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

Good afternoon, everyone, and thank you for waiting. You're welcome to Alliança Saúde's Second Quarter '25 Earnings Conference Call. We will begin the presentation, which will be given by Mr. Ricardo Sartim, CEO; and Mr. Pedro Gibbon, Chief Financial and Investor Relations Officer. Also joining us today is Mr. Jose Ramos, Chief Legal and Compliance Officer. At the end of this conference, we will have a Q&A session to address eventual questions you may have. [Operator Instructions] This conference call will be recorded and will be available on the conference Investor Relations website, along with the complete materials for our earnings release. Before beginning, some important highlights. We emphasize that the information presented here as well as any statements that may be made during this conference regarding business outlooks, projections, and operational targets are based on the company's management assumptions and beliefs. Therefore, should not be interpreted as guarantees of future performance. Forward-looking statements involve risks and uncertainties, which may or not materialize. Investors should understand that factors such as general economic conditions, market conditions and other operational aspects may influence the company's future performance. I now turn over to Mr. Sartim to begin his presentation.

Well, thank you for the introduction. Good afternoon, everyone. Ricardo Sartim, CEO of the company. Alongside me, Pedro Gibbon, CFO and IRO; and Jose Ramos, Chief Legal and Compliance Officer. I would like to thank you all for joining us today. It is a pleasure to once again share with you the second quarter '25 results of Alliança Saúde. Moving on directly to Slide #4, I will comment on the highlights. We closed the second quarter of '25 with gross revenue of BRL 324 million. Year-to-date, we reached BRL 645 million in revenue, the highest figure ever recorded for a first half in the company's history. Looking at the chart in the right corner and the upper corner gross revenue for the last 12 months totaled us over BRL 1.3 billion. a slight decline compared to the previous quarter, mainly reflecting the strategic decision to discontinue underperforming units in markets with limited growth potential. Even so, our structural growth trend remains solid, supported by a disciplined expansion model and a constant pursue for profitability. These moves confirm the maturity of our strategic plan. And then our B2B segment remains as one of the main vectors of sustainable growth of the company with mid- and long-term contracts. This business unit has contributed in a relevant manner. At the same time, it reinforces our position as a strategic partner for operators and health care institutions throughout the country. Year-to-date, the revenue B2B totaled BRL 25 million, representing expressive growth of 31% when compared to the same period of the previous year. This advance indicates the maturity of the investments made and our capacity to work with new partners, reaffirming our potential with very important basis with scale and solid growth. We remain firm in our profitability. This quarter, we had an adjusted EBITDA of BRL 144 million, a growth of 12% when compared to 24%. As we can see on the right side, in the last 12 months, the adjusted EBITDA added BRL 204 million, a growth of 21% when compared to LTM, an increase of 5 percentage points in our margin. Therefore, we can see that even with very specific growth in revenue are profitability remains with very healthy levels, indicating all of our efforts to efficiently manage our costs and expenses. Now talking a little bit more about the restructuring and expense control. When we analyze our overall expenses, the consistent advance of our work is evident in the first quarter of 25, we had a decrease of 14% when compared to the same period last year with an SG&A representing approximately 18% of our net revenue. even if we take into account specific nonrecurring expenses and cost us with the closure of units. And these results confirm how effective the measures that were implemented were reinforcing that we're following the right track in a more efficient manner and prepared to sustain the company's growth. And to conclude, I would like to mention that we have 1.2x on the debt level. This is the lowest level since Alliança's IPO in 2016. And this indicates the consistent support of our controlling shareholder, demonstrating how solid our capital structure is more than very specific results. It reinforces our commitment with the business sustainability so that we are even more prepared to capture new growth opportunities. And then moving on to Slide #5, I would like to highlight here some of the main features that were responsible for our growth. First, the expansion of our B2B business partnerships. And as illustrated in the first graph on the left side, the expansion in the volume of contracts signed resulted in a revenue of BRL 25 million in the first quarter. And then I would like to highlight the evolution of our clinical analysis testing. We reached almost 4,400 tests performed, a growth of 12% when compared to the first quarter of '24. And I would also like to highlight our growth of BRL 552 million with the volume of tests remaining stable throughout the period. And then I would not like to say that we are consolidating our -- the company at a more and more competitive level. And now I turn over to Pedro Gibbon, our CFO and IRO, who will discuss in detail our results.

