Centro de Imagem Diagnosticos SA

BOVESPA:AALR3

Earnings Call Transcript 2024-Q3

[Juliana Angelini, executive]

Good afternoon, and thank you for holding. Welcome to the earnings results call for the third quarter '24 for Alliança Saúde.

The presentation will be made by Dr. Ricardo Sartim, Medical Operational Director for the company. We also have the IRO Officer and Legal Director, Jose Ramos. At the end of the presentation, we offer you the floor for questions [Operator Instructions]. This conference will be recorded and will be made available at the site of Alliança Saúde along with the earnings release for the quarter.

Some important factors, any statement made during the conference on business prospects, projections and operational goals are assumptions and beliefs of the company management. They should not be interpreted as guarantees of future performance. These projections are subject to risks and uncertainties that could or could not materialize. Investors and analysts should understand that market situation and other factors could impact the future results of the company.

To begin the presentation, we turn the floor over to Mr. Ricardo Sartim.

[Ricardo Sartim, executive]

Thank you for the introduction, and good afternoon to all of you. I am the Medical Operational Director. By my side, we have Jose Ramos, IRO Officer and Legal Director.

We would like to thank all of you for your presence. It is a pleasure to disclose the results for the third quarter '25 for Alliança Saúde. To begin the presentation, I announce that we have begun a new chapter in the company called continuous efficiency. With the turnaround concluded, we are focused on gearing all of our efforts to maintain our growth trajectory with healthy margins.

In this slide, I show you some of the main highlights of this trajectory and some of the successful factors we have implemented. We reached the highest gross operational revenue in the company totaling BRL 340 million. This result highlights the strength of our brands, the importance of our partnerships and of course, the efficacy of our growth strategies. This new record revenue, along with a stringent cost control and a reduction of 23% in G&A have allowed us to attain the best quarterly adjusted EBITDA for the quarter totaling BRL 85 million, as we saw in the previous quarter. If you look to the graphs on the right, you can observe the historical events and the EBITDA that increased 8 percentage points in the last 12 months, reaching 27%.

Before we move forward, I would like to underscore 2 additional achievements. First of all, we reached one of the lowest financial leverage for the company, 2.55x net debt over EBITDA. Secondly, we have reverted the loss we had in the third quarter '23, reaching a net income of BRL 4 million, in line with the results of the previous quarter. This shows our commitment, our continuous commitment towards maximizing operational cash and strengthening our capital structure.

Let's go on to Slide #5. As I mentioned previously, we reached a new record this quarter with gross margin totaling BRL 340 million, a growth of 5% vis-a-vis the same period last year. Among the factors that contributed to this significant growth, I highlight the following: the strategy to expand B2B partnerships has contributed significantly to these results. Compared to the third quarter '23, we had a growth higher than 156%, as I show you in the graph to the left. This is thanks to the growing volume of the new contracts we have received since then bringing the company more recurring revenue. Now these partnerships did not only impact the B2B line item, we had an increase in the imaging exams, thanks to our customer base and because of new commercial agreements.

An example is the new accreditation signed in the public market of Sao Paulo, enhancing services to 440,000 lives when it comes to imaging exams, besides other contracts signed subsequently during the quarter, and all of these will expand our customer base and expand our business line for clinical exams.

Additionally to this, the expansion also led to productivity gains. In the middle, you will see that magnetic resonance exams reached 34 exams per day per equipment. The revenues of diagnostic exams grew 4% vis-a-vis the third quarter '23, totaling a robust BRL 296 million. This shows the assertiveness and the diligency in the choice of our growth strategy.

Let's speak about the financial performance of the company. In Slide #7, we see the evolution and the makeup of our revenue. In the third quarter '24, gross margin reached a record value of BRL 340 million, a growth of 5% year-on-year. When we observe the 9 months of the year, we had an increase of 2% compared to the first 9 months of 2023. In the graph to the right, you see the evolution of share of each of our business units. In terms of share, there weren't significant differences compared to the previous quarter. But year-on-year, we see a significant increase in B2B and diagnostic imaging, showing the impact of our partnerships to expand revenues. This movement has not only strengthened our market position, but also expanded our reach, enabling us to offer new services to an ever-growing number of customers.

Now to continue speaking about our revenues, let's go to Slide #8. In the graph to the left, we had an increase of 4% in revenues from images. What accounted for the growth were the MRI exams with a growth of 6% in the period. In the graph to the right, we can understand the makeup of our revenue. As I mentioned, imaging revenues were given thrust too by the increase in exams because of a higher productivity of our equipment and an expansion of our customer base. A drop in the average ticket happened because of that expansion, bringing to the mix a larger number of exams with an average ticket such as ultrasound and x-ray. In clinical exams, the revenues were stable, and the average ticket and the drop were offset by the increase in the volume of exams.

Let's go on to Slide #9 where we see a summary of all of the work that we have done in terms of operational efficiency. As you can observe, there's a reduction in all line items with the exception of medical fees. The highlight is the line item personnel. Thanks to the restructuring of our back office, we have a drop of 3 percentage points on our revenue. This reduction was so significant that it offset the increase due to the salary base of nurse fee, the collective bargaining and the hiring of headcount to support our B2B line items.

Let's go on to the medical fees item, the only one with the growth this quarter. We had an increase of 2 percentage points because of the expansion of the B2B businesses. Despite a higher representation of medical fees in B2B, the margins of that business line are similar to those of others in Alliança Group and the cost of medical fees remains stable. In hospital inputs, the costs remain stable. We continue to review our processes with a focus on reducing waste and also reducing costs, avoiding to have to transfer inflation in our costs. In the third-party items line and others, we had a gain of 2 percentage points, thanks to our renegotiation work and consolidation of third-party work in some units of the group, enhancing our deliveries, increasing synergy and especially reducing cost. As a result of our operational efficiency strategy, we had a significant margin gain of 5 percentage points, reaching EBITDA levels in line with the best benchmarks in diagnostic medicine that I will detail in the next slide.

