, growth of 12% in the comparison year-on-year. It's a growth of 23.1% in the quarterly comparison. A margin EBITDA of 25.9%.

At the center of the page, EBITDA accumulated in 6 months by the hospital services segment, BRL 3.731 billion, 6.7% higher than the one reported for the same period of the previous fiscal year. EBITDA margin of 24.9%. To your right. Net income. Accounting and adjusted of BRL 1.129 billion and BRL 1.182 billion, respectively, in the second quarter of '25. In 6 months, a net income and the adjusted net income of BRL 2.148 billion and BRL 2.253 billion, respectively.

Next page. There you have SulAmérica. Let's start with the graph on your top left, the net revenue of BRL 8.148 billion or higher -- 11% higher than the year-on-year comparison. On the top right, we see consolidated loss ratio of 81.3%, 2.3 percentage points lower than the one reported in the second quarter of the previous fiscal year.

[ So ] to the right top -- bottom, health and dental beneficiaries. We see a graph that is consistent of the client base of the company. And last, bottom left, an adjusted EBITDA of BRL 730 million for the second quarter of '25, growth of 50% in the comparison year-on-year. The adjusted EBITDA consolidated with the company in the quarter of BRL 2.745 billion is 16.3% higher than the one reported for the same period of the previous fiscal year. In the same way, the consolidated EBITDA adjusted accumulated in 6 months of BRL 5.386 billion is 18.6% higher than the one reported in the fiscal year of last year.

Page 12, debt profile. We have BRL 37.1 billion in gross debt. Net debt, BRL 17.3 billion. The net debt over EBITDA, 1.65x. If we add the cash position of the company, the cash provisions for insurance, the net debt drops to BRL 9.2 billion. And then a relationship of net debt over EBITDA, slightly less than 1x. The average cost of debt, 5.4 years. Cost of capital of third-party CDI+, 1%. On your right, we have the debt amortization schedule, a very comfortable position of liquidity, good money to finance the activities, the cash -- the working capital to digest all the investments in execution, good money to face the deadlines up ahead. Page 13. Let's start with the graph on your left. Reconciliation of the EBITDA reported with the 6 months with the cash variation of the company. We start from an EBITDA reported of BRL 4.790 billion.

Moving to the right, we have a variation positive of working capital of BRL 1.1 billion in 6 months. And the consumption of working capital in the hospital, BRL 851 million and positive working capital that comes from the SulAmérica activities, BRL 1.952 billion, including here BRL 992 million that come from the social security segment.

And other items of negative balance, BRL 220 million; payment of leasing, BRL 387 million. Plus to the right, taxes, BRL 666 million, sequence. The variation of cash due to the financial activities, BRL 1.878 billion, I apologize. Finally, cash flow due to the investment, BRL 813 million. Here, we have BRL 232 million of investments in maintenance, BRL 1.036 billion in greenfields and brownfield investments and a receivable of cash, BRL 454 million, of the -- our participation in the consulting and the reimbursement of the CapEx over the hospital of Campinas within the context of the migration of this hospital for JV with Bradesco. To your right, we have graphically the average days receivable, inventory outstanding, DIO and days payable of hospital services. We finished the presentation, and I open for Q&A.

[Operator]

[Operator Instructions] First question, Vinicius Figueiredo, Itaú BBA.

[Vinicius Figueiredo, analyst]

It's a question regarding the hospitals. In regards to hospitals, I wanted to explore the ticket. It was a positive surprise in the acceleration of the revenue, bringing the best dilution of costs and expenses. There is a lot of things in this number. But what brought your attention is the growth of the ticket quarter-on-quarter, even though you have a seasonality that plays against it. Looking to the next quarters, there is a ramp-up of hospitals that should be incremental to the ticket in the state of Rio de Janeiro and there is a readjustment with the paying party.

