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

Good afternoon, everyone. Thank you for waiting. Welcome to the Alliança Fourth Quarter Earnings Release Presentation and the conference call for the year of 2024. We will begin the presentation, which will be conducted by Mr. Ricardo Sartim, who is the company's Chief Medical Officer and Chief Operating Officer. We also have Mr. Jose Ramos with us, who is the Chief Legal Officer and Investor Relations Officer. At the end of this conference, we will have a Q&A session to address any questions you may have. [Operator Instructions] This conference call will be recorded and will be made available on the company's Investor Relations website, along with the full earnings release materials. Before we get started, we would like to highlight some important notices. We would like to stress that the information presented here as well as any statements made during the conference regarding business outlook, projections and operational goals are assumptions and beliefs by the company's management. Therefore, they should not be construed as guarantees of future performance. Forward-looking statements involve risks and uncertainties that may or may not become real. Investors must understand that factors such as general economic conditions, market conditions and other operational aspects may have an impact on the company's future performance. Now I turn the floor over to Mr. Ricardo Sartim to begin the presentation.

Thank you for the introduction. Good afternoon. I am Ricardo Sartim, the company's Chief Medical Officer. With me is Jose Ramos, Chief Legal Officer and Investor Relations Officer. I would like to thank everyone for being here. It is a pleasure to be here with you to talk about the fourth quarter as well as the consolidated financial results of 2024 for Alliança Saúde. Moving directly to Slide #4 of the presentation, I would like to first provide a brief summary of 2024 for Alliança. During this year, we underwent an intense restructuring process, both in the back office and in our operations. We wanted to maximize profitability and operational cash generation. As a result of these initiatives, we were able to deliver solid, robust results. For the year as a whole, we achieved the highest gross revenue ever recorded by the company, totaling BRL 1.3 billion, a 3.5% increase compared to 2023. When we look at the chart at the top right, we can see that the accumulated revenue of the last quarters have been growing consistently. Our B2B business unit was also a major highlight with an impressive 146% growth this year, reaching BRL 44 million in annual revenue. We also recorded an adjusted EBITDA of approximately BRL 290 million, the second largest in our historical series with an EBITDA margin of 24%. With this result, came a combination of revenue growth and an efficient cost management, which resulted in a 37% reduction in SG&A in the quarterly comparison and 24% year-on-year. The last point that I would like to highlight here is that we capped the financial leverage ratio stable at 2.5x the net debt adjusted EBITDA LTM. This is a reflection of our financial discipline and our commitment to the sustainability of our business. These results reinforce how robust our strategy is and how able our company is to grow sustainably, balancing expansion, operational efficiency and value generation. Let's go to Slide #5 now. As I mentioned earlier, we reached another record this year with an annual gross revenue of BRL 1.3 billion and a fourth quarter revenue growing more than 7% compared to the same period in 2023. In this slide, I bring some of the main elements that were responsible for this growth. First, the expansion of B2B commercial partnerships. There is a growing volume of contracts that were signed, which allowed us to reach BRL 44 million in annual revenue, an increase of more than 145% compared to 2023, establishing an increasingly larger recurring revenue base for the company. We can see that in the first chart to your left. Now looking at the middle of the screen, the second key point here is the increased productivity of our MRI equipment fleet. We know that high productivity is paramount to maximize our service capacity, improving not only the quality of services provided, but also the satisfaction of our customers. This year, we reached an average of 31 tests per machine per day, performing more than 850,000 MRI exams this year. These are the highest production levels in the last 3 years, contributing to the increase in gross revenue from imaging exams, which is the third point that we would like to highlight. To your right, you see the annual and quarterly evolution of our gross revenue and the volume of imaging tests, mainly driven by our strategy to expand the customer base through increased accreditation with major health insurance companies and also our private customer base, which now represents the second largest revenue source for the company. These results, along with other initiatives that we have adopted in the company such as signing amendments to the RBD concession contract, or PPG (sic) [ PPP ] With the state of Bahia in Philips, show how assertive and diligent we are in executing our sustainable growth strategy. Now let's go into details regarding our financial performance. On Slide #7, we see the evolution and composition of our revenue. To your left, in the fourth quarter, we see that the gross revenue reached BRL 320 million, the highest revenue for a fourth quarter in the company's history, showing a 7% increase compared to the same period last year. As for the annual result, our gross revenue totaled BRL 1.3 billion, a record result, as mentioned earlier. To your right, you can see the evolution of each business segment. When comparing the fourth quarter of 2024 to the same period in 2023, we see the aforementioned increase in all our revenue lines. which shows how we managed to make more robustness in a traditionally lower demand quarter when it comes to elective outpatient exams. Our