Centro de Imagem Diagnósticos S A : Transcription - 2Q23 Results Conference Call

Alliança (AALR3 BZ)

2Q23 Results

August 11, 2023

2Q23 Conference Call Transcript

Operator:

Good morning, everyone. Thank you for waiting here. Welcome to the 2Q23 of Alliança.

The presentation is going to be made by Pedro Thompson, the Company's CEO. At the end of the presentations, we are going to have a Q&A session. To participate, please send a message via chat by clicking on the button below, or via WhatsApp. You can write to us at any point in time, including during the presentations.

This teleconference is being recorded and is going to be available at the Company's Investor Relations website, where we also have the complete materials for our results.

Before moving on, we have some important information, and we would like to highlight that the forward-looking statements are based on the beliefs and assumptions of the Company and currently information that are available to us. These statements may involve risks and uncertainties in view of the fact that they relate to future events, and therefore that depend on circumstances that may or may not occur. Investors should understand that events related to macroeconomic environment, the segment and other factors may cause the results to be materially different from those expressed in the forward-looking statements.

I now turn over to our CEO for his presentation.

Pedro Thompson:

Thank you, Marília. We are going to start now moving on to slide number two, where we are going to talk about the main indicators for this quarter. We have reached our best quarter in the Company's history. It is, in fact, a historical record with R$322 million, an increase of 12% when compared to last year.

And when we look at the accumulated revenue of R$633 million, it is also a record in terms of revenue. We isolated covid's effect, we had a 19% increase, which is actually very relevant. And when we compare half over half, we had an increase of 12%, which is quite significant. And this, in fact, makes us very confident that we have turned around.

At the end of last year, we made this planning, and throughout the 1H23, we carried it out. We are very happy to, in fact, have improved our revenue.

In the area where we have less risk, we had good results, but revenue expansion was always our challenge. But we were able to have a two-digit increase. And therefore, we are very proud and want to celebrate this.

Talking about our EBITDA, we had a 12%. And when you compare it to last year, we can see a high profitability. We had a double-digit EBITDA increase. And when we analyzed the accumulated, we had R$129 million, with a 17% increase when we compare the same period last year.

Also, we obtained a new margin EBITDA. The Company has, in fact, been able to anchor that EBITDA margin in 22%. We are not happy with that yet. We expect it to improve, but the 22%

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Alliança (AALR3 BZ)

2Q23 Results

August 11, 2023

already indicates that cost control, combined to a better revenue, are taking us to the right track, or actually to what we had planned before.

So now on slide three, more specifically in terms of our revenue, we have some important contributing factors for this increase we had, and there were no exogenous factors such as the opening of new clinics; quite the other way around. We closed some.

We do not have a critical mass of organic opening of clinics and there were no M&A as well. And therefore, this really indicates a growth based on different strategies, hands on activities. We had growth in terms of our commercial positioning, but we also had an increase in volume, with a larger number of tests being performed in our clinics.

And now I will talk a little bit about the highlights in our increase in revenue. We had a 7% increase in the volume of MRI, and 8% in the indicator of amounts of tests per machine per day. So this helps us measure efficiency, so that we can in fact see how our agenda is doing and our lots as well.

We obtained substantial increases. We opened new times for tests in some of our units. They operate 24 hours per day, seven days per week. We have a machine that works almost nonstop in João Pessoa, and this is our merit. This is specific of this management.

And another leverage that was very well-received and allowed us to improve our revenue, as well as satisfaction levels, was the call center regionalization. All of our call centers until last July 2023, everything was centered in São Paulo. Now we have support directly with our clinics. So the call centers are familiar with the community, the call center has the ability to provide differentiated services according to the specificity of the procedure that is requested. And this was a very important improvement that we have achieved and that we identify as a leverage of revenue.

Also, we have been able to have very open and healthy negotiations with the health care operators who, at the end of the day, are our paying sources. They are important partners and we have obtained substantial ticket increase, which is good for both sides. Also, we were able to obtain some good results in some municipalities where we work further away of major centers in Brazil.