So what could you discuss in regards to the expectation of the table readjustment that happens in the second quarter? Does it make sense to think that in the third quarter, you could have a better ticket? And in regards to the growth has been a great highlight, the gain of market share is very expressive. And this is a differentiated product, very competitive. So I wanted to understand if there is a product that you highlight that has had a great attraction within the framework? Or is there any focus in any region to sustain an accelerated ramp-up with [ Ribeirão Preto ]. These are my questions.

[Paulo Moll, executive]

Let me ask -- well, let me get the first part, and then I'll give the floor to Raquel. The evolution of ticket, we've had several factors contributing -- the readjustment -- we have a mix of operators. You know that we, throughout the year, have done a few readjustments in operators that we had relationship and some we discontinued. That has impact with complexity.

There is a goal of the company, and we want to do that. We want to qualify. Within the hospitals, the type of procedure and surgeries that we do, trying to find some gains of ticket base in this complexity. And we have the mix of hospitals that we're growing. We're growing beds in hospitals that are in a position of average ticket that is above the ticket of the company.

So all of these factors give this variation of ticket that you've seen, we always warn that you shouldn't just look at a quarter. Sometimes we have a quarter-on-quarter that there is a variation that is below the inflation or some really above.

But we always suggest that you will see a period for 12 months to normalize any variations that we might have of complexity. In a quarter, that is very little to watch. You remember that in the second quarter of last year, we had a record number of emergency, great volume of dengue fever and there is a complexity that is different. There is those considerations to do. For projection purposes, we reinforce that we will always try to find a variation above the inflation, but not so much above the inflation, 1 or 2 points above IPCA rates. That conservative will allow us to move forward. I'll give the floor to Raquel.

[Raquel Reis Giglio, executive]

Vinicius, thank you for the question. Growth, well, we have 2023, we did a launch of the products with the modular reimbursement. You saw some on the fronts of the combat of fraud. We've kept most of the reimbursement medical in our area and removing the reimbursement where the fraud was more evident with exams and therapies. These products from here [ on in ] are over 600,000 lives.

So it's a growth that is very accelerated and a great acceptance of the client and the insurance broker because we have readjustments that are lower for our client. So for me, that's one of the reasons that it justifies the growth of our base. And there is an important growth with that you've seen with the products with co-participation. They were very with the companies. They represent an important branch. They represent over 80% of the stock of the entrepreneurial plans and almost 90% of sales. But recently, that has become a trend in the wholesale, which is great. The PME, small SMEs are 40% of everything that we sell in products with co-participation. And in the adherence, 100% of them sold with co-participation. And of course, we launched with regions that we have growth of Rede D'Or or with the opening of hospitals such as [ Ribeirão, ] Macaé, Guarulhos. And we observed opportunities that are potential for the Rede D'Or or commercial opportunities that can exist, not necessarily connected to the expansion of beds and something that is very good.

We have to see in the last quarters in a very consistent way, the concentration of growth in average -- products of average ticket that is higher was the birth of SulAmérica. The inception was special executive, prestige products. So very accelerated products there. So these are the highlight points.

[Operator]

So the next question is Gustavo Miele, Goldman Sachs.

[Gustavo Miele, analyst]

I also wanted to ask 2 questions. First, in the hospital context, there is another important highlight, which is the performance of the average days receivable, which after quarters -- a few quarters shows a substantial improvement. So I wanted to crisscross that data with the increase of the revenue that goes to minority shareholders. So that SME is being helped by a greater penetration of the results within the conglomerate as a whole. So we should foresee maybe more space for these SMEs are reduced as the assets that are wrapping up very good. They have more representativeness. It's just so I can understand that working capital. That would be the first question.

And the second one in SulAmérica, I wanted to get what Vinicius said. When we look at the ANS in a window of 12 months, SulAmérica seems to be one of the insurance companies that recycles the most portfolios, 40% of the base, total base. So I wanted to understand if we look at the uptick year-on-year, how much, Raquel, would you attribute of readjustments or even if it's fighting fraud with the legacy products and how much is the contribution of these new products that are getting in the base? So looking at the granularity of the beneficial impact that these products have -- lower tickets have, and they bring more EBITDA margins. Well, those are the 2 points.

