To RD Saúde Second Quarter 2025 Earnings Conference Call. This presentation will be made available on RD Saúde's investor relations website, ri.rdsaude.com.br. The audio file will be made available later on. All participants will be in a listen-only mode during the presentation. After that, we will begin the question- and- answer session. Before proceeding, I would like to mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of RD Saúde management and on information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Our investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of RD Saúde and could cause results to differ materially from those expressed in such forward-looking statements. Joining us today from RD Saúde's studio are Renato Raduan, CEO, and Flavio Correia, our IRO. I'd like to give the floor now to Renato Raduan, the CEO. Please sir, you may begin. Good morning. Good morning, everyone, and welcome to our Second Quarter Earnings Conference Call. It is a pleasure to be here with you to have this opportunity to look at our financial and operating highlights in this quarter. Also, it's a pleasure to be here and to be able to answer your questions as transparently as possible. Good morning, Flavio. Good morning, Raduan. Flavio is here with me and will support me answering your questions and giving explanations. We'll try and be straightforward in our presentation so that we can leave more time for the questions. We always start with our operating highlights. First and foremost, we'd like to say that this was a good quarter to our mind. This was a much better quarter than the first quarter. We see that the trends are reverting and we're starting a new moment. We normally begin with our highlight slide. We ended the quarter with 3,271 stores in operations. We opened 70, and we didn't close any pharmacies. There was no need for any store to be closed. Does that mean we will not close anyone in the future? Of course not. This means that our stores have been performing well. Of course, we have readjusted our pharmacy network in the past, so that leads to a smaller closure rate. Sorry, I'm just fixing my microphone here. Yes, we have 3,371 units. You can hear me well, right, everyone? Yes, perfect. We had 110.8 million tickets in the quarter. More important than the quantity is the quality. Our NPS was 91. That's a very high customer satisfaction. It was almost 111 million tickets. We finally surpassed the 50 million active customers in the last 12 months. We always say 50, but we have been saying 50, but it was 49.7, 49.3, but now it's really a milestone that we have surpassed. Some market highlights. Our gross revenue was R$11.7 billion and 12% consolidated growth. This is a request we've been making for a while, that we be clearer showing what is 4B and what is actually RD, excluding 4B. We're now breaking it down so that you have more clarity on it. When we talk about our main retail business, our sales have grown 13%. This is a different level in comparison to the previous quarter with a 2.4 percentage points increase. We also had an increase of 70 bps in market share. It was 16.4%. That is a better improvement than we had last quarter. We have increased our market share in every region in the country. As for the digital business, it continues to be a highlight. It's almost tiring to mention that again and again. What a highlight, digital business, because they continue to grow quarter after quarter, year after year. This quarter, it was R$2.6 billion. If we annualize, it would be over R$10 billion. It's over, and it's almost 25% retail penetration. In health services, we had 2,600 services provided in health hubs. You know that our share is 16%, 16.4%. We have a good overshare in health services. The financial highlights, we have our adjusted EBITDA at R$885 million with a margin of 7.6%, a dip of 0.3 percentage points. Flavio will delve deeper into that. The adjusted net income was R$103 million with a margin of 3.5% and a 0.1 percentage point increase. There is an impact on the recurring figures, and Flavio will talk about it. Our free cash flow is R$36.9 million. This was a whole new sales level that we have reached. If you look at the three previous quarters, we were at about R$10.8 billion for three or four quarters, and now we have climbed up to almost R$11.7 billion. This increase stems from retail. 4B is something that we say again and again. We would always favor profitability over growth. We have been keeping our word. 4B has highly grown. If you look at the top line, it hasn't changed, but the profitability increased. The increase in total consolidated gross revenues comes from retail. You had been a bit more pessimistic for the second quarter because of the Easter holiday, and we had a small impact from the calendar effect, but we still had an increase. If we deduct the calendar effect, it would be close to a 14% increase. We have Mounjaro. We have the GLP-1 molecule being helped by that. Mounjaro performed well. There was an increase in the generic meds, and brand name grew 16% while generics grew 18%. OTC grew 11.3%, and HPC was about 5% points above average. That is a figure higher than we had been growing in the previous quarters. The previous quarter, we grew 1.7% less than that. Even when we adjusted as per the calendar effects to this quarter and the previous quarter, we can still see a substantial increase in HPC. HPC hasn't yet got to the level we want it to get to, but we see improvement. We see some normalized growth that is close to 14% with a potential upside to continue to improve HPC and to improve top line as well. Sales performance was very good. When we look at the mature stores, we have 5.5. We had 3.7% before the increase, and the net amount is 3.1%. If you look at the actual increase in PMC with the mature shops, we see a 2.4% growth and 5.5% growth above inflation. This is another way to look at it. We'd have a 6.3% increase in mature store growth if we deduct the calendar effect. This is definitely a quarter that is standing out from the previous too. Just an additional comment, Raduan. The 13% increase in retail is due to an increase in volume with over a seven-point increase in volume and additional transactions. We have to be proud, of course, of this growth. This is, again, a sign that the customers approve of our deliveries and that they are very satisfied with our services. We had 1,113 sales from mature shops, mature stores. This is the average of over 2,000 mature stores that we have spread out all over the country. This is solid performance that really shows that the customer is happy and how we are the first choice. We also had an increase in our market share. The factory price grew 70 bps. Every segment grew at least 70. Oh, pardon me, 40. No segment grew less than 40 bps. São Paulo grew more than that. You see almost a 60-bp increase. The rest of Southeast grew 60. The Midwest grew 80. These others grew 40. That's why I said all of them grew at least 40. The South was 40, North was 40, and Northeast was also 40 bps. This is also related to the strategy we have, our expansion strategy. We've been focusing more on expanding in the state of São Paulo. The quality of the openings is disproportionately high in São Paulo, so we're taking advantage of this. This increase in share in São Paulo has to do with that. We see that other states that had a smaller participation in the growth, I mean, you see it was about 35% openings in the past years. These are already mature shops now, mature stores. They are now 20%. Even with a much smaller share, we continue to increase our share. You have a share of 40 bps or a share increase of 40 bps. The South was 20%. It's 10% now. We're still increasing our market share. There is a dip in our gross profit of 80 bps. Pardon me. Before the price increase, we had 28.2%. This year is 27.4%. In inventory, there is a smaller gain because of the lower CMET. That is a 40-bp difference in comparison to last year. Also, the share of GLP-1 as a whole, Ozempic performed well. All the molecules are performing well. All the products with this molecule are performing well. This has also been at 40 bps. The 80 bps and the smaller result is due to these factors I mentioned. 