Centro de Imagem Diagnósticos S A : Transcription - 4Q22 Results Conference Call

Alliança (AALR3 BZ)

4Q22 Results

March 24, 2023

4Q22 Conference Call Transcript

Hélio Amoni Neto:

Good afternoon, everyone. It's a great pleasure to welcome all of you. Welcome to our earnings release for 4Q and 2022. Here with us we have our CEO, also our CFO and the Director of IR.

In order to enhance your experience, we recommend you expand your screen. At the end, we will open for questions and answers. You can send us your questions using the chat box. You can send us your questions anytime.

This teleconference is being recorded, and in the IR site, you can also find the entire pack of slides.

Before we start, some important announcements. We would like to highlight that the information contained in this presentation and any statements that may be made during the videoconference call regarding business prospects, projections and operating targets are assumptions and beliefs of the Company's management and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, which may or may not occur. Investors should understand economic conditions, market conditions and other operating factors that may affect the Company's future performance.

So now I would like to turn it over to Pedro Thompson, who will start the presentation.

Pedro Thompson:

Thank you, Hélio. Good afternoon, everyone. It's really a great pleasure to be here with you, in order to share our results for 2022. It's a very special call, because we are also launching our new brand, Alliança.

I have our management team, Pedro Aparício, also Gustavo Campana, our Medical Director, and other senior managers. We are launching Alliança. That symbolizes the cornerstone of construction of the Company, in a moment of a great certainty that we rely on robust pillars.

So please allow me to share a video that shares our new brand, our new positioning.

Video:

Togetherness. Understanding. Commitment. Engagement. That's what comes to mind when we talk about Alliança, isn't it? But we are here to add one more meaning: now we are Alliança, Excellence in Health. We were born and grew from numerous mergers and acquisitions, and they have already taken us to all regions of the country.

This is just the beginning. With this DNA that brings people together and a lot of knowledge, we will continue to move forward with hard work and focus, providing imaging tests, laboratory tests and vaccines for large centers and remote municipalities in Brazil.

In each of our original brands, the accent is different, but the commitment is the same. We are an alliance for quality, innovation and high efficiency in the care of our patients, because we

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Alliança (AALR3 BZ)

4Q22 Results

March 24, 2023

believe that alliances are made by people, and people are at the center of our purpose. Alliances create bonds, and bonds make us stronger. That's what we believe in and invest on. These are the values we share.

We are many, but we are one. And together, we will make an increasingly more humane medicine. Alliança, Excellence in Health.

Pedro Thompson:

Excellent. A new brand. A new beginning. We are all engaged in this challenge.

On slide number six, we have the five pillars of our governance, our incentive plan, and particularly what this management will do: growth, efficiency, customers, people and high- quality health care.

We will have our plan based on five vectors, our targets for 2033. The pillars will be organization, structure and management system, enhancing leverage in the short term, the asset light growth plan, deleverage and profitability.

In these opening slides, I will address many issues that have already been done, and are being done. Slide number seven. I would like to summarize the 2H22. We will see actions that encompass all of these vectors, and some of them are low hanging fruit. Many have been already captured and they are now into practice.

We started restructuring our team, layoffs, so we have a more agile system. We have renewed our leadership, focusing on the expansion, and also, we have replaced 62% of Level 2 positions. For Level 1, the change happened in 100%. Everything aligned with the variable compensation tied to profitability and different metrics I mentioned.

We have also set our focus on expanding our presence in laboratory tests. We believe that there is a huge potential growth within our network. So we have decided to virtualize our laboratory tests, and also our sample collection. So we have opened 24 new sample collection roles. We reduced time and costs by 20%, and the service is being provided faster and with increased the quality.

We are also offering new services. Vaccines in more than 60% of our brands, and also highly complexity tests, such as genetic tests and packages for pregnant women.

As for our operations, we have also increased the booking with physicians, now available in the weekends and in the evening. So by that, we increase our productivity. We have also changed the part of our equipment, we have also invested on education, and now we are expanding our services at a lower cost, and we also have a regional center, reducing no show, increasing also bookings and providing better services to our customers.