B2B growth also gives us greater predictability and recurrence to our revenue with solid long-term contracts. This not only strengthened our market position, but also expanded our reach, allowing us to offer our services to an increasing number of clients. Continuing with the breakdown of our revenue, let's move on to Slide 8. As you can see in the chart on the left, we saw a 4% growth in imaging diagnostic revenue on a quarterly comparison and a 2% increase year-on-year. This performance was mainly driven by the increase in MRI exam volume, which saw a 3% growth on an annual basis. In the chart on the right, we gain a better understanding of the evolution of our B2B revenue. We see this business unit as a source of greater predictability and revenue reoccurrence, which is why we have invested efforts to make it even bigger within the company. If you look at the chart, we see that the revenue in the fourth quarter more than doubled compared to the same period in 2023. We saw the same strong performance in the year-on-year comparison. These results reinforce that our strategy is paying off, generating consistent returns for the company. The combination of initiatives focused on operational efficiency, expanding our customer database and strengthening strategic partnerships has driven our performance, which has an impact on the sustainable growth of revenue. Moving on to Slide 9. We provide a summary of the work that we have developed, focusing on the operational efficiency of our company this past year. As you can see on the slide, when we look at the annual base, we saw reductions across every single line. And the only exception is the medical fees line. We also had a slight increase in medical hospital supplies and services in the fourth quarter. I'll go into more details on these subtle increases shortly. But first, I'd like to highlight the biggest achievement here, which was a reduction in personnel costs mainly due to the operational restructuring of our back office, leading to a 3 percentage point decrease in net revenue on an annual basis, as we can see on the left. The importance of this restructuring was so significant that it not only contributed to our operational efficiency, but also absorbed the financial impacts that were caused by the implementation of the nursery salary minimum, the salary adjustment due to labor agreements and the increase in the workforce to support the expansion of our B2B business unit. Now regarding the medical fees line, which was the only 1 that showed an increase year-on-year, we had a 1 percentage point increase year-on-year, and the quarterly comparison showed a 2 percentage point increase. These increases were a result of the expansion of our B2B business line. However, despite the larger share of medical fees, the margins of this business unit are similar to those of other Allianca units. Also, the overall unit cost of medical fees remained stable year-on-year. Now in the medical hospital supplies and services line, the annual cost remained in line with a 1% decrease compared to 2023, and this is roughly stable when compared to the fourth quarter of the same period. We maintain our strategy of continuous process reviews, focusing on eliminating waste and optimizing costs through commercial renegotiations, ensuring greater efficiency and also mitigating inflationary impacts along the supply chain while also continuing to bet on revenue growth. This is the strategy that we are betting on. Lastly, in our third-party services and others line, we accumulated a gain for the year at around 2 percentage points, resulting from all our renegotiation efforts and the consolidation of third-party service contracts across brands. This led to more efficient deliveries, greater synergies and a significant cost reduction. As a result of our operational efficiency strategy, we achieved an impressive margin gain of 5 percentage points, which goes to show that our efforts were effective in pursuit of higher profitability. Now on Slide 10, we're going to show the consolidation of everything that we've discussed so far. For the year as a whole, our customer base expansion strategy resulted in a 3% increase in gross revenue, while our focus on continuous efficiency significant gains in costs and expenses. These combined factors contributed to the highest adjusted EBITDA in recent years in the past 3 years and we reached BRL 290 million. When you look at the chart, you see that these BRL 290 million represent a 22% increase in the adjusted EBITDA compared to 2023, and almost 60% compared to 2022. This growth also accompanied a stronger EBITDA margin around 24%, which is 4 percentage points higher than in 2023 and 7 percentage points higher than in 2022. On a quarter-by-quarter basis, the growth was even more remarkable. In the fourth quarter of 2024, we achieved an adjusted EBITDA that was 52% higher than the same period last year with a margin increase of 7.5 percentage points. Therefore, we conclude that we are firmly on track to deliver increasingly robust operational results driven by our expansion and efficiency strategy. The strengthening of our EBITDA reaffirms how robust and sustainable our growth is, which creates value for everyone in the Alliança ecosystem and also reinforces our position as a market leader in health care. Now moving on to Slide 11. I'd like to go into details regarding our company's debt and leverage situation. On your left, you see the evolution of the company's financial leverage. As I mentioned earlier, we capped our financial leverage ratio at 2.5x the net debt adjusted EBITDA LTM, in line with the previous quarter. However, we can see a significant reduction compared to the fourth quarter of 2023. Now to your right, I'd like to show the type of our current debt. In the first chart, we see the current composition of our debt. Bank loans and debentures totaled BRL 722 million, representing 88% of our total gross debt. As shown in our disclosures, this shows a consistent reduction trend with a decrease of more