4B had a smaller share. It helps us in the margin mix. We're confident. We've been investing in our competitiveness to increase our sales levels, not only in HPC but in every category. We have 80 bps because of these factors. We have two achievements here. One was our selling expenses, how we managed it this quarter and the decrease. The biggest achievement for me is G&A with a 50-bp decrease year- on- year. That's a substantial dip, a substantial decrease. We had already anticipated that in our previous call. We knew there were adjustments that needed to be made so that we would generate funds through this efficiency so that we could make investments for our customers and staff. The operations continue to go really well. This 50-bp decrease is really important. The selling expenses were even lower than we expected. The decrease was bigger than we expected. We sold better in the second quarter in spite of the negative calendar effects. We were prepared for them. We were adjusting our expenses for an even worse calendar effect. We had a higher level of sales, and that dilutes it better. We know that we're gradually fighting these losses or waste. We were a bit more cautious in adjustments. We did not reduce the number of pharmacies. It's a bit higher than what it was in the first quarter. There are other, or rather, the staff in pharmacies, not the number of pharmacies. We knew there would be pressure from other sources as well. But in general, we had a sharp dilution, and that drove the expenses down across the entire company. Now, Flavio, over to you. Okay. About the financial information, we finished the quarter with R$885 million in EBITDA, 7.6% margin. Our EBITDA fell by 0.30 bps year-on-year because of all points mentioned by Raduan. We had a 1.6 percentage point increase quarter- on- quarter, a stronger growth than last year, especially considering a lower CMET index. Breaking down the EBITDA for sake of transparency, we can see 4B had a 2.6% EBITDA growing year-on-year. Retail was very solid with an EBITDA margin of 8%. All information here is very positive when it comes to EBITDA. Now, the cash cycle, this quarter, it was a very positive one. We had a very good decrease in terms of inventory days, 4.4 days decrease, which is closely linked to the management, which is improving. We also had an improvement of one day in the supplier's delivery time. All of that adds to our cash cycle. Now, net profit, here we have good news. We had headwinds, very obvious ones in financial expenses. We finished the quarter at 1.7%, an increase year- on- year of 0.30 percentage points. That is mainly due to the increase of the SELIC rate, which went from 10.5% to almost 15% this year. That SELIC increase justifies and/or explains the increase in financial expenses. Now, our income tax, you can see that the tax rate was 6.3% at the end of the quarter. Here, we have some one-off events. For example, the tax treatment that our company has been receiving, and we have always been very conservative when it comes to that. We have some positive effects. We reverted some provisions due to positive injunctions that the courts passed in some states. We were able to bring about R$60 million into our net income this quarter. R$15 million out of the R$60 million are recurring, and R$45 million are non-recurring. Even if we were to consider this effect only on a recurring basis, our standard tax rate would be 17%, more or less, which is a very healthy one that can be compared to what we had in the past. The non-recurring effects, as I said earlier, are related to subsidies for investments related to income tax. That takes us to the net income, the record-breaking net income that we had this quarter of R$400 million, a 10-bp increase year- on- year, which is very positive. Even if we were to exclude the non-recurring effects this quarter, we still would have a 3.1% net income margin this quarter. Now, let's take a look at our free cash flow. We are generating operational cash of R$350 million and a cash burn of R$350 million, which is in line with our track record and the growth path that the company has been taking. When it comes to the net debt, our net debt is growing quarter- on- quarter at the same rate with a 1.3x leverage rate. It has been growing quarter on quarter, which is very common for second quarters because of the CMET index effects and the fact that we bring forward and advance some purchases. It is a moment where that happens usually, and that goes down gradually over the year. Let me give you some more color about what's behind these numbers. I'm going to show you some of our operating highlights. We mention some of them every quarter, and digital is one of those cases. It is a highlight that you should know more about. You can see the growth on the digital business side. It almost accounts for 25% of the demand that we have. One in every four tickets originates in a digital channel. More importantly, that is supported by the proprietary channels that we have. 80% of those orders come from the app, which is increasing in its NPS. We are reaching 80%, and that is the customer telling us how happy they are about the journey. It is a digital operation that is fully supported by our pharmacies. 96% of the orders are delivered or collected in 60 minutes, thanks to the capillarity, the reach that we have. We are five minutes or less from 70 million customers. In this quarter, we had about 30 million active customers. Out of the 30 million, 6 million customers every quarter place some order in some digital channel. That is a major strength of ours. We have been improving the experience more and more. As I told you last quarter, part of the adjustments that we had to conduct in our G&A included adjusting the squads in the business areas, which is speeding up the releases. We have been improving our performance on the app. The app has a fully customized homepage. If I open my app here, it will look completely different than Flavio's, for example, because of my history, the things that I search for. The shortcuts are the most relevant ones for me to make my journey easier. The products that I see right away are completely different from other people's homepage. We have been making significant improvements in the medication journey. If you take a picture of your prescription, the products will appear on your cart automatically. We also improved the journey for prescription drugs. We are also making improvements to the beauty