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

Good afternoon, everyone. Thank you very much for waiting. Welcome to the earnings release call of the first quarter of '25 for Alliança Saúde. We are going to start the presentation, and it will be made by Mr. Ricardo Sartim, Chief Executive Officer; and Mr. Pedro Gibbon, Chief Financial Officer and Investor Relations Officer. We also have with us Mr. Jose Ramos, who is Legal and Compliance Officer. At the end of this conference, we will have a question and answer session where you can ask your questions. [Operator Instructions]. This conference will be recorded and will be available on the company's Investor Relations website as well as the full material of our earnings release. Before we start, we would like to make some important warnings. We would like to emphasize that the information presented here as well as any statements that may be made during the conference call about business prospects, forecast and operating goals are assumptions and beliefs of the company's management. Therefore, they should not be understood as guarantees of future performance. Forward-looking statements involve risks and uncertainties that may or may not materialize. Investors should understand that factors such as general economic conditions, market conditions and other operating aspects may influence the company's future performance. I would like now to hand it over to Mr. Ricardo Sartim to start the presentation.

Thank you for the introduction. Good afternoon, everyone. I'm Ricardo Sartim, Chief Executive Officer. Next to me, Pedro Gibbon, Chief Financial and Investor Relations Officer. I also have Jose Ramos next to me, Legal and Compliance Officer. I would like to thank everyone for coming. It's a pleasure to be with you once again to release the results of the first quarter of 2025 of Alliança Saúde. Now going straight to Slide 4. First of all, I would like to start our presentation by setting the context on a very important change we have observed in our company's corporate governance structure recently announced to the market on April 29 this year. We had our Annual Extraordinary General Meeting followed by the meeting of the Board of Directors. At that time, a new composition of our management bodies was approved. These changes are fully aligned with our strategic plan for continuous efficiency and growth. The goal is to strengthen our governance and make decision-making even more agile, efficient and prepared for the challenges of our next cycle. Therefore, I highlight the transition of Isabella Tanure, who leaves the position of Chief Executive Officer of the company to take over the leadership of the Board of Directors. Isabella brings to this new role as Chairperson all her experience, strategic vision and deep knowledge of the industry, fundamental characteristics for the evolution of Alliança. In the Executive Board, it is the new composition is formed by myself, who leaves the position of Chief Medical and Operation Officer, now takes over the position of Chief Executive Officer. Pedro Gibbon, better say, CFO and Investor Relations Officer; and Jose Ramos, who continues as Chief Legal and Compliance Officer, next to me. I would like to take the opportunity to sincerely thank all the managers who have come before us. Their dedication and contributions were essential to bring the company to the current position we are. We remain committed to maintaining transparent, responsible management, which is constantly focused on generating value for everyone in Alliança ecosystem. Let's now move on to the highlights of the first quarter of 2025. If you take a look on Slide 5, we started by announcing the highest revenue in the first quarter in the company's history, BRL 321 million. Once again, we delivered solid results in our top line, which was 7% higher over the same period last year. Looking to the chart top on the right, we can see that revenues in the past 12 months has grown consistently, reaching a record of BRL 1.32 billion, which shows the success of our strategic plan for revenue expansion. And the B2B business unit continues to be a very important driver of our company's performance, reinforcing our position as an important partner in diagnostic medicine, both for health care operators, insurance companies and health organizations. In this first quarter, revenues from this business unit totaled BRL 11 million, an increase of more than 143% over the same period last year. As you can see, the significant results reflect the expansion of our customer portfolio, greater diversification of revenue sources and robust growth of our B2B partnerships with more and more strategic contracts signed. It reinforces the solidity of our business model, which combines market intelligence, operational excellence and long-term partnerships. Another major highlight comes as a result of our entire restructuring process, both in the back office and in operations. We have achieved adjusted EBITDA in the quarter of BRL 69 million, growth of 47% in the quarterly comparison with estimated EBITDA margin of 23%. As we can see in the chart below on the right, in the last 12 months, adjusted EBITDA totaled BRL 311 million, increase of 42% on an annual comparative basis on LTM, an increase of 6.5 percentage points in the margin. We can see that our profitability shows robust and continuous evolution, showing all our best efforts to expand our revenue and efficiently manage our costs and expenses. Now talking a little more about our restructuring and expense control work. When we analyze our general and administrative expenses, SG&A, the results accurately reflect our recent trajectory of seeking for efficiency. SG&A expenses reached one of the lowest levels since 2020, showing a decrease of 33% over the first quarter of '24, which means 16% of net revenue. The last point I'd like to highlight is that we have reduced the company's financial leverage ratio to 2.1x net debt over adjusted EBITDA, LTM, the lowest leverage level since the change of control in 2022, reinforcing our financial discipline and our commitment with the continuity of the business. All these results combined reinforce the solidity of our strategic plan and the company's ability to grow sustainably, balancing expansion, operational efficiency and value generation to our stakeholders. Now moving on to Slide 6. As I mentioned before, we have reached one more quarterly record with gross revenue reaching BRL 321 million. I'd like to highlight on this slide some of the main factors responsible for this growth. First, expansion of B2B commercial partnerships. As we can see in the first chart on the left, the increasing volume of signed contracts allow us to achieve record revenues of BRL 11 million in the quarter, defining an increasingly large and more representative recurring revenue within the company's mix. Looking at the graph in the center. The second highlight is the continuous and consistent increase in the productivity of our magnetic resonance equipment. In this quarter, we reached an average of 29 exams per equipment per day, a very expressive level that shows the efficiency of the use of our assets. And at the same time, it has directly contributed to the growth of gross revenue in the area of imaging. This performance in turn is the third point that deserves to be highlighted. In the chart on the right, we highlight the quarterly evolution of gross revenue from imaging, which reached the mark of BRL 274 million, and the volume of exams, which increased by about 6%, mainly driven by our strategy of expanding the customer base with also expansion of accreditation with the main health insurance companies and especially the increase of private customers. This results in addition to other initiatives we have adopted in the company show assertiveness and diligency in the execution of our sustainable growth strategy. I would like now to hand it over to our new Chief Financial and Investor Relations Officer, Pedro Gibbon, who will give us more details about the company's financial performance this quarter. Welcome, Pedro.

