Alliança Saúde e Participações S.A. (AALR3) Earnings Call Transcript & Summary

Good afternoon, and thank you for waiting. Welcome to the teleconference on the earnings release of the fourth quarter of 2023 of Allianca. We will start a presentation, which will be given by Mr. Ricardo Sartim, who is Medical Director and Operations for the company. We also have Mr. José Ramos who is the Legal Director and Investor Relations Officer; and Juliana [ Angelini ], who is part of the Investor Relations team. At the end of this conference, we will have a Q&A session to clarify any doubts. [Operator Instructions]. This teleconference will be recorded and will be available at the Investor Relations side of the company as well as the full material of our earnings release. Before we start, some important information. The information presented here as well as any forward-looking statements made during the conference, projections and operating targets are beliefs and assumptions of the management and they should not be interpreted as a guarantee of future results because they involve risks and uncertainties because they may or may not materialize. And investors should understand that conditions such as general economic situation and market conditions and other operating aspects can influence the future performance of the company. I will now give the floor to Mr. Ricardo Sartim to start his presentation.

Thank you for the introduction. Good afternoon to all. I'm Ricardo Sartim, Medical Director of the company. I would like to thank you all for your presence. It's a pleasure to be here announcing the results of the fourth quarter of 2023. José Ramos is here. He is the Legal Director and Investor Relations Officer as well as Juliana [ Angelini ] from the Investor Relations team. Starting our presentation, let's go to Slide #4, where we have expressive indicators of revenue in fourth quarter of around BRL 299 million, which represents an increase of 6% when we compare it to the same period in 2022. Looking at the accumulated revenue of 2023, we totaled BRL 1.3 billion, a historic result. It's highest gross revenue for the period in the history of the company. And now going specifically to EBITDA, we increased 84% year-over-year, and the accumulated for the year was 29%, totaling BRL 235 million for 2023. This evolution of the EBITDA has been constant, and we are sure that it will continue to grow. The fourth quarter of 2023 presented the best performance for our fourth quarter, excluding, obviously, the effects of COVID exams with an EBITDA margin of 17% and an accumulated for the year of 20%. This result shows how the diligent execution of our strategy in improving profitability of the company has brought good results. We had a 6.8 percentage points growth in relation to the fourth quarter of 2022 and 3.2 percentage points comparing to the year of 2023 compared to the previous year. With that, we have reached pre-pandemic levels of 20% in relation to the margin and specifically in the relation to the increase of EBITDA. Going to Slide #5. We continue our strategy to have a continuous increase in productivity. The expansion optimization measures or the agendas allowed us to increase imaging exams, not only by expanding the occupancy hours and new slots, but also the occupancy rates to historic levels. This is very important. Revenue with imaging exams increased 7% in the fourth quarter in 2022 and 11% in the accumulated result for the year of 2023 comparing to the previous year. We also had excellent results in our commercial positioning, be the expansion and diversification of our paying sources and above all, greater relationship with the health operators in the markets where we are present. They are our great partners. And this resulted in the readjustment of our medium tickets above inflation, with a very positive highlight for CT scans where we obtained a readjustment of 14%. And we continue in our organic growth strategy through alliances following the asset-light model, increasing the portfolio of exams, increasing our capillarity and consequently, our cash generation capabilities. So all the partnerships, which have already been mentioned, we are focusing to have a firm implementation of them. And I'd like to mention the partnership with the Center of Hematology at São Paulo and also the Anatomical Pathology Center with Einstein Hospital and the partnership with Livance. They have all been done to obtain maximum results. We also have our potential future M&As, which have been mentioned before, be it with ProEcho or CEPEM and there, we can expand our capillarity in Rio de Janeiro and also possibilities, as I've mentioned, of coming closer to the paying sources with new business models. We are giving large steps to implement our joint venture with Unimed Nacional to create the first [ NTO ], the Operational Technical Center in Salvador and a PPP, which we have mentioned in previous meetings. And continuing the current shareholding structure, we've got the incorporation of the subsidiaries of Clínica Delfin that has led to a reduction in operational costs and a greater integration of the assets in terms of corporate and operational structures. Slide 7. Let's mention the evolution and composition of our revenue. In the fourth quarter, we had one of the most important results of the company in terms of gross revenue. You can see that we had a 6% growth year-over-year, even with the low seasonality, which is typical in diagnostic medicine at the end of the year, when there are fewer people looking for exams because of the end of year and vacations. We had an 8% gross revenue in 2023 compared to 2022. The graph on the right, we can see that the imaging exams maintained their growth threshold of the last quarters, and they have had consecutive growth in the revenue of the quarter as well as annual revenue. So that shows that our strategic position for diagnostic medicine is very firm and robust. Slide 8, let's analyze our revenue a bit more. On the left, we can see a distribution of our revenue. Our revenue for Magnetic Resonance showed a significant increase compared to the same period of 2022. And apart from the leadership of Magnetic Resonance, we would like to highlight the growth of other imaging diagnosis, which has also grown to BRL 667 million in the accumulated revenue for 2023. So that shows the robustness and diversity of our portfolio. On the right, we can see in the specific case of Magnetic Resonance, we had an association not only of increase in volume, but also a 3% increase in average ticket, which is the result of our commercial positioning, which I mentioned before. The modality of Magnetic Resonance accounts for 36% of our revenue in the fourth quarter. The growth of the revenue with imaging exams, excluding Magnetic Resonance such as CT scans and ultrasounds and other modalities was even greater, reaching 10% growth and accounting for 54% of our total revenue and that shows how the imaging diagnostics grows in a robust manner with a broad portfolio, which fulfills the needs of our customers as well as the needs of our partners. Slide 9. Let's talk a bit about costs and expenses. We continue a strategy of a very rigorous control of costs to maximize operating cash generation. We presented all the lines of costs and expenses, they were reduced except for personnel. And I'd like to highlight the medical fee costs where the actions that were implemented to integrate the medical teams and the different brands of Allianca generated a greater engagement of the clinical staff as well as gaining productivity. So although there was a nominal increase in the cost, revenue increased above the expenses with medical fees, which represented a real drop in