segment journey as well. That should be underscored because we know that customers want to migrate their purchases, their shopping to digital channels. There are horizontal players in the market. The retailers will be better prepared to face them if their digital channels, journeys, and capabilities are at the same level as theirs. If we don't have a solid journey, we won't be able to fight against the digital players. Price is just one part of this. The journey, the service, of course, make a huge difference. That's why I would like to underscore our evolution on the digital side of the business. Yes, that's very important, Raduan, because we usually talk about the things that the customers see. The market always asks us about that. We don't talk too much about what happens on the backstage. Over the past six months, we created a GenAI platform. RD Flow is the name for software development. It's not just about improving the journey for the customer. It's also about how we improve the journey from within. This platform allows us to be more productive in the creation of codes and solutions for the customers. At the same time, it saves money. It is faster. It is lighter, more agile. This platform integrates all of our systems to all the existing LLMs. We can program in any language or within any LLM in any of our platforms. Having a fully integrated system makes that faster. We work, for example, with coding suggestions, and we also generate the codes with this platform. We capture and control the results as well using the same system. We are very proud of the improvements that we have made on our digital channels. We are just as proud about the brick-and-mortar stores. The digital business wouldn't be as strong if it weren't for the stores, right? In the month of June, we had a very important event. We just opened store number 2,000 in the Drogasil brand. It is a significant milestone for us. When I joined, Drogasil didn't even have 400 stores. We had about 380 at that time. Marcílio and I were there in the city of Recife, in the Northeast, and we opened store 2,000 in a shopping mall, the Guararapes shopping mall. This is just for the Drogasil brand, okay? There is a lot of work that went into opening this store number 2,000. If we got this far, that's because of the performance of our stores and the experience that we delivered, the assortment, the inventory. All of those things are so great. If the mature stores weren't selling 1,130, we wouldn't be here. This is a significant milestone for us as a company. That's why we wanted to share this with you. You can see Paula, the manager, there at the bottom. You can see our women professionals that work with us. We are very proud about that as well. Of course, the digital business gives us a lot of pride, but the brick-and-mortar business is no different. My last two slides. Here, I would like to highlight how happy we are to be part of the most valuable Brazilian brands list. Raia went up one position. It is now ranking 17th. There is one thing that really makes me proud about this picture. The two brands that are not national brands are Raia and Drogasil. The other brands have a national presence. These two brands, Drogasil, which is present in São Paulo, Southeast, North, Northeast, and Raia is present in Rio de Janeiro, São Paulo, and the southern part of Brazil. Even though those brands are not present nationwide, we are still in the national ranking of most valuable Brazilian brands. We know that we got here not because we bought a lot of ads or publicity. We are very proud about the marketing actions and our marketing team. These brands are here because of the quality of our deliveries every single day, the experience that we deliver to our customers every single day. We are not here because we have a huge media exposure. We are here because of the quality of our delivery. This is my last slide before we take your questions. Here, I would just like to recap everything that we have been saying for a few quarters now. We told you that our main challenge was to reach a more healthy sales performance because it was 200 bps shorter than we would like. That was our number one priority. We worked on it, and we can see the results now. Sales are going back to a healthier level, investing in promotional actions, competitiveness. Price is not everything. We need to offer good prices and good experiences. We increased our pharmacy staff. There is more to be done, but we aim at improving the experience at our pharmacies. That has taken us to a new sales level. We told you that we were starting a new era with a sharper focus on efficiency. This is a topic that will be very recurring in our culture. This is going to be one of our permanent focuses. We delivered leaner G&A. We were very disciplined in this action. We planned for it. We did it responsibly. We did a very good job on the G&A side. At the same time, we were able to improve the profitability of the invested companies, not only for BO. You saw that the profitability increased, but we did the same with other invested companies. We also made progress in inventory cycles. You can see that we are delivering on our promises that we made over the past quarters. Of course, there are more challenges ahead of us. We will always pursue more sales and profitability, efficiency. We are very confident about the inventory losses. We are now going to start decreasing the losses. That is going to be a very important lever for us to continue to invest. It is still a bit higher than we'd like. We are also going to invest in sales expenses. There is still room to increase the investments in our staff and the number of people, but also benefits to our staff. Our staff is the main asset that we have here. They need to feel that they are being taken care of. We are going to work on efficiency and allocate resources the best way we can. This is a summary. We are ready to take your questions. Towards the end, I'll deliver my closing remarks as well. Thank you. Thank you, Raduan and Flavio. Let's now start our Q&A session. We have our first question from Joseph Giordano from JPMorgan. Good morning, Raduan. Good morning, Flavio. Thank you for taking my questions. They're all quite simple questions. The first question I have has to do with price and revenue. Where are you making investments regarding pricing? Are you either bearing negotiations with vendors? You had a 20 bps improvement there, right? What are your expectations for the top line? It would be 6% for mature stores. When you think about mature, same-store sales, what are your expectations regarding GLP-1 generic medications as well? Now, expenses. You mentioned selling expenses as a highlight. There's still a lot of integration to take place, right? Maybe smaller opportunities in terms of numbers, but with substantial salaries, wages. Last but not least, we generally see the subsidies levels historically. Maybe in the coming quarters, we could see what the subsidies were like, also regarding taxes, and see if we're closer to what we had in 2023, for example. These are my questions. Thank you. I'll have a full page of my notebook concerning your questions. Let's leave taxes for the end. We ought to be careful because in the net impact and gross margin, there's a number of things. It's not only about pricing investment. There is the 4B. There