Thank you, Sartim. Continuing our presentation, let's move on to Slide 8, where we bring the evolution and composition of our revenues. Starting with gross revenue, we can see that in the first quarter of 2025, we reached BRL 321 million, the highest revenue ever recorded by the company in the first quarter. It represents growth of 7% compared to the same period last year, showing the gains obtained with our commercial strategy. As you can see in the chart on the right, the evolution of our main business fronts over the last few quarters can be seen there. When comparing the performance of the first quarter '25 with first quarter '24, we noticed growth in all revenue lines with B2B segments gaining more and more importance in the mix. This movement demonstrates our ability to pull the operation even in a quarter, which is historically marked by lower volume of exams. Therefore, this solid performance reinforces not only our presence in the regions where we operate, but also highlights the effectiveness of the initiatives that have been implemented to expand access to our services. Now let's move on, breaking down our different revenues on Slide 9. Looking on the left, I highlight the performance of revenues from clinical analysis, clinical labs, which showed growth of 7% over the first quarter of the previous year. It was driven by the increasing volume of performed exams, which grew 22% on the same basis of comparison, totaling 2.352 million, with a direct reflection of greater number of patients. Now looking at the chart on the right, we can see the evolution of revenues coming from B2B, which has been consolidated as one of the most relevant growth levers of Alliança. It's a business line that combines recurrency and predictability, which makes it strategic considering we want stability and revenue expansion. This quarter, we recorded an increase of more than 140% over the first quarter '24, in addition to significant growth in accumulated revenue in the last 12 months, clear indication that we are not only winning new contracts, getting new contracts, but also sustaining volumes over time. Slide 10 brings a summary of the fruits we've obtained from our operational continuous efficiency strategy this quarter. Analyzing the percentage in relation to net revenue, we see we've obtained reduction in the lines of personnel and third-party and other services, while there was a slight increase in medical fees and medical hospital supplies and services. Let me give you some more details. Starting with personnel, the most representative among our costs and expenses, even though it has shown growth in absolute values, this line observed a reduction of 1 percentage point in relation to net revenue. This result directly reflects the progress made in restructuring our back office implemented over the last few quarters and intensified this year, reinforcing our commitment with operational efficiency. Now medical fees. We had an increase of 1 percentage point on net revenue. It can be explained by greater weight of B2B in our revenue. It's something that even though has higher representativeness of fees maintains margins comparable with the other operating units. In medical hospital supplies and services, there was also a small increase of 1 percentage point on net revenue over the first quarter '24. We continue to execute our strategy of continuous review of processes and renegotiation with suppliers. It has been essential to mitigate inflation pressures without compromising the quality of our services. In the line third-party and other services, there was a 6 percentage point reduction as a direct reduction of the work of reviewing outsourced contracts and renegotiating with suppliers. This is something that has brought up important operational gains with greater efficiency, synergies and significant reduction of expenses. Combining all the efforts of the company, we have reached a gain of 5 percentage points in gross margin over the same period last year, significant breakthrough, which reinforces the effectiveness of our profitability strategy focused on disciplined execution. On Slide 11, we can consolidate all points presented so far. In the first quarter of '25, all our progress has shown our disciplined execution of our strategic plan for continuous efficiency and growth. On the one hand, we continue to expand customer base and penetration of business units. On the other hand, we kept firm focus on operational efficiency and expense control. As a result, growth with discipline, we recorded 7% increase in gross revenue, accompanied by considered gains in the lines of cost and operating expenses. This strategic balance that allowed us to achieve adjusted EBITDA of BRL 69 million, the highest in our history for first quarter. Looking at the chart, we can see the amount represents 47% increase over first quarter '24. In addition to absolute growth, it's important to highlight the expansion of EBITDA margin, reaching 23%, with 6 percentage point increase compared to the same period in '24. We closed this first quarter showing once again the solidity of Alliança. This margin shows that we can obtain operational gains through efficient cost management, increased productivity, administrative restructuring and evolution in the mix of contracts towards higher profitability. We remain committed to be strengthening operating cash and increase our profitability with solid disciplined sustainable growth strategy. The results reinforce our conviction that we are on the right track to generate consistent and lasting value for our stakeholders. Slide 12 shows us the situation of our indebtedness and leverage at Alliança. Starting from the left, I highlight the positive evolution of our leverage indicators. As Sartim mentioned from the beginning of our presentation, we reduced the net debt to adjusted EBITDA ratio for the last 12 months to 2.09x, the lowest level since the change of control of company. This reduction is a direct combination of higher operating cash generation and discipline in management of capital structure. Now looking at the charts on the right, we bring you an overview of the current profile of indebtedness. In the first chart, we see the composition of gross debt, which went from BRL 824 million in the fourth quarter '24 to BRL 771 million in the first quarter '25, 86% of which concentrated in bank loans and debentures. Lines, as shown in previous statements, has shown a consistent downward trend. The remaining 14% refers to tax installment and obligations related to acquisitions. In the second chart, we detail the maturity profile. Currently, 42% of gross debt is concentrated in short term, while the rest is long-term debt. We remain attentive to the balance between liquidity and cost of capital, working continuously to extend terms and obtain more favorable conditions. It's a clear message. We are committed to generate cash and optimize the capital structure of the company. Deleveraging is not only an indicator of financial health, but it's a solid foundation to sustain our growth more efficiently, resiliently and competitively over the time. Thank you all very much. And now I give the floor back to Ricardo Sartim.