than 30% compared to December 2023. Now tax installments and payables for company acquisitions account for the remaining 13%. In the second chart, further to the right, we see the short and long-term breakdown of our debt. Currently, 40% of our total gross debt is short term, and the remaining is long term. We reaffirm our commitment to strengthening operational cash generation, which is key for reducing leverage and ensuring the company's financial stability. We remain focused on continuously optimizing our capital structure. In every quarter, we seek opportunities to restructure our debt with longer terms and more attractive conditions. These initiatives reflect our commitment to honoring our obligations to creditors and also driving sustainable growth with even more efficiency and resilience. Now on Slide 13, we would like to summarize our commitment to the strategy of continuous efficiency that has brought us here. This is also what is guiding us into the future. Our strategy is based on 3 major pillars. First, the expansion of our revenue. We continue making progress in our expansion strategy, combining both organic and inorganic growth to strengthen our market position. The recent acquisition of CURA announced as a subsequent event after the closing of the quarter, reinforces our M&A strategy and how we make sure we take advantage of opportunities, adding value and expanding our presence in Brazil's largest health care market. In parallel, we are boosting the expansion of our B2B front, increasing our reach and diversifying revenue streams. We have also made progress in expanding payer sources, strengthening accreditation with major health operators. In organic growth, we've also secured new contracts with the RBD concession contract, consolidating our presence and maximizing opportunities within our current portfolio. Let's now move on to our second pillar, which is resource optimization. Our continuous efficiency strategy has been critical in achieving healthier profitability levels. Efficient management of human, technological and financial assets is a key pillar for our strategy. We are always reviewing our processes, our cost structure in our organization to ensure an increasingly agile and effective operation. By maintaining a structure that is aligned with our size and regularly reevaluating contracts and scopes of operation, we ensure greater flexibility to adapt to market dynamics, driving our operational performance and strengthening mainly our competitiveness. With this mindset and with this discipline, we managed to reduce SG&A from 31% of net revenue in 2022, the year the current management took control of the company to 19% in 2024. I believe that this strategy will remain essential for the growth of operational cash generation. Now last but not least, our third pillar is financial discipline. We reinforce our commitment to financial discipline, ensuring a balanced capital structure and the responsible management of our commitments. This will allow us to face economic challenges with resilience and to capture growth opportunities safely. Our national presence strong and recognized brands. And above all else, the dedication of our over 4,000 employees and 2,200 partner doctors are the pillars that really drive the new Alliança. The results in this quarter reinforce the progress made through consistent execution of our strategy. We are confident that this is the path towards sustainable growth and the consolidation of Alliança Saúde as a reference as a benchmark in this industry. Finally, I would like to end our earnings release presentation by reinforcing some key points of our strategy and our recent journey. That's Slide #14. Since the arrival of our new management 2 years ago, Alliança Saúde has undergone an intense organizational restructuring process with a special focus on optimizing our back office and growing our operations. We already see concrete results. We have reduced our SG&A by over 27% since 2022, making our business more efficient and agile. This allows for us to operate with greater financial discipline, ensuring that our growth is sustainable in the long term. Now when we talk about growth, we are committed not only to expanding revenue, which has grown by over 11% in the last 2 years but also to profitability. Our ongoing search for efficiency and margin improvement has led to increasingly higher levels of our adjusted EBITDA, which has already grown by over 50% compared to 2022. This reinforces our ability to capture market opportunities without sacrificing financial solidity and robustness. Much of this growth comes from our asset-light expansion strategy, which has been paramount for our operations. We are constantly expanding our client base whether through new accreditations, the launch of innovative products or strategic partnerships. This model allows for us to scale our operations efficiently, quickly and while maintaining a competitive and accessible service portfolio. Finally, we continue using a balanced strategy between organic and inorganic growth. In terms of organic growth, our expansion has mainly been driven by the increase in the client base in the units and our B2B channel, strengthening partnerships with companies and expanding our reach. Inorganically speaking, the recent strategic acquisition of CURA represents our commitment to seeking opportunities that add value and add to our operations without losing sight of financial discipline. We're confident that these pillars; operational efficiency, sustainable growth and strategic expansion will continue to drive Alliança Saúde to even greater heights. We're almost wrapping up, and I would like to reinforce that the combination of reach, reputation and human talent reinforces our commitment to the future, promoting health in keeping to our purpose of continuous growth, perpetuity and the generation of sustainable value or the generation of value sustainably. Now I would like to thank everyone for being here, and we will start the Q&A session. Thank you.