Now to continue in the presentation, we're on Slide #10, where we will consolidate everything that was presented so far. This quarter, our strategy to expand the customer base, maintain an increase of 5% in net revenue. Our operational focus led to gains in costs and expenses. These factors combined have contributed to another quarter with strong EBITDA generation, attaining BRL 85 million, another record for the company. If we look at the graph, we see that those BRL 85 million represents an evolution of 46% in adjusted EBITDA year-on-year, showing the highest adjusted EBITDA in our history. This growth was accompanied by a more robust EBITDA margin of 27%, 8 percentage points above the same period in 2023. We continue to deliver more sound operational results aligned with our expansion and efficient strategy. And as a result, we have strengthened our operational cash production, which is essential for the company.

Let's go on to Slide #11, where we present another positive net result for the quarter. For the second consecutive quarter, we have delivered positive results reverting the losses we obtained in the third quarter of '23.

Let's speak a bit about the management of our debt. In Slide #12, in the graph to the left, you can obtain the amortization schedule for funding through a timeline and a comparison with our cash balance, which totaled BRL 168 million at the end of the quarter. To the right, you can see the evolution of the financial leverage for Alliança. As has been mentioned, the company has reached one of its lower levels historically equivalent to 2.55x net debt over adjusted EBITDA in the last 12 months. We reinforce our commitment with cash generation as well as with our obligations with creditors. We want to enhance our capital structure quarter-on-quarter through a reprofiling, lengthening of the debt and always in the quest for more attractive rates. All of this reinforces the company's commitment of going towards financial discipline.

We now go on to Slide #14, where we reinforce our commitment with a successful strategy, which on the one the hand has brought us up to here and will guide us towards the future. As presented last quarter, our strategy is based on 3 pillars, one of which is revenue expansion. Our growth strategy is centered on an expansion of revenue through an increase of partnerships. We truly believe that cooperation with other organizations will enable us to reach new markets and customers, strengthening our foothold and our services. In subsequent events, we spoke about our continuous commitment with clinical exams and an expansion of our customer base. Of course, we're always attentive to strategic or opportunistic M&As, which will take us to a new level of competitiveness, presence and innovation.

Let's speak about our second pillar, the optimization of resources. Our focus has been an efficient management on our existing resources to maximize their value. Now maximizing human resources, technological and financial resources is a key point in our strategy. We are constantly revisiting our processes, cost structure and organization to ensure that we're operating in the most efficient way possible, maintaining a structure that is adequate for size and revising contracts, which enables us to quickly adapt to market changes and enhance our market performance. Now this discipline has been vital to attain the results that we are presenting and will continue to be valuable for the future development of the company.

Not less important is our third pillar financial discipline. We continue committed with the principles of a financial discipline, focusing on a balanced capital structure, working with lengthened terms and more attractive terms. This will ensure that we will be ready to face economic challenges and to make the most of growth opportunities with the sound financial structure, a domestic capillarity, our renowned and strong brands and especially our more than 5,000 employees and 1,600 medical partners are those that make this new alliance possible. The results of this quarter will show once again that we are harvesting the fruit of the implementation of this strategy. And we are confident that this is the path for the growth and sustainable development of the Alliança Group.

Heading towards the conclusion, this is the summary. The combination of reach, reputation and human talent reinforce our commitment with a future fostering health and maintaining our purpose of continuous growth, longevity and the generation of sustainable value.

I would like to thank everybody for your presence, and we will now go on to the question-and-answer session.

[Juliana Angelini, executive]

We would like to thank Mr. Sartim for the presentation. [Operator Instructions]

We have a question, which are the new avenues for growth and diversification strategies for your revenue sources?

[Ricardo Sartim, executive]

Thank you for the question, which is a very timely one. We have shown that one of the pillars for the future of the company is revenue expansion, and we have done the partnerships. In the release and subsequent situations, we carried out 2 partnerships, one with a vertical operator in Sao Paulo, where we have exclusivity to carry out clinical exams. In the coming quarter, this should bring significant growth because of the agreement. We have also signed another agreement with a health operator that is relevant domestically. It is one of the largest in Brazil. It offers us access to 600,000 lives in Sao Paulo with a full portfolio of diagnostic medicine. This combination of delivering value to the paying sources and our customers through partnerships is what has brought about the impact, the results that we have presented in terms of diversifying our revenue sources.

We have been working directly with communication. Only 20% of the population has supplementary health in Brazil so we're speaking to private customers and the revenues of private customers accounts for the second greatest revenue source of the company. This healthy diversification of revenues and partnerships where we truly deliver value to the customer, to the patient and paying sources, these are the growth avenues that we have in the company for the coming quarters.

[Juliana Angelini, executive]

[Operator Instructions] We would like to end the question-and-answer session. We would like to thank all listeners and those who sent in their questions. I will return the floor to Mr. Ricardo Sartim for the closing remarks.

[Ricardo Sartim, executive]

Thank you, Juliana. Should you wish to send questions even at the end of the presentation, we do have channels to contact us. We are at your entire disposal. Thank you for your attendance.

The results of the third quarter the result of '24 is a result of a journey that began 3 years ago in the company with a change of control. It is a reason of pride of a giant team with 5,000 employees and 1,600 doctors that are helping us to put the company back at the level where it should always have been. I believe that the results obtained are a reflection of the work of this team. Besides thanking all of those that are present here, special thanks to the entire team of Alliança. The results are the fruit of the work of all of you. Once again, thank you very much, and have a very good afternoon.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]