[Paulo Moll, executive]

Yes, thank you for the question. Being direct, it's not an impact. We have an improvement, general improvement in a number of days and this is connected to the better organization of our processes in the revenue cycle and some impact because of the adjustment that we've done over the last quarters, the last years of operators that lived in a more difficult operation, and they were longer and now we discontinued the operation. Now the mix is better. And within that mix, with a lot of internal work, as I told you, it's still on course, a lot of things to be done, but we see some results. Raquel?

[Raquel Reis Giglio, executive]

Thank you, Gustavo, for the question. To be able to weigh down both, I will say it's half and half. It's undeniable that since the beginning of 2023, we've had a big work for our operational team of claims renegotiation with several service providers, several packages, models of remuneration that share some risk with the service provider. That happened from then on, and it didn't stop. And synergies with Rede D'Or when we look at the purchase of materials and medications, all of that contributes a lot with the reduction of the growth of our claims per capita.

When we look at the commercial and sales and the post sales, there was a launch of the new products that I have mentioned with Vinicius is an important growth of the base for us, but an important work for the post sale. In 2023, there is some clients leaving that we saw that it was very difficult to recover the result and getting those that were misguided and now they're at cruise altitude, so to speak. But that involves a downgrade of products, sometimes for the maintenance in the same line of product with the same network offering, but now the modular reimbursement, the extension of deadlines of contracts, co-participation could have existed, but we existed 10% and 15% of co-participation. And now when we have 30%, that has a lesser impact with readjustment. When we get that in the blender, so to speak, I can answer your question in regards to the improvement. Health is a transatlantic. It's -- we don't have a silver bullet. It's 100 things that improve stuff. But all the harvests since 2023, we're doing better.

[Operator]

Our next question comes from Andre Salles of UBS.

[Andre Salles, analyst]

You commented on the potential of operational improvement within hospitals and legacy systems. For us, if you can help us quantify, if we get the threshold of the company, what would be the interval between the operations that you understand that are more mature and the operations that you understand that there is a space for improvement? And the second question, you commented on the solidity of the balance of the company, where the opportunities open. Now on inorganic front, if we think about the leverage level that you would consider an inorganic relevant movement, what would be in terms of net debt over EBITDA?

[Paulo Moll, executive]

Andre, the data that I gave you, we don't have any data besides this one to give a guidance. Many things to do. Many hospitals that we are still beyond the potential. The more specific number that I gave you as an example are the 9 hospitals in ramp-up that go into the margin of the target hospitals, similar hospitals that would bring in these 9 hospitals, an impact for our net margin -- gross margin, but I'm not calculating the impact of improvement. And to give you a precise estimate, the other hospitals that are not using our systems or processes, we are very excited, and we can continue to find efficiency in the structures.

In regards to tolerance for leverage. With the history of the company, we leveraged the company 4x the net debt over EBITDA. But I wouldn't say because of the size of the company, the interest rate levels, even considering that we have a debt profile that is very delayed, we do not see any movement that would take us to the need of doing a big leveraging of the company. I wouldn't -- very difficult that something would make us go over 2, 2.5x of the net debt. If we are comfortable, we have a movement that is important that we need to do, we need to increase the [ level for -- level ] such as this, if it happens, but we would not go over the 2, 2.5x.

[Operator]

Our next question comes from Samuel Alves, BTG Pactual.

[Samuel Alves, analyst]

Two questions. Operational beds. Over the last 2 calls, the company gave an update. And would you have any number for July and August? Any color on operational beds? And if that's not the case, if you can reiterate the message of the previous call, if it makes sense for us to think about the seasonality that is different from previous years with more operational beds being activated. That's the first question. The second question, going to SulAmérica, a more strategic question, long term. And I want to hear from the administration of the company, what is the ambition of growth for SulAmérica? Does it make sense to think 3%, 4% of expansion per year and as a long-term ambition?

