Qualicorp Consultoria e Corretora de Seguros S.A. (QUAL3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for holding. We welcome you to the Quali webcast to release results for the second quarter 2025. With us today are Mr. Mauricio Lopes, the CEO; Mr. Eder Grande, the CFO and IRO; and Mr. Eduardo Garcia, the IR Superintendent. Some statements in this webcast can be projections or statements regarding future expectations. Such statements are subject to known and unknown risks, uncertainties that can lead such expectations not to materialize or be substantially different from what was expected. This event is being broadcast simultaneously over the Internet and can be accessed at ri.qualicorp.com.br, where the respective presentation can also be found. This event is being recorded [Operator Instructions] I would now like to turn the floor over to Mr. Mauricio Lopes, who will begin the presentation. You may proceed, sir.

Well, good morning, everybody. It is a pleasure to be with you once again. Thank you to the community of investors, partners and our colleagues to release results for the second quarter '25. Well, the main highlights is that the context of the sector continues to be challenging. We have claims as do other players. And most of the interactions we have with operators have grown quarter-on-quarter. We have launched several products during the year. At the beginning of the year, in the first half of the year, the launches are very similar to what we had last year. And of course, this enables us to balance out the company. It has to deal with several new products that are recorded simultaneously. But this shows our capacity of distribution and the plurality that the market requires in that field. Now how are we working on this process, helping with our strength, helping to redesign the sector, launching new products continuously over and beyond that, and besides helping to reconfigure the market, we're working with that turnaround project that is proceeding as planned. We're working very consistently. The restructuring is underway. We're doing very well, proceeding at full steam and the processes, operational subscription and other processes continue on. We haven't taken our hands off the helm at any moment. We're quite well advanced and we're harvesting results quarter-on-quarter. In the last 2 months regarding the restructuring, we carried out 2 additional deals. One, we have transferred the Corporate portfolio. Secondly, we have the sale of Gama that will restructure our capital structure and require an internal reconfiguration that will impact headcount and the processes linked to these 2 projects where we're making changes. Once again, this is part of the turnaround, attempting to eliminate the complexity of the process and the focus on core, the distribution of retail healthcare throughout the country. This is where we have our expertise, and this is where we have diligently and continuously focused our attention. Our flywheel continues to be untouchable. We control the churn in a very relevant way. Now the figures for 2025 are lower than 2024 and that were lower than 2023. In 2024, we stood at 23%. And in 2025, without a doubt, we will be below 20%. So year-on-year, we have had a reduction of 3 percentage points, a readjustment in line with the control of churn, an enhancement in quality and of course, fixing of these retail portfolios that have a very selective nature. Now we have products that have good subscriptions. They have a diligent readjustment. They're geared towards the customer and the customer feels more protected. And this, of course, translates into better profitability. Our new product portfolio has made great strides. We have launched 84 products, some of which are exclusive, and we continue to work on the enhancement of our product portfolio. Eder is going to refer to this in the presentation. We have the lowest net portfolio loss of 0.9% since the fourth quarter '21, which means we're returning to levels close to the pre-pandemic level and the lowest churn since the fourth quarter '20 of 8.3%. So this is the result of controlling the flywheel. We protect the customer. We offer a greater range of products. Those customers that are not satisfied can be allocated to other products, other operators. And of course, this enables the customer to be linked to the health plan, which is of their interest. So these are the points with which I would like to open the highlights for this quarter. I will now give the floor to Eder to speak in greater detail. And of course, at the end, we will all be at your disposal should you have any question, Eder?