We have also implemented the health analytics in order to add more patients, and also massifying of time our core products.

All of our actions, we had 12 actions in this last six months of 2022 that had a positive impact on our EBITDA, sustainable growth and profitability. Just to give you some examples on what we are already benefiting from, on slide number eight, here you can see more tests. You can

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Alliança (AALR3 BZ)

4Q22 Results

March 24, 2023

see a 5% increase with direct impact of increased efficiency, also increasing our schedule and booking, so more revenue, less costs with positive impact on profitability.

Slide number nine, our new commercial position and the service mix. We have changed our commercial positioning, providing more services and a more efficient mix. In-house sample collection and also pre-analysis of lab tests have decreased our cost by 20% and turned it more agile.

As mentioned before, now we are also offering vaccines and also high complexity tests in most of our brands. All these actions are key, and they have already produced positive results. That translates into increased reach, increased profitability and positive impact.

Here we have seen a substantial impact on our average. MRI increased 4% compared to the same period in 2021. As for laboratory tests, excluding covid tests, we were up 15%. in 2022, we saw an increase by 10%. This demonstrates that we are on the right path, and I am sure that we will also see very positive results in 2023.

Slide number 11. This is a very important slide. It really is a shift of paradigm, of five years with lack of investment, and in which we did not see any growth. So besides expansion, we are also implementing our 100% asset light growth plan, with actions that ensure growth.

We have already contracted 60 new units. In Bahia, we signed a PPP agreement under our brand, RDB, adding a new diagnostic unit in Feira de Santana. This will add R$13 million in revenue.

In the North, we established a partnership with Unimed Fama. We will start with seven units in four states, and the possibility to expand to two other states that have already been included in this contract. Unimed Fama has more than 100,000 members in this region.

And in Rio, we will also expand our presence via ProEcho, adding eight operating clinics to the two we already have, and we are now closing a partnership with Fundo Fonte da Saúde in order to operate ProEcho units and leaving a door open for potential acquisition of that in the future.

Slide number 12, expanding our footprint. These three actions that I mentioned before allow us to grow by 15%, and our network will increase by 15%. You can see our network coverage over the last five years. We had 118 units in 2017, 57 municipalities, ten states. In 2022, we had 97 units, 43 municipalities in the same ten states. But in the last six months of 2022, we already went up to 112 units, in 51 municipalities of 13 states.

This makes sense, to grow. Obviously, we are always looking for profitability, deleveraging the Company and increasing the generation of cash. But growth is really the modal, not only in the industry, but also for us, so that we can respect common sense, but we cannot stop growing, never.

Slide 13. This is an emblematic slide. So how can we increase our revenue? This image demonstrates a clear change of the trend, in which we see here the progress of average frequent revenue and EBITDA, all of them going up. Although 4Q22 revenue is approximately the same of 2021, we can see growth, because in the 4Q21, we had many covid tests that were being done. This is the best gap over the last three quarters, and what we expect from now is growth, to increase our revenue and our expansion.

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Alliança (AALR3 BZ)

4Q22 Results

March 24, 2023

Slide number 15. Operating revenue. Let's talk about financial results. This quarter, we achieved R$281 million, 3% drop year over year. And this quarter, we had impacts of less demands when Brazil played in the World Cup, not to mention the typical seasonality, always concentrating more tests in the last quarter. If we exclude covid-19, what we find is that the result is very similar year over year, and covid tests went down 2.2% of the total revenue, compared to 3% in 2021. We will go in-depth in the next slide.

Now, on the left-hand side, we can see the impact of the drop of covid test in our gross revenue, 7.5 million in the year, 3% drop. Covid-19 in the 4Q21 accounted for a large level, also an increase of 4% on MRI test and 1% in imaging tests. They offset the covid tests decrease. So you can see that our revenue remained the same. And what we expect now is an increase in laboratory tests, particularly because of a verticalization of services, and also new products that are being offered, which also enhances our offer, bringing more agility and quality to our patients.