is some pressure from losses compared to the previous year and some investments in pricing. All merge into that. Pricing investment was more in HPC, but not only HPC, pardon me, but in subcategories and products and regions. In some states, we invested more in brand name and in medication. Some were in generic, and some were in HPC. We had some investment in digital channels for medication as well, but we invested more in HPC in the same digital channels. It's not one single investment in one single category in one single region. There are investments and divestments in more items. We can still say that there was more investment in HPC. We see the performance in high-end promotion sales. They have been performing better. I think we're in control. Maybe we will invest a bit more to accelerate a bit more. It depends on other analyses to manage all of this as responsibly as possible. Vendors have been working very closely with our commercial team, Marcelo Giuliano. They've been discussing matters with us. We go beyond price discussions. We talk about how we can work together when it comes to the pharmacy experience, the first time shopping at that store. We have a lot of discussions and frank discussions with vendors. I've been taking part in top-to-top meetings as well. I was looking at my calendar, and I have a top-to-top meeting with one of the vendors this week. The vendors have been very helpful to support us in our growth, growing together with us. Now, GLP-1 generic medications, we could see changes next year. There was an MS generic medication that started being sold recently. That's good news. I think this is another piece of good news for this top line. Major patents are going down next year. We know that there is a substantial part of the population that wants to lose weight but can't afford this medication right now. They will probably start buying the new molecules. Those who can buy the brand name molecules this year are unlikely to migrate. I mean, some of them may migrate, but I think this is going to be a small migration. I think there will be an increase of new buyers for the generic molecules. As for G&A, I can't give you guidance. I don't expect G&A to be higher than what we saw this quarter. I don't think there is room for a change of 50 bps as we had in such a small period of time. We had 60 bps in two quarters, from the fourth quarter 2024 to the second quarter 2025. It's quite solid. There is an opportunity there to further dilution. You could have more sales in one segment than in G&A, so there would be further dilution. G&A staff is 55%. 45% of cybersecurity, software licenses, technology packages, labor contingencies, all of them are under these 45%. 55% is staff, but 45% is not. I do not foresee higher G&A figures. That's different to selling expenses. I expect some healthy investment to be made there that will generate value for the company in the future, improving customer experience. I think, yes, there is more investment to be made there. Again, we're very cautious, making investments and choices at the right time and responsibly. Flavio, can you talk about taxes, please? Starting from the end, the tax bracket is 17% in this quarter. In 2023, it was before all of the tax were reviewed, and it used to be 18%. We are in line with what we had before the tax changes. Specifically, what we've been capturing now is subsidies on PIS and Cofins taxes, and this is in every region. Also, the benefits in income tax in regions where we have favorable injunctions. We reclassified that thanks to the council classified loss as remote. In Sierra, we see that this is still developing. We don't have yet the results we aim to have, but we're working on it. Again, our bracket, our tax bracket, is at the same level as it was before the tax changes. Thank you very much for your question, Joseph. Now, Ruben Couto from Santander, please. Morning, Raduan and Flavio. How are you? On G&A and additional investments, if I understand correctly, you see there's room for more efficiency in the future, maybe not in the short term because some of that will be channeled into selling investments, maybe other investments in pricing. I just wanted to make sure I have understood that correctly. If this is to be our expectation around G&A, if it's to remain stable. As for HPC, you mentioned the improvements, right, Raduan, in comparison to other categories. The quarter-on-quarter improvements are due to the changes in investment and changes in the store services or higher footfall in the stores. I'd like to hear from you about the changes you've made. How much of a difference have they caused? Could we expect more changes in the future? Thank you very much for your questions, Danilo. Sorry, I said thank you, Danilo, but thank you, Ruben. The point I'd like to stress here is that more than spot changes, the company is permanently looking for continuous improvement, continuous improvement in efficiency. As responsible leaders, we need to make the right investments to yield good results to our customers and to our staff, to the company. This is a permanent item in our agenda. We're never looking for improvements only in G&A, but also in cash flow, in CapEx. We don't normally talk about CapEx here, but we have found some important opportunities to free up some cash to go into debt levels. Right. In G&A, we have already had substantial reorganization allowing us to improve our results. If our margins continue to grow, we will continue to dilute the G&A expenses, right? I believe there are still opportunities out there, not only in diluting G&A, but actually reducing it. That's an important agenda, right? In GenAI, we have been investing in NHN and several other technologies so that we can be more efficient in internal activities and marketing and other operating activities. We have an agenda for technology, seeking or pursuing improvement in efficiency. Again, I wouldn't expect major improvements in the short term. As for HPC, the improvements we see in HPC stem from our investments, our actions. I'm absolutely adamant that didn't just fall from the heavens. This winter was a cold winter, so there was some pressure in HPC, and sunscreen sold less, and skincare also sold less than last year. HPC grew in spite of the colder winter we had. That normally leads to a decrease in specific categories. Yes, the improvement stems from our actions. Part of the investment in the pharmacy teams and the pricing initiatives, and that for both the digital and offline channels. Yes, we're quite positive, and we're happy. We're still looking for higher levels in HPC. This may call for more investments, but we are looking for funds in reorganizing our expenses, reducing expenses, being leaner. This is just trying to answer your second question in more detail. Thank you. If I may just add some comment, and I know that HPC is always a concern in comparison to digital components, right? When we look at these categories in different channels, we see stability. We see stability in HPC in our pharmacies. We've been capturing results faster in digital. When we're comparing apples to apples, we're really improving fast. Thank you. Next question comes from Daniela Eger with XP. Please go ahead. Good morning. Thank you for taking my question and congratulations on the great results. I'd like to talk about the growth