And then in Slide #7, I would like to start with the gross revenue in the second quarter. We reached BRL 324 million. And in the accrued results for the quarter, we reached BRL 653 million, representing a growth of 1%, and this is the highest value, and we're further pro reinforcing how our business strategies are consistent in capturing opportunities, which strengthen our revenue. Now in the right side, we can see the mix of our revenue in the last quarters with a relatively stable position. Keeping our leadership, we remain dedicated to expanding our B2B participation, we reinforce our clinical analysis and imaging tests in these places us in a good position to capture new markets and further diversify our revenues, creating a solid basis for sustainable growth. And then in Slide 8. On the left side, we can see the evolution of our revenue in the B2B segment. This business line confirms essential characteristics to sustain our strategy. And in the LTM view, we record expressive growth of this period with a solid development. We are advancing not only with new contracts reinforcing strategic role of B2B in the long term for the company. And we see a consistent increase in private assets, and this is a result of our strategy, which has expanded our mix. This is a line of revenue that is highly strategic for the company. We have reduced time to receive payments and that boosts our financial cycle. In the first quarter of last year, private test has represented 8% of our gross revenue in '25, it is 12%, and we want to keep on increasing with a solid value generation. In Slide 9, we have a panorama of the results obtained this quarter. And I would like to highlight how this was essential for us to maintain our profitability even with less gross revenue. And then we reduced it to BRL 12 million However, this quarter, and we've already discussed this, we had an increase when compared to the net revenue. And then now we're going to demonstrate the resiliency of our model, starting with our medical fees and stability regarding the net revenue percentage and in the same pace preserving profitability in the same scenario. And we have been very disciplined with our strategy and this has been essential for us to counterattack inflation and guarantee the excellence of services provided. And now moving on to the next slide on services. We, in absolute terms, the variation was approximately 26%, aligned to the behavior of the accumulated inflation throughout the period, measured by PCA. And this has allowed us to maintain costs under control even with the natural readjustments of the market. We continue implementing continued investments to guarantee the eventual variations remain within a comparable level without impacting the quality of our services provided. And then finally, we should see that despite the percentage growth, absolute values remain the same. And this represents the advances obtained in the strategy and takes into account our actual needs. We have maintained efficient management and at the same time, preserving profitability. In summary, the results obtained this quarter confirm how effective our strategy has been and it has enabled us to keep solid profitability even in a scenario with less revenue. The absolute cost decrease and a very strict control of contracts and providers indicate consistent work and these advances demonstrate that we are ready to sustain our growth in a very disciplined manner, maintaining quality and excellence of the services provided. In Slide 10, we have a consolidation of all of the aspects mentioned this far. In the second quarter, we had an adjusted EBITDA of BRL 78 million with a margin of 26%, demonstrating our ability to maintain a solid profitability base even in a scenario of slight revenue contraction. For the first 6 months of the year, we reached BRL 147 million in adjusted EBITDA, a 12% increase compared to '24. And this is followed by a margin above 24%, representing a gain of 2.4 percentage points. This reinforces the discipline in our continuous efficiency strategic plan, which guides all of our decisions. Even in a quarter marked by lower imaging exam volumes, we maintained robust margins through strict cost and expense control continuous review of unit profitability and expansion of the client base through strategic commercial partnerships. We closed this quarter, reaffirming the resiliency and solidity of Alliança. The results indicate our ability to generate consistent and sustainable operational gains, combining growth with efficiency and margin preservation. We continue steadfast in executing a disciplined expansion strategy in which every step of growth is followed by unwavering commitment to enhance profitability. In Slide 11, I would like to talk to you about the company's debt and leverage. On the left side of the graph, I would like to highlight the consistent downward trend in our leverage ratio. In the second quarter '25, the net debt to adjusted EBITDA ratio for the last 12 months reached 1.5x the lowest level since the company's IPO in 2016. This achievement is the result of a combination of significant operational improvements and the continued support of our controlling shareholder consolidating a solid secure financial position, more than just a historic milestone. It gives us confidence to continue capturing growth opportunities. Now looking at the chart on the right, the current breakdown of our debt. Gross debt decreased from BRL 771 million in the previous quarter to BRL 581 million in the second quarter, a significant reduction. Of this total 75% corresponds to bank loans and debentures, 25% refers to tax installment payments and obligations related to acquisitions. In terms of maturity, 52% of goat is allocated to the long term and 48% to the short term. We continue to work on extending maturities, reducing our cost of capital and maintaining a healthy balance between liquidity and debt structure. The message is clear: we've reached a safe and controlled leverage level, and we remain optimistic about building quarter after quarter, an increasingly comfortable debt profile. This robust financial foundation not only reinforces the confidence shareholders and creditors, but also supports the execution of an efficient strategy. I now turn over to our CEO, Ricardo Sartim.