Another highlight regarding our value proposal is quality. In this quarter, for our operation in Juiz de Fora and Plani in Vale do Paraíba, we had a level 2 and a level 3 certification. I would also like to highlight that Multiscan, Delfin, Axial and GCO brands also have a level 3 certification. CDB holds PADI certification, and Plani has also received a quality certificate in mammography. We are having a very quick rollout with our team, and later I will talk a little bit more about this. Also, women's health service is something that has improved.

And then, on slide number four, we are going to talk about clinical analysis. And I would say that the panorama today, when compared to last year, it is totally different. We have internalized a relevant part of the clinical analysis process, keeping in mind that clinical analysis in the Company were 100% outsourced, from collection to processing, and we have now internalized that collection by our own employees, with trainings and protocols that are also ours, and it is only in some places where we do not carry out the processing. We obtained quality gains and financial gains.

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Alliança (AALR3 BZ)

2Q23 Results

August 11, 2023

We obtained some historical landmarks. 99.5% of the exams are delivered on time. And for the main exams in the main brand, the results are delivered within 24 hours. For us, this is very relevant. Also for the perception of our prescribing doctors and our patients, this is extremely relevant.

We were also able to have a 10% reduction in recall rate when compared to past quarters. We also had our rollout of clinical analysis on all Group's brands by the end of the year.

And then, our first advanced technical center for our own processing was started in Campo Grande. Campo Grande is a region where we have a very strong presence, GCO, and they have a relevant suppress the demand of clinical analysis. Therefore, we made this investment.

Today, our infrastructure can process 150,000 tests per month, which will enable us to improve the quality of service, work with the suppressed demand, and the rollout is going to be done for all of Brazil by the end of the year. And of course. We will have strategic guidelines for non- organic growth, especially for this type of product/positioning.

Regardless of these exogenous variables, according to our organic plan and what we have today, 100% of the rollout of clinical analysis will be performed by the end of the year.

The next slide is very interesting because it really shows our strategic positioning. We had two important pieces of information for Alliança. The controller of the Company announced the purchase of a network of clinical tests related to women's health. It is very strategic, in a geographic region that we see with very good eyes regarding demand, regarding growth and the development of our region, as it was done for ProEcho, at the level of the controller.

We, Alliança Saúde, have an operational management contract with the company, and we can integrate the Company with an M&A and our rights will be preserved. It is very likely that we will definitely have these two companies working here with us, and not to just operational partnership, which is what we do today.

And then, also talking about CEPEM, they have four clinics, a very high strategic value. It is another hub of services focusing on women's health. We can use it for different brands where we have excessive demand.

Another interesting piece of news was the consortium that we led, and we had the first PPP auction of the Regional Hospital of Emergency in Rondônia. It is a 30 year concession contract in the amount of R$10.1 billion, focusing on surgery and trauma, with 60 ICUs.

This strategy is for us to provide services. We are going to operate services. We do not have any duties regarding infrastructure as if it were a CAPEX. No, we go in to provide services in a very similar manner to the public-private partnership with the state of Bahia, with 13 clinics and a very well managed PPP regarding EBITDA margins and so on and so forth.

In fact, we understand that this is very strategic. And when we look into the future, in terms of private health care and public health care, this is an important catalyzer of foments, adequate allocation of resources, having private entities as partners. Our PPP in Bahia has been very successful, and now we have another one and we are on the way to have another success case of PPP here.

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Alliança (AALR3 BZ)

2Q23 Results

August 11, 2023

And on top of that, we already have organic expansions and strategic partnerships defined with the largest medical operators in the Northern region. And in São Paulo, we have a lab which is a reference in oncology and rheumatology, also pathology with our Einstein partners. We are really proud of that, proud of having them in our ecosystem. And some of the tests we offer at Livance, which is a platform that rent some medical offices, and also genetic testing. So this has expanded our services, using Mendelics store-in-store concept.

Now on slide number six, talking about financial growth, here we have our gross revenue. It is, in fact, a growth factor, which makes us very confident about the response to our planning and the turnaround that was generated at the end of the last year.