dynamic. Raduan, from what you said, I believe that we should consider the current level as the new level that we can expect going forward, except for one-off events in the market. I just wanted to confirm if I am correct in my understanding. Now, we have GLP-1 medications, for example, Wegovy, which started in the second quarter. We thought that we would have advanced revenues coming in and then larger volume. You also talked about HPC and OTC in the winter. If you give us a little bit more color so that we can adjust our understanding around this, is there any negative or positive adjustment that we should consider going forward? That would be very helpful. I have a second question about the gross margin. It is under pressure, you said before, and you anticipated many of those movements. I'd like to have a more structural understanding about this. What are the levers that we can expect going forward? Is the industry helping you more to offset some effects, or are there any losses that we should take into account? Is there any category that we should consider? The mix may be also a factor. It is difficult for us to anticipate the movements in each category. If you can add more color to that, that would be great. Lastly, can you give us an order of magnitude about the pent-up investments that you might make in the future? That would be very helpful as well. Thank you. I'm going to try to help you without giving any guidance. Starting with the top line, if we adjust for the calendar effect, we would be closer to 14%. We will always try to sell more wherever we are. We are going to do that. Any retailer will do the same. We might have some tailwinds. What you said is true. GLP-1 drugs have a better share now because Mounjaro and Wegovy were not included in the second quarter last year results. Now they are becoming more and more important products. To give you a simple example, in order for us to grow more, we need to get more stability in the supply of Mounjaro. We and other competitors could have sold more if we had Mounjaro available in stock with availability for new supplies and the new doses as well. That should be normalized and stabilized over the next quarters. We should receive the new doses soon. Of course, we could have sold more had we had more stability in the supply of Mounjaro. Yes, there are a few positive levers that you can expect, such as the one that I just mentioned. The competitive landscape is also a factor. We are making efforts to take HPC to a higher level of growth, maybe a little bit below the average, but we are now choosing where to invest. We are still in a level that is very appropriate when it comes to growth increases. The short-term events that I just mentioned can make a difference and really move the needle, especially in brand name medications and especially when it comes to availability of products. The main pressure that we have in gross margin in comparison to last year is still losses. We gave indications about that to you last year. We saw increases in losses in the third and fourth quarters last year in relation to shoplifting, including GLP-1 drugs and also skincare products. We saw some losses in our inventory as well. We invested a lot of effort and energy in that topic because we knew that we had some homework to do on that side. We actually hired a senior leader from the market to take care of that specific topic. We have a very solid plan for that, and we are very optimistic about it. When it comes to the reduction of losses, we think we are going to start those reductions kicking in in the third quarter. We are going to have important, significant gross profit gains. We need to decide where to invest it, maybe in HPC or other factors that will help our top line. Those are the main pressures that we have on our gross margin. Competitiveness is a major factor. What is taking from our value generation is losses. We also need to work on our partnership with the suppliers because they are critical to support us and to help us grow. The third question was about GLP-1, right? We were positively surprised about the impact coming from prescription medications. We were afraid that prescriptions would hinder access of customers to these drugs, GLP-1 medications. Even after prescriptions started to be required, nothing changed in terms of our sales. The impact of prescription was a lot smaller than we had anticipated. It is almost like there was no impact as of yet. Of course, before the prescriptions were required, if we had full stock, full inventory, we could have sold more, but the impact has been null so far. Let me ask you, guys. You are asking many questions in one, but we don't have much time left. Please focus on one question. Okay. The next question comes from Mauricio Cepeda with Morgan Stanley. Hello, Raduan and Flavio. Thank you for taking my question. My first question is about growth as well, but from a different perspective. Of course, you grew more than the regulatory price increase, which is healthy. We can see that you were gaining market share across many regions. That market share increase is also related to the opening of new stores. If you compare your results against the sellout in QVIA data, are you growing more or less than the rest of the market? The market sellout is already in a double-digit level in the second quarter. The levers that are allowing you to grow, if they are more related to the mix, since you are so strong in GLP-1 medications, I'd like to know how sustainable that is. If you have time to take a second question, I'd like to know more about the discounts in the pharmaceutical industry. There was a whole debate about that, about the discounts that you would implement on top of the maximum consumer price and also on top of the factory prices. I'd like to know more about the discount dynamics, especially with the pharmaceutical industry. Okay. I'm going to answer the first question. Flavio is going to take the second one. Yes, we are gaining market share in sellout as well. When we look at sellout data, we can see that our market share is increasing significantly. It is a conjunction of many factors. First, expansion with good numbers, but also good quality. Also, the performance of the existing stores is a major factor. Obviously, it is more difficult to grow by 10% on a solid pharmacy network that is already selling $1,130,000. That's very hard because your starting point is so healthy and so high. It is natural for our growth rate in the mature stores to be lower than other competitors that are starting from a lower starting point. There are two factors here. First, the sellout and the expansion, and also the mature stores that are already selling so well, I don't know, more than $1 million, and being able to take them to the level that we are in right now with $1,130,000. GLP-1 was not a gift from the heavens. We had to put a lot of sweat and tears, blood, sweat, and tears into this. We invested in the best locations, the best experience for our customers, the best pharmacy environments, and training our staff as well. We have over 100 pharmacies that pay over R$175,000 in rent, excluding shopping malls. We invested to get classes A and B with us being loyal customers. Of course, we are now going to reap the benefits of that. The growth that we had, that we enjoyed in the second quarter, did