Thank you, Pedro. Now let's move on to Slide 14. I'd like to summarize our strategic plan that has brought us here and that will continue to guide us in the near future. I'll take this opportunity to reinforce some of the fundamental points of our strategy based on rescuing again Alliança DNA. Since the new management took over almost 3 years ago, Alliança Saúde has been conducting a consistent process of organizational restructuring, focusing on the efficiency of back office and sustainable expansion of operations. The results of this transformation are visible. We were able to reduce our general and administrative expenses by about 33% since the first quarter of '23. It shows a company that's leaner, more efficient and prepared to grow solidly. This optimization has been essential for us to reinforce our financial discipline and ensure that every step of our growth is underpinned by healthy and lasting fundamentals. When we talk about growth, our commitment goes beyond revenue expansion, which has advanced in recent years, reaching the record mark of BRL 321 million in this quarter. We are also focused on profitability. The continuous search for operational efficiency and margin improvement has driven the expansion of our adjusted EBITDA, which has already registered growth of more than 10% over the first quarter of 2023. These results prove our ability to capture relevant opportunities in the market while maintaining, at the same time, solid and sustainable financial foundation. Much of this growth is directly linked to our expansion strategy with an asset-light model, one of the central pillars of our operations. We have consistently expanded our customer base through new accreditations, advance in the B2B business unit, launch of innovative solutions and strategic partnerships. This model allows us to scale the operation in an agile and efficient way with less need for invested capital. At the same time, we maintain a portfolio of services that is competitive, accessible and aligned with market demands. We also maintain a balanced strategy between organic and inorganic growth with consistent progress on both fronts. In terms of organic growth, the expansion has been driven mainly by the increase in the customer base of our units, as a result of the strengthening of corporate partnerships and the expansion of our capillarity. It has generated concrete results, such as growth in the volumes of imaging exams and clinical lab tests, combined with significant productivity gains, especially in the use of our MRI systems, reinforcing our operational efficiency and our ability to scale up with quality. In addition, we continue to move on, expanding with the relationship with the government of the State of Bahia through our public private partnership agreement. It incorporates new services, and there is the expansion of number of units covered. This evolution strengthens further our regional presence and contributes to increasing the predictability of our results by increasing the generation of recurring revenue. In terms of inorganic growth, the strategic acquisition of CURA units in São Paulo reinforces our commitment to identify and capture opportunities that generate value and strengthen our presence in the health care industry. This move is fully aligned with our strategy of selective and disciplined growth, adding scale and operational synergies, but without giving up a very strict capital allocation. Finally, we reinforce our commitment to financial discipline. This has been one of the pillars of the company's recent path. In recent years, we have conducted a consistent deleveraging process, achieving healthier debt levels and strengthening our capital structure. This is a relevant advance, the result of rigorous and strategic management, which allowed Alliança to resume its growth capacity with solidity and resilience. Since the change of management control, we have made significant progress in the key pillars that underpin our business model. We have strengthened our capital structure. We have improved operational efficiency, expanded our market footprint and resumed sustainable growth of revenue and profitability. However, we are fully aware that there is still much more to do. Our national presence, our strong and recognized brands and above all, the dedication of more than 4,000 employees and 2,200 partnering doctors are the 2 pillars that drive this new Alliança. We are going to remain firm and disciplined in the execution of our strategy, which has rescued the true DNA of Alliança. It's a company that is resilient, efficient and committed to generate value. We are convinced that we are on the right track to reposition Alliança among the largest players in the health industry in Brazil. Now heading to the end of the presentation, I have my final message. The combination of reach, reputation and above all, human talent, reinforces our commitment to the future, promoting health and remaining firm with our purpose of continuous growth, perpetuity and sustainable value creation. I would like to thank all of you for being here with us. And now we are going to carry on with our question-and-answer session. Thank you all very much.