[Operator Instructions] Our first question comes from [ Paulo ] from Valora. He says, good morning. Congratulations on another set of strong results. Could you please explain how you worked on your capital increase with the FIDC investment by the controller. We saw increases or we saw investments for a future capital increase, but we also saw a new line regarding to new parts for liabilities but also greater increases for assets. So could you please give us more information into that? How is this going to have an impact on the business' cash.

Great. Thank you for your question, [ Pedro ]. Allow me to clarify something. When you see the future increase in capital, for this line, we actually have the approval of a capital increase by the controller throughout 2024 of BRL 511 million. This process was actually approved in January of this year. This is why we see this line. By the way, let me share a simplified mechanics of this operation. Normal but receivables from Alliança, which had been granted to FIDC Saúde & Imagem. And actually, these receivables are now returning to the company. So we see an increase in accounts receivables. Now the counterpart for that is an increase in the net equity through an increase in our capital position. So we have to follow a whole set of guidelines to do this. And this is why we see this specific line here. So we have the capital increase from last year, and we have the structure to make sure that we take FIDC into account for the company.

[Operator Instructions] We have another question here. Could you please discuss the growth perspectives for your business unit in B2B?

Absolutely. Thank you for your question. We look at the B2B business line with great happiness. This brings to our business a source of revenue with more predictability and better recurrence. In our earnings release presentation, after the end of the quarter, we mentioned that we had the first technical hospital profit in a hospital operated by Alliança in one of the main hospitals in Sao Paulo. With this operation that we started on the first of March, we'll see an impact of almost BRL 10 million for the B2B line every year. We also have a pipeline of contracts that have already been signed, and we're going to be putting them into operations in the next 2 quarters. So this is going to add to this growth. I believe that investing in the B2B line was a very good decision with a more asset-light approach. This brings more presence to our brands. It gives us better reach, increases our revenue without needing to make very huge investments, and above all else, it brings us predictable recurring revenue based on long-term contracts. This is one of the biggest avenues of growth for 2024, and we believe this will be the case for the next quarters, too.

We have another question. Regarding your SG&A improvement, is there any kind of restructuring process in your pipeline?