not come from exclusively GLP-1 medications. There are other levers that took us to this new growth level where we are right now. Those two factors allowed us to do that. There's another important point about sell-in and sellout. Indeed, there is a situation that should be mentioned. The sell-in is slower, is lower right now because of the high sell-in interest rate. The sell-in that smaller players have, we are in a different situation. Their turnover rate is higher as well. The players that are more prepared to weather the turmoil will be able to do it in a healthier way. When it comes to market share, this was our understanding about our market share gain and other competitors' market share gain from the information that we have available in the market. Each chain is now gaining market share disproportionately in their main place, in their main location. That is related to GLP-1. Since we know that these products are scarce and there's a high demand, each player decided to make their inventory more robust in their main locations. That's why we had that increase year-on-year. Now, about the discounts, we always mentioned, we always said that this situation would happen every year where the CMED index is lower than inflation. That trend happens. We see that. At the same time, the competitive landscape is more and more intense. On the one side, there is a reduction in discounts. On the other side, sales are more and more impacted by promotional actions. It's not that one thing upsets the other, but it's very hard to separate things. What's important, what really matters is that we are going back to a growth level that is 5% above the CMED index price. All right. Next question is from Rodrigo Gastin from Itaú BBVA. Two quick questions. Good morning. Gross margin, Raduan. You already helped us understand some of it. When we look at the controllers' gross margin, wouldn't it be better to deduct for Bio so that we have more clarity? 110. Now we have 40 bps before the increase, 40 bps for semaglutide. It's better than the 30 bps that we had in the first quarter. What I'm trying to say here is the impact on pricing seems to be very low. Of course, there's the other line, others, right? You mentioned there are several other things. Can you try and help us understand what the investment in pricing was if this bridge makes sense? What is it going to be like for the second half of the year? Is the worst behind us now? The second question is, when we look at sell-in, per store, per shop, it's about R$200,000 in expenses. This had been growing 5.5% year-on-year. This quarter, it was only 2.5% growth. What are you doing differently in sell-in? This is an important highlight, I think. Thank you, Gastin. Your comments are not very off, but let me try and clarify some points. We haven't had the improvements we expect. The difference isn't too far off of what you said. We're very optimistic that in the next quarter, we're going to have a lower loss. We can already see a loss that was bigger than in the third quarter. This is already reducing the pressure that we have in the comparison year-on-year. As for pricing, it's not only the investment in brute force. It's the role of rebalancing. We have had important investments in items we thought were important to recover performance, but we have reduced investment in other items. I'll give an example. The difference in investment being online and offline, the difference was much bigger. Now we have reduced it. Digital business has continued to grow. We see that there wasn't an impact there. Part of this money we used to pay other things. When we speak about investment in pricing, we make different investments in different channels and different regions where we're performing strongly that we can offset some of that with. There are other things that offset the margin. There are specific negotiations with our vendors, a centralized DC that we opened in Uberlândia and Goiás to consolidate cargo and improve shipments to regional distribution centers that improves our inventory levels. In doing that, we improve our attributive margin as well. When you look at it, it may look like there isn't much investment in pricing, but it sort of blends into all of these other investments. For any price investment we want to make, we need to look at what is being offset so that we have smaller impacts. I tried to be as specific as I could to answer that question. As for the Celene question, as I said, we understand we can still invest in Celene, be it in having more people at the pharmacies to improve the level of service to our customers and their improvements to be made in the value proposition we have to our staff. Our staff has to be happy, right? This is an important point in providing good services. This wasn't done fully in the second quarter because we knew that this calendar was going to be more challenging. We knew that loss wasn't exactly what we expected to be, so we anticipated some challenges. We reorganized or replenished, say, staff to a certain level, and then sales got better and we had a better dilution. There is investment to be made. There is investment to be made in G&A. You know us. We never accelerate a lot. We accelerate slowly but surely. I wouldn't expect major reductions in Celene, differently to G&A, which won't go above that. It's going to be that or less and stable. Yeah. Yeah. Structure is the key word here. We need a structured G&A. This is a similar level prior to the digital investments. Now we know that our company is better prepared. It's leaner and it's in tune with what we had in the past. As for the Celene performance, you mentioned the historical growth that slowed down recently. We have the Celene being diluted here because we increased sales this quarter, quarter on quarter, especially. There is an increase, and that will dilute or slow down the quarter on quarter increase for Celene. There are several bits in many line items. Replenishing the inventory at pharmacies has gone down a bit, so there is less of a burden in Celene. The last mile cost also dropped slightly, also leading to some improvement in our Celene levels. Now we have a question from Vinicius Strano from UBS. Good morning, Raduan and Flavio. Thank you for taking my question. There's a four-day improvement in inventory cycles. Can you talk a little bit more about that? What do you expect in the future for these levels? Do you expect to see any further improvement in inventory level? Yeah. Online and offline margins. Can you try and talk a little bit more about them? Especially when it comes to GLP-1. Thank you. All right. Inventory. We've been paying a lot of attention to inventory. There are structural improvements that we have been making in supply. We have a piece of software for inventory replenishment that we had been implementing for a while now. Now it's fully implemented, and that allows for us to manage inventory levels better with the same level of availability. There are other important improvements. With the succession at the start of January, we created the COO position. Marcílio also took over supply chain and some of the departments that were sitting with me in the past. This allowed for the commercial department, logistics, and operations to work closer together with common objectives aiming at improving inventory efficiency without any