Thank you, Mauricio. Good day to all of you. Now we're going to begin with our managed portfolio. In the second quarter, we had 5,086,500 lives with additions of 43,500 lives, 33% over the first quarter '25. Of course, this is relevant because we're working with better positioned products, and we're strengthening the operators. This is thanks to the exclusive deals that we are closing. This helps us with the addition of lives. Churn, as Mauricio mentioned, ending at 8.3%, the lowest, thanks to softer adjustments and a much more efficient retention period. We're working with a full portfolio with improvements quarter-on-quarter. The end result, of course, is positive. Now the revenue. The revenue ended at 3.7% lower vis-a-vis the previous quarter, basically impacted by the loss of the portfolio that we sold off in the first quarter. We spoke about this in our previous call, and we found that the performance of the portfolio was not satisfactory. Had we included this portfolio, the revenue of the quarter would be similar to that of the first quarter. Now our CAC ended at 8.3% of revenue,-8.4%, he corrects himself, 8.4% of the revenue higher than the previous quarter, once again due to our sales volume. On this front, it is very important to reinforce that we're working diligently when it comes to capital allocation. Our background for the last 2 years shows you that we have our hand firmly on the helm not to stray from our direction. Of course, we always have opportunities, for example, exclusivity with some operators. Now the EBITDA margin vis-a-vis CAC improved vis-a-vis the previous quarter with a stability of fixed expenses and improvements in PCI and other operational expenses. Now when we speak about fixed expenses in absolute values, we ended the quarter at values that are lower than the previous quarter, BRL 2.5 billion, [ BRL 2.70 billion ] approximately. And regarding the same period in '24, we had BRL 18 million with less in fixed expenses. Now the variables enhanced vis-a-vis last year, but they were somewhat higher than those last year because of our expenses with lawsuits and others. Now although we have a very high backlog of lawsuits, the number of lawsuits coming in has been reduced, but we continue to be at a very high level. Now the positive trend will enable us to eventually see the effect of this in the company results. We had a recurring cash generation before dividends and interest of approximately BRL 2 million. The generation was expressive because of what we mentioned in the release, the payment of the premium of the operator that has taken on our portfolio, causing a slight mismatch in terms of receivables and -- mismatch in receivables in general, but nothing that will impact coming quarters. The message here is that during the half of the year, we have a very coherent cash generation, coherent with the size of the company. If we look at the first and second quarters, we had expressive generation. And what we have disclosed shows you that we're going strongly towards an even healthier leverage. And with this, you can see the main figures of the company. And I will now return the floor for the closing.

Yes, I would like to underscore 2 points. Now the year 2024, we had 178 (sic) [ 138 ] new products. We're at the end of the first half with 84 new products, and we still have a rather enormous batch that will be launched. Now simply a remark that I think is worthwhile. We have enhanced the operational processes in the company. These processes have undergone significant changes in the last 15 months. And of course, this translates into internal changes, not only in fixed expenses and others, but enhancements in customer service. The customer feels extremely well-serviced through all of the company processes. And quarter-on-quarter, we improved the visibility of the customer regarding our operation. Here, you see some examples, and we're going towards an optimal level, which is our goal in the coming quarters to mention some of the procedural changes. This not only translates into changes for the company, but also represents changes in how we service our beneficiaries. Very well, we can now go on to the question-and-answer period.

[Operator Instructions] The first question comes from Felipe Amancio from Itau BBA.

We have 2 questions at our end. First of all, about the growth of your portfolio. In this quarter, we already observed a much more stable base because of the churn improvement, which is the expectation of the company for the second half of the year? Can we think of a stable portfolio or one with the addition of lives? The second question refers to assets. In the last few months, we have seen several movements in the company. We have seen 2 significant operations. Now is there room for new disinvestments?

Well, Felipe, this is Mauricio. Thank you for the question. Now what we can say now is that the curve speaks for itself. The curve has been improving quarter-on-quarter, as we had mentioned. Now the issue is that retail portfolios, whether they are Affinity, SME or whatever, you can choose. But these are portfolios that focus on the customer. What changes is the sales mechanism and the mechanism to lock in customers, but they do depend on some cycles. And as cycles pass because of adjustments, all of these become more stable. Now we have closed that loss curve, and we think that we're definitely on the right path. Of course, this requires patience, some resiliency and very transparently, we're showing you that this is what we're doing with the turnaround, but we are on the right path. And I think the coming quarters will speak for themselves. The series are very good. They are good inputs for you to look and see what happens with the processes. Now regarding the sale of assets, those were the 2 larger assets that we had to be able to focus on the core again. They're very interesting, good assets, but they're not assets that we were able to manage effectively with the entire block of retail products we have simultaneously. Gama is among the largest accredited networks in the country. It's phenomenal. It works with 26 operators since the IPO, medical revenues, audits and much more. It works for 26 different operators, but it is an asset that has been underexploited as part of the assets of Qualicorp. We cannot focus properly on that asset. And an interesting party appeared. They will focus on this BPO, this business process outsourcing provider. This is a third-party network working with other operators. And this is what the entrepreneurial change is about. We create a huge chain, but we cannot simultaneously coordinate the Affinity product, the SME and the Corporate portfolio. So we're working with another significant partner in the market, and we can regain forces on both sides. we can maximize our Corporate portfolio and they can maximize the portfolio they have just acquired. So we can focus on the core. We disinvest in terms of what is not our core, and this will take us to the end of the process. Of course, this means a reduction of fixed cost, a reduction of complexity and the operational processes. Those are the benefits we expect from this.

Our next question comes from Gustavo Tiseo from Bank of America.