This quarter, imaging tests accounted for 90% of our revenue, whereas laboratory tests accounted for 10%. We will keep on working in order to keep on growing on these segments, so that we can really have a very good representative of the mix.

Slide number 17. Adjusted EBITA this quarter was R$26 million, and adjusted EBITDA for the year is R$183 million. Despite this decrease year over year, we had the impact of net revenue because of the decrease of covid tests, also increase of SG&A because of inflation, and also our expenses with personnel, totaling R$59 million in the last quarter. We also had the implementation of collective bargaining, and it's important to say that many of these collective bargaining agreements were held up during the pandemic. And after this, starting in the 2H, we had the accrual of all these compensation increase.

We also hired many employees, particularly at leadership level, in positions for expanding our commercial footprint, and also rollout our laboratory tests and regional call centers.

Another important fact that I would like to highlight, our non-recurring expenses totaling R$34 million this quarter. This amount is basically related to lay-off, consulting services and legal services. Also, the termination of contracts with vendors that turned into gains when we think about future opportunities. Also, R$9 million of assets that were written down, considered now recoverable. We are confident that, by all of these actions, the Company will resume adequate margin levels.

Slide number 18. Net revenue suffered the same impact. 4Q, adjusted net loss of R$87 million, special because of lower operating profit and increased finance costs.

Slide number 19, our indebtedness. Our net debt is R$184 million at the end of the 4Q, also related to interest rate and the finance cost.

Here you can see how we were able to expand the debt profile, especially regarding short term maturity. So with that, our adjusted long-term EBITDA was 4.6 as of the period. Now we have already many actions in order to increase margins and improve our EBITA.

I would also like to mention that some other actions are already being implemented regarding working capital, regarding the terms for receivables and also expanding payment terms, and there should be a decrease in these indicators in the next quarter.

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Alliança (AALR3 BZ)

4Q22 Results

March 24, 2023

In October of 2022, we issued a debenture of R$400 million and a five-year term. Part of these resources were used for paying beforehand all the debt, with conditions that are better than what we have today. So longer term and more favorable conditions being examined by the finance management, particularly Pedro Aparicio.

Slide number 21. In order to close our presentation, our key final messages. So this is our strategic road map, what we have already started and what we will start in the next steps. As for our operating, restructuring, as well as deleveraging, generating EBITDA and also working on our debt. This has already been implemented, and you can see that we are already benefiting from that. We are also expediting our expansion, 100% asset light, via new strategic partnerships, and also considering organic growth and opportunistic M&A, in order to increase our geographic presence.

I would like to highlight incentives for our team. This has already been disclosed. So for our annual budget, 100% of the Company's goals are tied to a variable compensation, tied to our five pillars for the next years. We will closely monitor financial metrics, also our customers and physician satisfaction. And patient NPS, also prescribing physician NPS as well, and gross revenue. This demonstrates the full alignment of our Company with the execution of our strategic plan, particularly towards our investors.

And in order to close, I would like to reaffirm our commitment to transparency and equity, in total alignment and working very closely with the market. It's very important that we work hand in hand with the capital markets. It's effectively an alliance, which reflects our brand.

We are starting this year very excited with the prospects and with what we are already collecting, and we are confident that we will share good news with you in future quarters.

Thank you for your trust and attention so far. Let's open now for the Q&A session.

Participant (via webcast):

I have a question about RBD Diagnostics. Are you going to close their own laboratory tests?

Gustavo Campana:

Thank you for your question. Our strategic plan is very dynamic, as mentioned by Pedro, and it's also a growth lever. For the first six months, as presented in this 4Q, it was focused on efficiency, and that allowed us to decrease our debt and increase our level of service. Now, we are also working in order to implement our regional laboratories by improving the quality of services at our different regions with partnerships, particularly regarding high complexity tests, and later on we will also close that deal.

Participant, Legacy (via webcast):

Can you please add more color about commercial conditions regarding ProEcho units?

Pedro Thompson:

ProEcho plans, considering capital structure, particularly at Alliar, this M&A was conducted by the controller, and Alliar has an operating management contract. At the end of this operating

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