In Slide 13, I would like to summarize our strategic plan. Alliança has gone through very significant changes. We have restructured the back office, adjusted processes and redesigned our operations with a focus on efficiency and sustainable growth. And the results speak for themselves. Compared to the second quarter of '23, we reduced general and administrative expenses by over 16%, making the company more agile, efficient and prepared to grow consistently. This turnaround was not just about cutting costs. It was about creating healthy foundation to sustain our growth. And growth is exactly what we've delivered in the last quarter. Our revenue reached BRL 324 million. The pursuit of operational efficiency and margin improvement drove our adjusted EBITDA, which has increased by more than 18% since the second quarter of '23. These figures demonstrate that we know how to seize market opportunities without sacrificing a strong and sustainable financial structure. Much of this is the result of our asset-light expansion strategy. One of our differentiations and expanded our client base through new accreditations and strengthened our B2B and established new strategic partnerships. We've maintained a healthy balance between organic and inorganic growth. And on the organic side, we expanded our client base across our units, driven by strengthened corporate partnerships and broader reach. In public partnerships, we advanced collaboration with the government of the state of Bahia, adding new services and increasing the number of units covered under the PPP contract. This reinforces our regional presence and contributes to greater revenue stability and predictability of our revenue. On the inorganic growth front, we continue to advance with strategic moves that strengthen our ability to identify and execute acquisitions that truly generate value for the company. Last quarter, we announced the purchase of Grupo CURA's units in Sao Paulo. This month, we officially completed the operation CURA's results have already been included along with Alliança's numbers, expanding our presence in a highly strategic market. Our teams are fully engaged in the integration process focused on accelerating synergy capture and maximizing the gains this union can bring to our results. Continuing with the disciplined approach that marked the CURA acquisition in July, we acquired Grupo Meddi, the largest private and independent diagnostic medicine operator in the Northeast with 96 units across 32 cities in Bahia. This is very strategic and diversifies revenue with a higher share of clinical analysis. This acquisition has the potential to add over BRL 250 million annually to consolidated growth revenue, further strengthening our leadership in the country's diagnostic medicine sector. All of these moves are based on one of our greatest commitments, financial discipline. In recent years, we've reduced financial leverage and achieved healthier debt levels since the IPO in 2016, strengthening our capital structure and preparing for a new growth cycle in a consistent and safe manner. Finally, since the change in control in '22, we've worked to strengthen our structure, increase efficiency, expand market presence and consolidate consistent growth in both revenue and profitability. We will continue steadfast in executing our plan, which reaffirms Alliança's essence as a solid, efficient company committed to creating continued value. And now moving on to Slide #14. I would like to share more detail about what has taken us here and what we can expect from this new chapter we are about to inaugurate. We are totally convinced that this places at a privileged position to place the company among the leading players in the health care sector in Brazil. Today, Alliança is a result of solid and well-directed work, combining financial discipline, operational efficiency an expansion strategy executed with rigor and long-term vision. We closed this quarter with solid revenue, supported by an increasingly diversified client base, multiple service channels and various payer sources. To ensure business stability, we have 2 essential pillars: an operation and continuous improvement and an agile and lean back office, both fully aligned to deliver excellence to our clients. All of this is enhanced by a healthy and balanced capital structure, allowing us to generate consistent and ongoing value for our shareholders. Looking to the future, a new chapter begins. Our commitment remains intact, grow sustainably without compromising profitability or operational excellence. The pillars are clear: innovation, strong and established brands in the market and above all, discipline in execution. And speaking of innovation, we are attentive to the transformation that are official intelligence is promoting globally and have already incorporated to optimize processes, reduce costs and improve the accuracy of the test results we provide our clients. This combination of human talent and technology delivers greater precision in the services we provide. In terms of profitability, we are proud of the path we've traveled. We have a lean back office structure, reduced our leverage to healthy levels and maintained an absolute focus on efficiency. This discipline, which permeates the entire company, will continue guiding us in constantly reviewing administrative structures and managing our capital structure, ensuring solid margins and sustainable growth. We're going to maintain our current base and advance with strategic expansion moves, whether through selective or well-targeted acquisitions entry into new business models aligned with the company's DNA and also the consolidation of our asset-light growth model, which has proven to be an important growth driver. With the expertise accumulated during this restructuring process. We will expand our presence with new disruptive business models where we already operate while continuing to prospect new markets that have shown growth potential above the national average. These moves will continue to be guided by rigor and financial discipline, which have successfully brought us this far, always optimizing the company's capital allocation. We are ready to position Alliança among the leading players in the sector nationwide. I would like to thank you all for your presence, and we'll now proceed to the Q&A session. Thank you very much.

