Qualicorp : Dados Econômico-Financeiros

2022 Results

São Paulo, March 28th, 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 year 2022. 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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Management Highlights

We began 2023 with important changes in Quali's Management. Seeking to raise Company's transparency and governance level, the reference shareholder, Rede D'Or São Luiz, transferred the management of a relevant portion of its shareholding to a professional manager, Prisma, and freely abdicated the seats it had appointed to the Board of Directors. Now, led by the new independent Chairman, Mr. Murilo Ramos Neto, our Board brings the most diverse competencies and is more engaged than ever in Quali's management.

On the executive board, Mr. Elton Carluci took over as CEO at the beginning of the year, bringing more than 20 years of experience at Quali and the values that have made and make the Company a leader in its segment. We also had the arrival of Mr. Carlos Vasques, who joined Quali in November last year as CFO, and Mr. Eduardo Oliveira, who was promoted to statutory director after more than two years as executive director. The three executives have the support of qualified professionals who mix experience and knowledge at Quali and at the market, and, together with the Board, will seek improvements in short-term results and the evolution of the Company's strategic positioning, to continue ensuring sustainable growth and perpetuity for its business.

Before looking at 2022 results, we would like to recap Quali's important legacy and achievements reached in recent years, which we highlight: 1) the cultural transformation of the #NossoJeitoQualiDeSer, with focus on integrity, diversity and ethical relations, bringing greater adherence of the Company to ESG aspects; 2) product portfolio expansion with new HMOs, in several regions and in all price ranges, broadening Quali's reach and bringing us closer to the objective of ensuring quality health access for more and more Brazilians; and 3) the start of a digital transformation process, through investments in innovation and operational efficiency, as well as administration based on data analysis, with a focus on the customer.

We must remember that 2022 was the most challenging year in the healthcare sector's recent history in Brazil. We have widely discussed the impacts of the current environment over the last few quarters, with challenges related both to macroeconomic aspects (high interest rates, inflation, low disposable income growth) and to more specific aspects of our sector (all time high MLRs, high medical inflation, regulatory challenges and abnormal system utilization frequencies), resulting in pressure for providers, higher costs for HMOs/insurers and, consequently, higher price adjustments to beneficiaries.

In 2022, Quali's results were lower than what we understand to be its potential, even in the context of a difficult scenario for the healthcare sector and for the domestic economy. With an average 20% price readjustment applied to our client portfolio and a tougher competitive environment, our sales decelerated, cancellations remained high and our main Affinity Health Lives portfolio lost 164 thousand lives (-14%) in the year. As a result, net revenue decreased by 6.9% and Adjusted EBITDA drop 10.7%, with an Adjusted EBITDA margin of 48.0% (210 basis points lower than the previous year).

We also had a 161% increase in net financial expenses, due to higher interest rates, and depreciation and amortization expenses were 14.5% higher, which together with the accounting of non-recurring adjustments, resulted in a 75% reduction in net income to R$92.8 million in 2022 (or 50% decrease to R$198.0 million, excluding non-recurring effects).

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Still, we were able to generate R$189 million of free cash flow in 2022, or R$308 million before acquisitions (only 7% less than the previous year and maintained a relatively controlled level of net debt and financial leverage, which closed the year at 1.6x Adjusted EBITDA.

In financial management, we highlight the extension and consolidation of Company's debt through the issue of R$2.2 billion in debentures, with a 5-year maturity and amortization starting on mid-2024. This was timely move that adapted Company's capital structure to its future cash flow and bring us tranquility to keep operating without restrictions in the current troubled period for the Brazilian credit market.

Looking ahead to 2023, we understand that, as indicated by market consensus, the scenario should remain challenging, with a slowdown in GDP growth, interest rates at high levels, and HMOs having to pass thru price adjustments well above inflation to compensate for their record-high MLRs.

In this context, Quali will prioritize a better capital allocation throughout this year, with the goal of improving significantly its free cash flow generation through: i) rationalization of investments and channel incentives (CAC); ii) austerity in costs and expenses, especially those of a discretionary nature, with a search for greater operational efficiency; iii) working capital improvements; and iv) better fiscal and tax planning.

A possible short-term consequence of this focus on cash generation may be the continuation of more modest sales levels and some decrease in our customer base. However, we expect over the next few quarters to offset some of these negative effects with an improvement in our average sales ticket, and both churn and take rates converging to our historical average levels.

Finally, and most importantly, Quali will continue to seek and invest in the medium and long-term value generation levers, to create and reinforce its competitive differentials as leader in the benefits administration market. With the indispensable help of our employees, the Qualis, we will keep focus on our clients, the healthcare plan beneficiaries, while getting closer to our various business partners, such as HMOs, class entities and broker channel, in order to deliver more and more value to our shareholders.

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