the unit cost in this line. Another reduction was in the cost of supplies and medical and hospital services. We had a 3% drop in comparison to 2023. And this was based on 3 pillars: one was review the protocols of services and standardization and control of dispensing of supplies with a great reduction in waste. Another pillar was renegotiation main supplies and establishing a strategic partnership with some suppliers of critical supplies with a reduction of price even in a macroeconomic scenario of inflation. And the third pillar, continue with our internal clinical analysis exams. I will give you an example of our recently NTO Center, which was opened in Campos Gerais. It has brought a reduction in the cost of supplies as well as a reduction in time to release the results to patients, reflecting a better satisfaction and consequently, a better fidelity with our client and the return to our units. Now talking about third-party services and others, which include maintenance of equipment and occupation. We review the optimization of the scope of the contracts so that we could fulfill our demands a bit better as well as specific renegotiations with cost reduction. This led to a reduction of 3 percentage points in relation to the comparison of the annual base. Now let's have a look at expenses with personnel. We had a marginal increase of 2 percentage points here. And that was intrinsically related to some components. One of them, which was mentioned before in our other meetings, is the continuity of internalization of the CA exams collection. This was done to improve our position and improve customer satisfaction and services. And we offset these costs with a reduction in the support labs, which I mentioned before, which is part of the medical and hospital results. We had deceleration in some areas to ensure this acceleration in growth in a sustainable manner, such as the development of new projects, health analytics, the continuity and improvement of our services as we regionalize our call center and concierge services. So this investment that we made on personnel in these areas, accelerating the areas was very important to ensure the expressive and sustainable growth of revenue, which we've already mentioned, and that has qualitative gains because it improves the occupancy of our units and satisfaction of our clients, NPS and in the long term, their return to our units. We also were impacted by collective bargaining and natural salary increases, which occur in the sector as well as impact in the salaries of nursing. So we had a marginal increase in personnel. But it's very important for us to continue investing in people because that's one of the main leverages that we have to continue with our continued strategy of generating revenue and consequently cash. And we are absolutely sure that with expressive growth that we've had, we will soon be able to dilute this cost and expenses. Now next slide, we will talk a bit about the EBITDA on Slide 10. So when we analyze our adjusted EBITDA, which excludes the effects of nonrecurring expenses, it is a summary of everything we've talked so far. So we've had -- well, it's the result of an increase of net revenue of 9%, an increase of the gross profit of 25% and the increase of EBITDA reflects everything that we have done in a very diligent manner over the past year, which were measures to resume profitability, to reduce costs as we mentioned in terms of supplies -- medical supplies and support labs. And we also had some measures to reduce G&A expenses with the resizing of the company, especially in the back office areas. So we are making the company lighter in terms of the back office so that it can grow in a more expressive manner. And all this reflects adjusted EBITDA of 29% when I compare 2023 with 2022. And we are very proud to have reached an 84% growth of the EBITDA in the comparison of a quarter versus quarter, the fourth quarter of '22 and the fourth quarter of '23. So now let's see how we improve our capital structure. We continue our measures to extend and restructure our debt with better conditions. And as we have already mentioned, in the second half of 2023, we had an AFAC advance for future capital increase of BRL 200 million. So the company has maintained its commitment to strengthen the cash generation as a main challenge for the next semesters, and we will continue recovering our margins, and improving our capital structure will be one of our main targets during 2024. Coming to the end of our presentation, I would like to draw your attention to the main metrics of the company. And they have evolved in a very consistent manner in the last quarters, be it increasing in revenue because of an increase of tickets or volume of exams as well as the quarterly growth year-over-year, which was done in a very robust manner. So the performance of these growth metrics show the success and our diligence in implementing our strategies. And this continues. We are focused to deliver robust results as those that were obtained till now and this continues. We had a better structure of the capital of the fourth quarter. We had the extension of commercial notes in BRL 200 million, renegotiation of BRL 265 million with maturity in 4 years and the AFAC of BRL 200 million, which was already mentioned, which reduced almost 1x the leverage index. And all this led to the rating classification affirmed by Fitch of A. And also in the organic expansion and technological modernization, we have to be pioneers because we have always been pioneers in the use of technology to deliver precise diagnostics to our clients and medical staff, always striving for operational efficiency. In 2024, we will deliver 10 new equipments of Magnetic Resonance. So the association of these commitments as well as diligent implementation brings us to a virtuous of operational efficiency and increase of cash generation with the measures already implemented in 2024. We continue with our work to restructure our debt. And an important message is that we have a new AFAC of BRL 250 million, which was informed to you a bit earlier today, reducing once more the leverage of the company that adjusted to the current indebtedness would be something 2.6x our leverage level. And we had the approval of this by the Board of Directors that not only the BRL 200 million of AFAC of the second semester, but also the BRL 250 million of AFAC, which totals BRL 450 million has been authorized by the Board of Directors and we can increase the capital which we will be commenting later on. So these 2 measures associated and everything that we presented so far brings us the possibility of better funding in better conditions and cheaper funding. For 2024, our main agenda will be structuring a management team that really has broad experience in the health area and all levels of the company and are very well aligned with the purpose and strategy of Allianca. We continue modernizing and expanding our technological park, ensuring our leading position in the area of diagnostic medicine market. And finally, implement and capture synergies with partnerships already established so that we can advance with our alliances and expanding new models, especially in B2B. All these measures have been implemented, and they contribute with the commitment of the management to promote advancements in restructuring of Allianca and the constant search of solid and consistent results. And now we emphasize our commitment with the future, promoting health on one side with our customers and focusing in the profitability of the operation for our shareholders. I would like to thank you all for your presence, and I will now give the floor to Juliana, who will continue with the Q&A. Thank you very much.

