Qualicorp : 2Q23 Earnings Release

Second Quarter 2023

Results

Second Quarter 2023 Results

São Paulo, August 14th, 2023. Qualicorp Consultoria e Corretora de Seguros S.A. ("Quali" or "Company") (B3: QUAL3), a leading full-service healthcare benefits broker, administrator, and health management services provider in Brazil, announces its consolidated results for the second quarter of 2023 (2Q23) and first semester of 2023 (1H23). The operating and financial data are presented on a consolidated basis in Reais ("BRL" or "R$"), in accordance with Corporate Law and regulations of "Comissão de Valores Mobiliários" - CVM. The figures as well as their historical series are available in MS Excel format on the website ri.qualicorp.com.br.

Highlights:

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Free Cash Flow: R$148.4 million in 2Q23, the highest in 9 quarters and +5.5% vs. 1Q23, with cash commissions of R$53.3 million in 2Q23 (-16.9% vs. 1Q23).

Lives Portfolio: 929 thousand Affinity Health lives in 2Q23 (-3.4% vs. 1Q23), with organic gross adds of 76.6k lives and 109k cancellations. SME portfolio of 91.8k lives in 2Q23 (+3.9% vs. 1Q23).

Net Revenue: R$435.0 million in 2Q23 (-4.9% vs. 1Q23), with improvement in average ticket, but reduction in take-rate, and R$892.3 million in 1H23 (-10.0% vs. 1H22).

Adjusted EBITDA: R$194.8 million in 2Q23 (-7.4% vs. 1Q23), with 44.8% margin (-120 bps vs. 1Q23) and R$405.1 million in 1H23, with 45.4% margin (-370 bps vs. 1H22).

Net Income: R$13.7 million in 2Q23 (-17.7% vs. 1Q23) and R$30.4 million in 1H23 (-75.4% vs. 1H22).

Net Debt: R$1.3 billion in 2Q23, with 6.7% reduction vs. 1Q23, equivalent to 1.55x Adjusted EBITDA LTM, vs. 1.59x in 1Q23 and 1.47x in 2Q22. ROIC LTM of 14.8% in 2Q23.

Key Indicators (R$ MN)	2Q23	YoY	QoQ	1H23	YoY
Affinity Portfolio (thous. lives)	2,321.0	-9.8%	-0.7%	2,321.0	-9.8%
Affinity Health (thous. lives)	929.0	-18.0%	-3.4%	929.0	-18.0%
Gross Adds - organic (thous. lives)	76.6	-32.3%	20.4%	140.2	-38.6%
Churn (thous. lives)	(109.0)	-18.5%	1.7%	-216.3	-18.4%
Net Revenue	435.0	-11.1%	-4.9%	892.3	-10.0%
Adjusted EBITDA1	194.8	-16.8%	-7.4%	405.1	-16.8%
Adjusted EBITDA Margin	44.8%	-309 bps	-119 bps	45.4%	-373 bps
Net Income	13.7	-72.2%	-17.7%	30.4	-75.4%
Free Cash Flow	148.1	69.3x	5.5%	288.6	13.0x
Net Debt	1,323.8	-11.4%	-6.7%	1,323.8	-11.4%
Net Debt / Adj. EBITDA LTM	1.55x	0.08x	-0.04x	1.5x	0.1x
ROIC	14.8%	-9.4 p.p.	-162 bps	14.8%	-9.4 p.p.

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Management Highlights

Quali's results in the second quarter of 2023 continue to reflect the current strategy of discipline in capital allocation, with robust cash generation and organic net debt reduction, despite the challenging macroeconomic context of high interest rates and more complexity for the healthcare sector. HMOs and insurers have pursued ways to restore their margins that in the last two years were strongly pressured by record loss ratio level. As result, they are applying strong readjustments to healthcare plan prices. In 2023, those readjustments are posed to be the highest on record for our Affinity portfolio, which therefore may translate in higher cancellations and downgrades for our beneficiaries.

The challenges are plenty, but Quali is getting ready to face them. In this context, our Board elected Maurício Lopes as the new CEO, with a mandate that started about 15 days ago. With extensive experience over the last three decades from different players within the supplementary healthcare sector, including HMOs, Maurício brings new skills and knowledge that complement the qualifications of our current Management and are fully aligned with Quali's strategic objectives. In addition, we brought in Marcos Buzo, another renowned professional with executive stints at large companies in the sector, to assume as our new Commercial Director. Mauricio and Buzo joined a competent executive team to lead the Company in its strategic review and repositioning within the healthcare value chain.

Among the priority topics for Quali in the short term, we highlight: i) commercial policies review with incentives rationalization and seeking greater alignment of the remuneration model alongside all the players of the healthcare distribution chain; ii) focus on operational efficiency for margin recovery and cash flow generation, continuing to operate with KPI-oriented management and mapping opportunities for processes and organizational structure optimization. And, in the mid- term, the priority is to get closer to strategic partners and other stakeholders, reinforcing Quali's uncontested leadership as a Benefits Administrator. To this end, the main fronts are related to health management, which involves acting more intensively in the medical loss ratio control, and product innovation, with the launch of healthcare plans more aligned with the new sector reality and with the needs of our beneficiaries.

Moving on to the quarter's main highlights, we published the second edition of our Annual Sustainability Report (ASR) depicting the evolution of the main ESG aspects in the Company, in a document based on GRI standards and assured by an independent audit firm. We also received the GPTW recertification, which places Quali as one of the best companies to work for the 4th consecutive year. In addition, reinforcing our position as a relevant player in the healthcare sector, we promoted a fraud awareness campaign with high engagement of our employees. Finally, we promoted the relaunch of both our client's relationship app and our e-commerce platform, bringing new functionalities and aiming at greater engagement with our customers.

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In operational aspects, we observed in the 2Q a sequential improvement in Affinity Health Lives gross adds of around 20% when compared to the previous quarter. However, the sales increase was still insufficient to offset the current cancellations level, resulting in a negative net adds of 32.5 thousand lives in our main portfolio. As a consequence, we had a 5% decrease in our net revenue in the quarterly comparison, also impacted by pressure on the take-rate that ended up offsetting the positive effects of the average ticket growth both in gross adds and in the Affinity portfolio.

Similar to previews quarters, we presented another reduction in the Company's total costs and expenses in 2Q23 (-2.8% QoQ, -5.8% YoY), highlighting the decrease in Personnel and Occupancy expenses. However, the operational deleveraging caused by the lower top line resulted in a sequential contraction of 120 bps in our Adjusted EBITDA margin, to 44.8%. Finally, and in-line with our main financial objective for this year, we delivered once again a strong operating cash generation of R$148 million in 2Q23, the highest in the last 9 quarters, which led to 7% reduction in net debt even after the considering the interests of debentures paid in June.

As mentioned before, we will continue throughout 2023 to dedicate ourselves to expenses control, with discipline in capital allocation, in order to face the current sector situation in the best possible way. In parallel, and with important reinforcements in its Management, Quali will continue to seek value-generatinglevers for medium and long-term, in order to reinforce its competitive differentials as a leader in the Benefits Administration segment. And, together with its partners, it will continue to work towards the sustainability of the healthcare sector.

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