[Operator Instructions] Our first question, is what synergies have been mapped in CURA's acquisition? Can you tell us anything about that?

Well, thank you very much for your question. We reported the closure of this operation on August 1. And in the CURA Group, I think that in its DNA, it has many similarities. It is a strong and relevant brand and it has significant acknowledgment of the local medical community and is an operational benchmark it's important for the segment of women's health care, and we have the portfolio that is offered back office and management synergism and in the client base with the health operators and also with the private patients.

[Operator Instructions] We have received another question. The question is, even with recent transactions, M&As are part of the company's strategy. Do you consider M&A as a central aspect of the company as saying that other opportunistic M&As are being evaluated? So could you give us some more details about that?

Thank you for your question. As I commented before, with this pathway, we've obtained a balance of organic and inorganic growth. We are always attentive to all of the M&A opportunities. But it's important to highlight here that we will continue very careful to evaluate opportunistic M&As. We are following 3 important pillars. Number one, they must make sense from a strategic point of view by expanding our presence or reinforcing our portfolio. Number two, acquisitions must not have an impact in the short term on our cash. Also, there must not be an impact on the current leverage level of the company. We are leveraging, maximizing operational cash. And so all of our M&A, and we are always very attentive to the market must comply with these requisites. We've also focused on increasing our commercial partnerships these models, as we call them here, have many advantages. We can escalate fast. We have a lot of capillarity with our partners in regions where our presence is not as strong, and we do not need to expand capital. And therefore, this combination of organic and inorganic growth and the M&As and also our business partnerships to which we pay a lot of attention.

[Operator Instructions] One more question regarding the current units whose performance is not as good. Do you have any strategy to focus on it?

Well, thank you for your question. I think that this work to evaluate the profitability of all units is ongoing in the second quarter. We closed some units, but this is a careful evaluation since it does not involve the performance alone. We have development in all of the units to maximize performance and profitability. And that's why we've been able to maintain and preserve our gross margin. And so this is a continued assessment and I think that this is all ongoing. The whole composition of units today have to do with our capacity to deliver consistent results and profitability.

One more question. Could you tell us how you see cash generation for the next quarters? Could administration -- could impact CapEx or working capital?

Excellent question. I think that we will continue maximizing operational cash, as commented before, because we've been very careful in choosing these M&As. The CURA Group does not have a significant impact on short-term cash. Also, we've been very careful when analyzing our installed part to analyze the need for investments. And therefore, there is no significant need in changing cash for the next 48 months. Both companies already have a profile where we'll be able to further maximize cash generation we do not anticipate any major impact on CapEx, which will have to be made for these new purchases. Both have good profitability profile, and we will be able to maximize our results. So I do not see any challenge in working capital or the need of investment.

We have one further question. What do you see in terms of new initiatives for ALN?

Well, thank you for the question. I think that the presentation tells a little bit about everything that we've been doing all of the initiatives made to adjust and maximize cash generation. This has a very positive impact. So we've had a relevant impact on the company's liquidity and also on the impact we will have in payment of the debt. Of course, we're always looking for new opportunities to pursue better rates, but we have to better understand the macroeconomic scenario that we have right now. We are now at a confident position to make the best decisions. But the scenario, as I mentioned, is a lot more favorable for these moves.

Since we have no further questions, we would like to end our session here. Thank you, everyone, for being here. And I now turn over to our CEO, Ricardo Sartim, for his final considerations.

Well, thank you, Marcelo. I would like to take this opportunity, and this is a bit unusual, but I should make good use of our time. In the last few weeks, we had a very important loss in our staff. I would like to leave our thanks to Dr. Alcantara, a brilliant doctor in Ponta Grossa. And this reflects his strategy, a brilliant professional who always made a difference and it has to do with our mission at Alliança being resilient, fighting against challenges without forgetting our purpose, which is delivering health, accurate diagnosis for everyone who needs this ecosystem. And therefore, I would like to leave Dr. Alcantra our thanks. We will miss him. Also, I would like to thank you all for being here. The solid results we presented today are the result of an extraordinary effort of a remarkable team. Today, we have more than 4,000 employees over 2,200 partner doctors who together are restoring Alliança to the level of excellence, it all is deserved. And this is undoubtedly the beginning of a new chapter in our history, marked by achievements and confidence in the future. My special thanks to the entire Alliança team. Every result to celebrate here is a direct reflection of our commitment, competence and dedication. I also take this opportunity to thank all of our partners who strengthen our journey and help us build side by side, another successful chapter for the company. Thank you, and a wonderful afternoon to everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]