[Paulo Moll, executive]

Samuel, I'm going to start with the part of hospitals. I think we were clear with the last results -- the last calls. The expectation for 2025, it would be a year for operational beds being opened that is stronger than the previous years because we have the adjustments, the operators -- that was done. So we didn't expect any movement with the intensity that we've done with 2024, 2023. So it's natural, a ramp-up for the new units and the growth of other units, and that would bring a level of growth that is higher. We delivered a level of growth that is above in the previous years when we announced that we are 556 (sic) [ 522 ] beds in front. And we have the expectation of growing. Of course, that depends on the performance of the different hospitals throughout the second quarter, but we are positive that we will continue to grow. Raquel?

[Raquel Reis Giglio, executive]

Samuel, I think that here, the first point is that we don't do any type of projection on the very long term. When we talk about the growth by administration, it's kind of dangerous because ambition is always large. We want to grow, but we want to grow in a way that it happened thus far in a responsible, sustainable way without any commercial war, without any action that might place under risk, everything that we had of consistency over the last quarters.

But what we show you in terms of growth in the last quarters and the last years makes us comfortable with what we see. The growth depends on other factors, part of them, external factors and also potential regulatory changes that can change our potential for growth over -- throughout the years. In general terms, we believe that we are very satisfied with what is being presented, and we will continue with an ambition of growth that is positive for the next quarters and the next years.

[Operator]

Next question, Joseph Giordano from JPMorgan.

[Joseph Giordano, analyst]

I wanted to explore 2 points. With the hospital, there is a good acceleration of growth. At the same time, we have a cash generation that's very good with the leverage that tends to be very quick if we kept the rhythm of cash generation. My question is looking at the maturation that is higher, which is higher than what we imagined, the plan of CapEx, I wanted to explore with you how do you see opportunities to add because within the review of the opening plan, we haven't seen anything new coming up, so there might be an opportunity. Second question is for Raquel. You mentioned that SulAmérica continues to grow with the DNA that is premium. But I wanted to understand what are the opportunities in this segment that is more intermediary, more regional with restricted networks, leveraging with the networks of the group? And do you see any regulatory changes with the pricing of plans for SMEs? Do you see any update in the company?

[Paulo Moll, executive]

I'm going to get the first one, and then I'm going to get the other one to Raquel. There is a solid position in cash. You -- we are happy with the ramp-up and the return that we have with the recent projects, and we want to do more. We've discussed this before. We have opportunities that we have discussed. We don't have any announcements to be done thus far. But cash solidity, as you've mentioned and the ambition of bringing more growth we have, and we hope that we can -- in the future, we can announce interesting projects in the portfolio. Raquel?

[Raquel Reis Giglio, executive]

So thank you. I highlighted the point of the products of the average ticket, higher ticket in [ Prestige ] because they represent a very relevant part than what they represented in the previous years before the acquisition, aligned with what we saw before with an excellent news. Does it mean that we're growing less in the other segments? No. A great deal of the launch of the products that we had over the last 2 years were years that we had the biggest number of years of products that we worked strongly. I highlighted [ that to Nacional ] that you remember the regional [indiscernible] that were launched before the acquisition, it was the first investment in these products that I wouldn't say low cost, but it was more a comanagement of the claims. And some of the partners already included Rede D'Or in some of them and other partners in others. But this product was retrofitted. There is a product [indiscernible] that has 250,000 lives. And there is a good acceptance in the market, not only of wholesale, but also of segment, entrepreneurial segment, and it's a product that we can do a launch in several regions.