[Operator Instructions]. There is one first question. What about the acquisition of CURA units? Could you please tell us an updated status? Or could you please give us an updated status?

Thank you for the question. The transaction has been approved by the trust, antitrust authorities, CADE. And right now, we are executing the necessary steps to meet all the required conditions for the final operation. It should be probably by the third quarter this year. It should be completed by the third quarter this year.

[Operator Instructions]. The second question is, could you please tell us about the sales of 5% of your shares to a pension plan pool?

Thank you for the question. We were informed by Braslight about the acquisition of relevant interest in the company in the end of March, which was communicated by the company to the market. Braslight made it very clear that its investment was made just as an investment opportunity. There is no interest of changing the management structure of the company or any further steps.

There is one more question here. Concerning the gains obtained from SG&A initiatives, do you have any other restructuring process in your pipeline? Anything that you can anticipate?

Very good question. As I have mentioned during my presentation, the company is very much focused on continuous efficiency of operations. We are going to maintain our constant revisitation of processes, internal resources, optimization of the use of assets, such as, for example, MRI devices. And we have an agenda to focus on efficiency, which comprises a number of actions from reorganization of internal composition, tax benefit, introduction of new technologies such as AI in back-office processes, renegotiation of large contracts with service providers and suppliers, and a constant reanalysis of the performance of all our different units.

[Operator Instructions]. If there are no further questions, we are going to end our Q&A session. We would like to thank you all for being here. And I would like to hand it back to Ricardo Sartim for his closing remarks.

Thank you, Marcelo. Once again, let me thank all of you for having joined us. The results of the first quarter '25 translate our strategic plan of efficiency, of growth. For the past 3 years, we have been successfully shown our efficient and key role in diagnostic medicine. Alliança has played a very important role in the market. The robust results that we have shown result from the very dedicated work of a huge team, 4,000 employees, over 2,000 partnering physicians who are helping us take the company back to the level to which it deserves. I would like to thank all our partnering physicians and the over 3 million patients who believe in the work that we do every day. Please accept my thanks, Alliança team. You are wonderful. The work is a result of your dedication and great work. I would like to thank our partners, which make us stronger and have helped us contribute to write one more successful chapter in our history. Thank you all very much. Have a great afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]