detriment to margins. These departments are really working together now. We do have, however, the expectation and the hope to continually reduce our inventory levels without major bumps. We're sure that we can do that slowly but surely, and this should be the trend. Of course, always mindful of the seasonality between different quarters. We have a specialized consultant assisting us there. What is there, Flavio? All right. We aim to continue to reduce inventory levels in a structured fashion. This should be seen quarter after quarter. As for online/offline difference in price, this has been going down. In medication, it has dropped more. In HPC, the difference is a bit bigger. There was an increase in brand name penetration this quarter because, from a market perspective, the GLP-1 products were cheaper for online purchases than offline purchases. That was a strategy that we had with vendors as well to try and have less inventory in the shops, also to reduce the risk of robberies because that is also a risk to our teams, right? It's the safety of our teams that are at stake. We have this strategy to migrate towards online sales with GLP-1 so that we don't have so much available at the shop. There's a difference between online and offline pricing so that we have more GLP-1 products being sold online. This is also something that helped our substantial growth. Removing that aside, we still grew about 40% in our digital channel, excluding GLP-1. We really had this improvement in digital. What we should have in the back of our heads is that we have digital being $10 billion in our companies, and the 40% growth in the first quarter, 50% growth in the second quarter. If that was an independent chain, that would be the fourth largest in Brazil. It's a $10 billion growing 50% as well, and that really contributes to our profitability. We're not breaking. We're accelerating. We now have a question for Irma Sgarz from Goldman Sachs. Good morning. I have one last question. This point has already been covered, but right now, there are some horizontal platforms investing to reduce shipping costs, having more products at lower pricing. Of course, there are differences in mix and in the distribution model. Do you feel this pressure, especially in HPC? Generally speaking, online acquisition costs, have you seen any changes there? Thank you. Thank you, Irma. Let me start with your second question. Not the online acquisition cost that is smaller and smaller. We've always said that the acquisition cost in an online channel has been decreasing. Our pharmacy is already there. We're paying for the rent. Our staff is there, being paid their wages. There's no additional cost to go more digital, and that was a driver of our 6 million online customers. As for the competition, we don't see any major changes, no, in comparison to what we have had in the past because of this battle for free shipping costs or for the removal of shipping costs for free shipping. This is something that we're monitoring. We are also offering free shipping time and again. We have been having surveys with customers. I've been looking into them myself to understand what the customers expect, what they prefer to buy online or offline, the impact that shipping will cost, how big a factor shipping is, in what context and what situation. Honestly, of course, we have to be mindful of any changes in competition, as we have always been. These headlines around the free shipping war haven't had any major impacts on us, no. Have you got anything to say, Flavio? The next question comes from Leandro Bastos with Citi. Thank you for taking my question. I have two, actually. The first one is about the subsidies for investment. Are you already capturing the reversal of PIS COFINS taxes? Also, in some states, you already have injunctions, favorable injunctions, right? Can you give us a ballpark number, a percentage about the income tax subsidies? If so, that would be great. My second question is about the tax proposal that is pending before the Senate right now. I would like to know what the competition is going to be like as this agenda advances. Yes, there is a new proposal that is pending before the Senate, which I believe to be a lot better and more appropriate than the previous one. If supermarkets are to sell medications, of course, they need to follow all the sanitation rules and all that. I believe that this second proposal is more responsible. We do not know if it is going to be faster or not. From the customer's standpoint, it would be better for them if supermarkets can have a separate pharmacy with professionals in charge of them. It would be safer for them. When it comes to the journey, I think it would be worse for customers. Customers already have so many pharmacies right near their household, and the concept of having a one-stop shop is not really a thing anymore. As pharmacies evolved, and digitization really decreased that trend, and the delivery apps less so. I do not think that this is going to be a very attractive journey for customers. You know, going to a pharmacy that is placed inside a supermarket right next to the bakery and the deli counter, I do not think that is going to happen. If it is to happen, it should be a separate store inside the supermarket. Of course, they have to face the same rules that the pharmacies, the regular pharmacies, do. If that is what the legislator decides, of course, we are going to respect it. I do not think it would be a very attractive journey for customers. I do not think that experience would be a good one for customers who are finding a pharmacy right at the back of the supermarket since they already have dedicated pharmacies in their neighborhoods. Now, Flavio, about the subsidy. Before that, about this first question, there are some pharmacies that are placed inside supermarkets, and those pharmacies do not perform as well as the independent pharmacies, independent stores. We don't see any impacts on our results coming from those pharmacies. Now, about the subsidy, the PIS COFINS tax, and the income tax. For PIS COFINS, we are capturing 100%. We are at the level where we were before we started collecting provisions for those taxes. There are two states where we don't have the injunctions yet, Ceará and Pernambuco. In those two states, they account for a little bit more than Goiás in our result. We are capturing a certain amount in Goiás, and the other two states will account for a little bit more than that. Thank you. The next question comes from Luiz Guanais with BTG Pactual. Good morning, Raduan and Flavio. I have two questions. The first one is about GLP-1 medications. What was the effect of this category in speeding up same-store sales in the second quarter? The second question is about the growth in digital channels. There was a leap in how much they account for in your growth, and I believe that comes mainly from HPC. I would like to know if that growth will be recurring looking forward. Thank you for your question. Starting with the second one, we have been successively surprised by the digital growth. It is not reducing despite the high levels that we are already in because customers are more and more digital, and the experiences that we have been delivering are great as we improve the channels and as they become more and more attractive. If we were to isolate the effect and the