Of course, we are going to launch in São Paulo and the obvious ones, Rio de Janeiro, Bahia, Recife, but we've launched in several regions that are not so obvious. And by obvious, they don't bring volume of sales that are very expressive, but we can have a capillarity of service, and we can get the flag of SulAmérica in previous regions that we saw more participation of co-ops and group medicine that is low cost. So that happened. And within this side of ANS, this is a difficult question. We have -- in accordance with the last call, a series of public consultations ongoing, relevant that require an impact -- regulatory impact evaluation and a discussion with the market as a whole and the Ministry of Health because these are transformational and there is a vacancy of Board of Directors with indications in the next weeks. So the scenario hasn't changed. But there are parts that require our attention, such as technical review, changes of rules of co-participation, readjustments to groups of middle market. So all of that happens. We are paying attention, but there is no changes from the last call to this one.

[Operator]

Our next question, Mauricio Cepeda, Morgan Stanley.

[Mauricio Cepeda, analyst]

Two questions. The first is in regards to hospital expansion. You had that [ code ] that was interesting. You had a ramp-up that was quicker with operational capacity. So my question is, do you see any upside versus the pipeline, the reference form and in the sense of increasing the future expansion -- if the -- if it's expanding, the future expansion is the cost of capital? Or do you not see sufficient demand to continue to grow with a higher rate since you had a very expressive good success. The second question is also a strategy for the long term of the group. You got to a scale that is very big in the hospital business. Do you foresee any economical, additional or strategic to get into ambulatory businesses? Do you see any reason for that? Any synergy, any strengthening of D'Or also advancing in other ambulatory businesses?

[Unknown Executive]

Cepeda, as I mentioned with the previous question. Ambition to do more, we always have it. Cash solidity we have. There are some projects that we're interested. There is nothing to launch, but we have an ambition of doing more and understanding that certain markets, we would have a more strong position. So we are doing the analysis all the time. In regards to the company, we work in a broad way with the medical services provision. We have a position in ambulatory services, whether if it's at appointments, diagnostics, oncology. It's important. We have work in the hospital business that is more representative, and there is a position with SulAmérica in the insurance. So we are open to analyze if it makes sense.

[Operator]

Next question, Flavio Yoshida, Bank of America.

[Flavio Yoshida, analyst]

First one in regards to the EBITDA margin of the hospitals. There is an expressive improvement quarter-on-quarter even with the business days pressure in the second quarter. So now in the third quarter, we're going to have more business days. The beds are still ramping up. I wanted to understand if we can wait for -- expect for this margin of hospitals to improve for the third quarter, there is a seasonality, I understand, but I wanted to get your opinion. And still with the margin of hospitals, we realized that when we look at costs, the medical materials has grown a lot. It represented 20% of the gross revenue. When we see the last 12 months, it's closer to 12.5%. So is that a one-off effect, I wanted to understand what do you expect?

[Unknown Executive]

Thank you for your question. Third quarter barely started, so it's difficult to give any guidance on the margins of the hospitals. We don't give guidance on the -- that's our practice. We will not change that. There is no way that we can address your question. Your second question, it failed for us or maybe it's related to the relevance of the met-med in the cost of the company. And we understand that it's very controlled. 2019 before the pandemic, this item represented 18.7%. Of course, afterwards, throughout the pandemic, that grew a lot, got to 22%. In the first quarter of this year, 19.5%, and now it's about 20%.

In the second quarter, there is a significant movement in the number of surgeries. There is a change in the mix of the hospitals. And there is nothing special besides that factor of that small change with the relevance of the medical material measured as a percentage of the gross expenses of the company.

[Operator]

Q&A session is over. I'd like to give the floor to Mr. Paulo Moll to close the session.

[Paulo Moll, executive]

Well, once again, thank you very much for your presence of everyone in our call and thank our investors for the support that you give us. We will see you in the next call. Thank you.

[Operator]

The earnings call of Rede D'Or is closed. Thank you for your participation. Have a nice afternoon.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]