Thank you. Ricardo. [Operator Instructions]. We have received a few questions about the relevant fact published today about the AFAC. Dr. Sartim, to solve these doubts, I would like to know if you could speak a bit more about the topic because of the reasons, the objectives, terms and conditions.

Yes, Juliana. Thank you for the question. As was mentioned earlier today, we signed an AFAC agreement with commitment of the controller and the company that considers an injection of BRL 250 million up to the 25th of March. This increase of capital has already been approved by the Board of Directors for the capitalization of AFAC, BRL 200 million in the second half of 2023, and this new AFAC of BRL 250 million, totaling BRL 450 million. We have a commitment with the capital structure contributed for the structure of the company, and this emphasizes the commitment of the controller with a strategic plan, which is being developed in the company. The resources of the second AFAC will be received up to the 25th of March, which is next Monday. So this is a bit more of the detailing and the context and terms we can talk about this with regards to other specific aspects to this.

[Operator Instructions] Dr. Ricardo, we received a question from the investors about the reason for the drop of productivity of CA. Can you explain that, please?

Thank you, Juliana. We are at the moment -- when we are restructuring the clinical analysis sector, the company has a background and coherence in imaging diagnostics. So we are giving priority to the profitability and standardization of process. But to do that, we had to adjust our portfolio and availability of the clinical analysis at our units that resulted in reduction of the average ticket, greater profitability of the business and compensated the seasonal production. Yes, we did have a reduction of the clinical analysis results but by adjusting the portfolio, we have continued with our strategy of improving imaging. So we were able to offset that drop -- the seasonal drop which is normal at the fourth quarter in diagnostic medicine. Thank you, Juliana.

If there are no further questions, I will give the floor to Ricardo to end our session.

Thank you, Juliana. I would like to thank you all. For us, it's always good to have these moments where we can talk about the challenges faced and go into greater details of our strategic plan so that we can deliver consistent results, which have been delivered in the past quarters. I would like to thank José Ramos, who's a Legal Director and Investor Relations Officer and also thank Juliana for organizing this process to have the special moment. Thank you all. And if you have any other doubt, which hasn't been clarified, you can contact this to our RI channels, and we will answer them all. Thank you very much.