Thank you for your question. As I was saying in the presentation, we're very focused on the continuous improvement of our operations. We are constantly reviewing processes and internal operations. We want to truly maximize our assets. As I also said in the previous earnings release presentation, since we're talking about gains and reducing the SG&A., in the previous call, as a subsequent event, we said that we put together 2 different offices that we had in Sao Paulo, turning them into one single address in the Paraíso neighborhood in order to further reduce our admin expenses. These gains will be reflected in the next calls. And this is still on our agenda. As I said previously, our continuous efficiency agenda will stay with us for a while. Allow me to mention some of the things that we're doing at the company, which follow this rationale. We have corporate revision of documents, potential tax gains, changes in the back office for better speed, resilience and cost reduction avoiding bureaucracy, renegotiation of great input contracts and the renegotiation of services overall. You'll see in the next earnings release calls that this is going to be a recurring topic here. Our company is focused on having a better, more efficient, lighter business so that we can absorb our future growth.

Next question. Given a challenging macroeconomic scenario with high interest rates, how does Alliança intend on working with its debt journey in optimizing the use of capital in the next quarters.

Thank you for your question. I think I tackled this during the presentation. This is a joint endeavor. We've been increasing and improving our operational efficiency, which leads to the increase of operational cash. But on the other hand, we're also paying lots of attention to opportunities to improve our capital structure. What really matters is that we've had great financial discipline and our costs are truly in line with our expectations. Our leverage ratio was kept under control. So we are working a lot on financial discipline. And we are paying attention to the many opportunities that we have even in a challenging scenario to optimize our cost structure and actually, pardon me, our capital structure.

Next question. What do you think about potential growth through M&As in 2025?

Thank you for your question. Our business is always paying attention to every M&A opportunity. However, we are very strict. We are picky, and we're looking for things that would be truly interesting for us as of right now. As we said after the quarter, we had the 100% acquisition of the CURA brand in the city of Sao Paulo. This reflects the set of criteria that we are using now for the acquisition of new assets. We truly want acquisitions that make sense and that have to do with our strategy regarding the expansion of our base. And we want assets that are not going to have a significant impact on our cash position in the short term and also no significant debt. CURA was bought at 100%, and we are not acquiring any debt for it. So we are being picky. Of course, we're always keeping an eye on this industry, and we're going to keep you up to date on any changes in this sense.

[Operator Instructions] Next question. What is the nature of credits used by the controller for the capital increase?

Thank you for your question. Actually, Lormont, which is the vehicle used by the controller acquired credits from the FIDC fund. So Lormont bought these credits. And then subsequently, this will be used for the capital increase at the company.

Next question. When should we see the capital increase? And what is going to be the impact on the reduction of the shareholders' base?

Thank you for your question. Since there is irrevocable interest by Lormont to concretize these credits as a capital increase, the Board of Directors started their work for pricing and for the market evaluation. When the right time comes, the Board of Directors will be summoned so that we can take the necessary steps for the capital increase. Within the necessary steps, we have the opportunity for minority shareholders to voice their opinion regarding their capital increase to avoid the dilution. So in the next steps, we'll have many messages that will be shared with everyone.

[Operator Instructions] Since we have no further questions, this is the end of our Q&A. Thank you for being here. Let me now hand it back over to Mr. Ricardo Sartim for his final remarks.

Thank you, Marcela. Please remember that our Investor Relations channels are always available to you. So should you have a question after our earnings release call, please send us your questions through our official channels. We'll be happy to take them. In closing, thank you once again for being here. I believe that the results of the fourth quarter of 2024 start a whole new chapter of a successful journey that we started over 12 years ago at the company, or actually 2 years ago at the company when we changed its management. This is the result of humongous efforts by a team of giants. We have over 4,000 employees and 2200 partner doctors, and we are together bringing this company back to the level where it should have always stayed. Thank you from the bottom of my heart to the whole Alliança team. We are reaping the fruit of your hard work and your dedication. I would also like to thank all of our partners who made our alliance stronger and who helped us write another successful chapter. Thank you so much, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]