So we can now see the results, 12% or 13% actually of growth quarter over quarter. And I would also like to highlight here, we had a good reduction, and we were able to obtain average ticket and volume increases. The volume increase makes us very confident that this is something that we can do, and we are having a response actually to all of our strategic leverage where we invested a lot in terms of new people hired, training.

And then on slide number ten, the breakdown of our gross revenue. On the left side, we can see the direct contribution of imaging tests. We had R$73 million this quarter, with the same- store sales and closed units. Once again, the result comes from increase in tickets and volume.

Large part of our volume increase is a result from our leverage. I will mention that again at the end of our presentation. We have a visitation team, high productivity, decentralization of the call centers into regional call centers, different leverages that we included here, the offering of news services, use of data for digital marketing campaigns which have resulted in expressive revenue gains also. Also, the scheduling of tests, all of these strategic actions have enabled us to have an increased revenue.

I would like to remind you that this result is 100% from the same clinics, or same-store sales, since there was no organic expansion in this period.

And then on slide number 11, when we look at the costs and expenses of the Company, we have been able to use our concept of operational leverage, reducing costs according to revenue gains.

We had investments in new units that generate revenue. And also, last year, we had a series of layoffs from a corporate point of view, and also from operations. And the combination of these two resulted in good, absolute value results. But then, on the other hand, these amounts are diluted, and in the end we have a margin gain if we compare it to the same period last year.

The main increase there is worthwhile mentioning here with more details for you has to do with costs with the personnel. And as I mentioned here, this has to do with the Company's investments in growth, and the internalization of clinical analysis tests is totally compensated by the cost reductions in the lab.

We have shared these figures with you, depending on the region. If we look at our national level, we can see that we have achieved reductions of 15% to 20%. We also opened another new unit with our PPP in the state of Bahia, because we need more people to operate them.

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Alliança (AALR3 BZ)

2Q23 Results

August 11, 2023

We have implemented it in different areas, including new products. I have given you the examples of some. A lot of them are related to women's health. We have been very assertive with campaigns dedicated to groups, to persons who represent a relevant persona in the demand of tests.

This regionalization of the call center led to good quality for us, and also in the perception of our services. We improved our processes, services for our prescribing doctors to have a differentiated treatment.

And as I mentioned, the objective here is that, as these investments take place, and increase our expenses with personnel, we are also increasing our revenue, and these costs are dilutive at the end of the day, culminating in an increased margin in the bottom line of our numbers.

And now, on the next slide, please, slide number 12, we are going to talk a little bit about our adjusted EBITDA. A landmark that I would like to comment with you is that it has been the best EBITDA in the Company's history since 2021. So we have had six releases, and now we have achieved the best results for the Company.

The factors that we have already mentioned, increase in net revenue of 15% to 20%, gross revenue with an increase of about 20%, we have followed our concepts to achieve these results.

Slide 13, net debt. We have been able to obtain interesting EBITDA increases, but on the other hand, our debt has increased, especially because of the macro scenario and the interest rates panorama in the last years. Even though we have relevant gains in cash generation, we have been able to stabilize things at around 4%.

But we understand that the capital structure and the adjustment of the Company's capital structure is a priority for this quarter. And so, throughout the 3Q, our priority will be to readjust the Company's capital structure.

Now, our final remarks, on slide 15. This is our main slide. At the end of the quarter, we like to share our results with shareholders, so to summarize everything we included in the release of the 4Q and what we have been in fact it able to deliver.

So we have top line already implemented; new collection rooms. We have been able to visit over 41,000 new prescribing doctors in this period. Our attrition surface with the new doctors has improved significantly with the creation and management of our team of facilitators.

We have 15 new ultrasound devices. This was a suppressed demand we had in many of our clinics. We also created a squad to generate increased revenue, with targeted digital marketing campaigns. Of all of the campaigns we held in this 1H23, 10% approximately have been impacted by some of the actions of this squad.

We were able to obtain good improvements, updates of contracts. We created different business metrics to help us with the scheduling of tests, and this is all supported by our concierges, and also optimizing visits with the best ticket possible.

This call center regionalization is something we are very proud of. It has increased the perception of quality significantly, be in in the prescribing medical community, or be it for our

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