fact that more people are buying Ozempic and Mounjaro online, if we look at the effects on OTC and HPC and other products, they are still growing by 40% quarter on quarter, a very healthy level. Now we are at 52% coming from 40%, and that might be more related to a larger penetration in this category, the GLP-1 category. We are still going to continue on 40%, on the 40% level, but the starting points will be higher and higher in comparison with the previous quarter. I think that we are going to continue with a strong growth because of the improvements that we are implementing. I cannot really break down where the growth came from. Of course, it came from GLP-1 products. It was very significant. It's very important. We are very well positioned to provide these products to classes A and AB. If you look at the other categories, OTC, HPC, generics, and categories that are not related at all to GLP-1 or other branded molecules, they are all growing. The two factors are very important. I can't really break down how much they accounted for in our growth, but they were both very important. Of course, we need to grow on both. On GLP-1, if we have the right level of inventory and the new doses coming in and generic ones as well, we need to grow on GLP-1. Of course, we are going to continue investing to grow more in other categories. That's as much detail as I can give you. I have a follow-up question, if you will allow me, about GLP-1 drugs. Can you give us more color about your share in this specific category? We have an over-share. I cannot give you the exact number, but it is a significant one. It's not on this category only. All products that have a very high average price, way higher than other medications, since we have a higher share in the higher income classes, we have a significant over-share. It is not a marginal over-share above the 16% sell-out. We also have an over-share on sell-out. If we look at our sell-out fair share, if we use that as a starting point, we would still have an over-share in these categories. It is not a one-off situation. It is structural. Yes. Flavio and Andre are both looking at me when you ask these very specific questions. The next question from Robert Ford with Bank of America. After that question, our executives will be here for their closing remarks. Hello. Good morning. Congratulations on the great results. How should we think about your digital advertising at the point of sale as a marketing strategy? If you can give us more color about other marketing strategies, that would be great. The advertising business in Pozo is going well. It is advancing from two perspectives because it is a very solid value proposition for advertisers. I know many people in this business, and they have been complimenting us on our value proposition and our ability to measure return on investment. I have been receiving good feedback about that. Financially speaking, quarter after quarter, we see growth in our top line and the gross margin and the EBITDA. It is a very healthy, profitable business. We have been reaping the benefits, the fruits of our investments on this side. Fabiana was in charge of MercadoLibre advertising department, and she has been helping us improve our results. It's going according to plan, gaining traction. It is not going to change the company overnight, but with time, it can become even more significant. Now, the marketplace, it has a good value proposition. It is not that relevant in terms of the business as a whole, but it can complement the assortment in some specific categories. We have been discussing internally and with our suppliers in our HPC and beauty value proposition. We want to have a differentiated offer for our customers. We want to have beauty consultants in the stores. We have been discussing those actions under this overarching strategy. The marketplace will be more important. The investments that we made to create the marketplace platform, those investments we made in the past, and now we need to understand how to use that platform as yet another strength of ours. It is not a determining factor in our results currently. It exists. It has its sales. It has a good share in HPC, not in medication, though. Thank you. Now, I'd like to turn it over to Renato and Flavio for their closing remarks. More important than our second quarter results is our reputation, our credibility. My father would always say that reputation and credibility are the two main important things in life. I think that's what this presentation is about. More than the results themselves, we want to keep our reputation, our good reputation, and credibility that we have with you. We came here in the first quarter with a lot of transparency, recognizing the problems, showing what the challenges were. We did exactly the same today. We showed you what we were going to do. We were going to work on the top line and find funding sources. We did exactly what we promised. The reputation, the credibility, that is our top priority. I believe that those are the most important things, even more than results themselves. Obviously, I am extremely happy about the ability to react to difficult situations. We are a different company, completely different from what we were when I joined. Now we have 65,000 people, 3,200 pharmacies. We are a huge company. It needs robust structure and solidity processes to be able to turn around as quickly as we did in one quarter from the first to the second quarter. Being such a huge company, that's no simple task. We did this with courage. I think that speaks more to who we are than the results that we delivered this quarter. That makes me very confident and grateful, of course. We need to thank our entire team, our store staff, taking good care of our customers. I would also like to thank the team working here at the head office and thank our leaders. The leaders showed that they are brave, bold, and humble enough to make the adjustments that were so necessary. We were able to show you how humble we are. Despite the fact that we are the leaders and we have a beautiful track record, we were humble enough to recognize where we had to improve, and we were bold enough to make those changes. I'm very grateful and very proud about the team that we have and the hard work done by our C-level and all leaders. That is worth more to me than the results. If we put together the assets that we created over the past 120 years, our brands, our culture, our customer service, the digital services, and the financial health that we have in our company, and we put that together with the team that we have that is so responsible, committed, and humble, and also our ability to react, if we consider all those things, I believe that the future holds beautiful things for us. If we put together the assets and the great ability and competence of our leaders, you know I can only believe that we are going to see a bright future ahead of us without bumps in the road. Of course, we are going to have solidity, responsibility, and a strong commitment to our people, our team, customers, and shareholders. Thank you so much for your attention, for your questions. I'll see you in our investors' road trip. If I don't see you in those trips, we'll see you in our next earnings call. Thank you. Have a good day. Thank you very much for joining us. This RD Saúde earnings call for today.