Good morning, ladies and gentlemen. Thank you for waiting. Welcome to Viveo's Quarter One 2026 earnings conference call. For those who require simultaneous translation, this feature is available on the platform. To access it, simply click on the interpretation button through the globe icon at the bottom of your screen and select your preferred language, Portuguese or English. For those listening to the conference call in English, there's also the option to mute the original Portuguese audio by clicking Mute Original Audio. Please note that this conference call is being recorded and a replay will be available on the company's IR website, www.viveo.com.br/ri, where the complete earnings release is also available. The presentation can also be downloaded through the chat icon, including the English version. During the company's remarks, all participants will have their microphones muted. Afterwards, we will begin the Q&A session.
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Investors should understand that general economic conditions, market conditions, and other operational factors may affect Viveo's future performance, and may lead to results that differ materially from those expressed in such forward-looking statements. Today, we are joined by Mr. André Clark, Chief Executive Officer, and Frederico Oldani, Chief Financial Officer. Now I'd like to turn the conference over to Mr. Clark to start his presentation. Mr. Clark, you can begin.
Good morning. Welcome, everyone, to our Quarter One 2026 earnings conference call. I would like to spend a few minutes talking about some internal matters relative to the executive structure of the company, and then I will go into what happened in the market in the first quarter of this year and the main highlights of our performance in quarter one. I would like to start with the recent Executive Board structure that was approved in our latest General Meeting on April 30th. This is a simplified structure. Three of the Vice Presidencies were removed from this structure. It continues to be a functional structure. The four VPs have very clear roles, and this will continue until the operational standards and the models in this company are consolidated and closer and closer to excellence.
Also, from the functional standpoint, going beyond Flavia Carvalho, our Investor Relations Strategy and M&A Director. We have Clarissa Rebello, who has now joined our Executive Board, and she's responsible for legal, regulatory, and compliance with the very clear investment that we made to improve our governance model, the quality of our processes, and so on. This entire team is present with us today in this conference call. This is a collegiate Executive Board. We are migrating to collegiate and integrated decision-making because this integrated operation model is very important for us at this point in time. The four VPs, all of them will be directly in charge of business. In addition to their functional roles, they also are responsible for important businesses.
Here I'd like to highlight two characteristics that are helping focalize Viveo and simplify our vision in two types of business. One that services logistics, manufacture, the healthcare chain, and institutional chain in Brazil. For example, Chris Rego has 26 years of experience, and she will be responsible for distribution and Insuma, our compounding business, compounding pharmacy business. Here I also would like to highlight in servicing the healthcare institutional chain, we also have Prevena. Artur today, Artur Avancine is responsible for Prevena, and in addition to his experience with people in management, he has more than 10 years in healthcare and eight years in diagnostics, so he will be in charge of our business division that services the diagnostic chain in Brazil.
Last but not least, we have Luiz Silva with his brilliant career in consumer goods in different instances, and he will be in charge of our consumer businesses, in addition to his VP of Operations position. We also have Fred, our CFO, who has a long track record in digital business, and that is why he will be responsible for Humania, our startup. He will lead Humania to the next level. This is the simplified structure of our executive board after reducing the layers and after the vast investment that we made in governance and management. Simplification, focus continue to be the two core aspects here. Now let's move to the external scenario. This chart explains what happened in the first quarter, and Q1 is very important because that's when we have the CMED definitions. CMED recorded the lowest price adjustment of the past 20 years.
Q1 is also very busy in one specific segment, which is oncology in Brazil. I think that you've probably heard the news. There's a lot of turnover, players, novelties, and important aspects in oncology. It's also important to highlight that the institutional distribution market in Brazil continues to grow according to IQVIA at double digit rates. This is a very prominent segment with a lot of events, facts, re-accommodations, clean transformation, sometimes positive, and sometimes there are some headwinds, but in a frank transformation. There are changes in the business model in healthcare. Payers, verticalization, partnerships between large groups. This continues to be a trend. Changes in the business model. The regulatory advancement in Brazil for clinical research is making important changes to this sector and is driving a very important set of innovations.
This will make this segment even more dynamic in the upcoming months and years. Here, I give highlight to the expiration of some patents in oncology and the GLP-1 agonist, which will probably accelerate the dynamics in this market. Finally, we have the macroeconomic outlook. It's pressured by persistent inflation, very high interest rates, and also the war. We took some important actions, for example, to hold back the prices of petrochemicals, some decisions to invest in some locations in stock and inventory opportunistically. Also there's a lot of foreign exchange volatility that we should expect looking forward. This was the start of 2026 in Brazil, and we should see a similar picture in the rest of the year.
Finally, I would like to go over the main highlights of the quarter before I turn the conference over to Fred. The first highlight is this idea of a consolidated net revenue. We are now pursuing quality of business, margin, ROIC. This is the focus of the organization now. Of course, this leads to a resumption in our results indicator. The gross margin was 15.8% of the EBITDA, and this is an important point. Fred will go into more details. Cash generation also in Q1, which is usually a quarter that we do not produce free cash because of the stocking efforts, the dynamic, and the change in prices, and also control of our leverage with consistent deleveraging ending the period at 3.88x. We still have a lot of work ahead. Our ROIC ambitions are still pretty bold.
There's a lot of changes in our management model that we still need to implement. We have a lot of markets for us to choose from. We have a lot of organizational models that we should make changes to looking forward. It seems to me that in this highly volatile environment, the company is performing really well. Fred, now I turn the conference to you for a deeper dive into our financial results.
Thank you, André. Let me start in chart number seven, talking about our net revenue. In quarter one, our net revenue was slightly higher than BRL 2.8 billion, 1.7% increase versus last year. The first highlight here is that in quarter one, 2025, this number still did not contemplate all the adjustments in contracts and commercial strategy that we started to implement as of the second quarter last year. The comparison basis here is very different. The management strategies were very different last year, and in quarter one, we hadn't really applied this level of selectiveness, particularly in distribution, the selectiveness that we started applying starting quarter two last year with a full effect in the second half of last year.
This increase is a small increase, but it is fully in line with the strategy that we have been implementing to be more selective and moving away from business with inappropriate return, moving towards adjusting our commercial conditions, and everything that we have been seeing for a few quarters now. In quarter one, 2026, we see the same dynamic in our top line of previous quarters. Looking at each of the segments. First, hospitals and clinics, which is where we had the highest performance in quarter one. Here there are several positive factors that had a role, but this is the segment in which we made the most adjustments last year. Seeing it back to growing against a pre-adjustment comparison basis last year, this shows that despite all the adjustments that we made, we are still very strong in hospitals and clinics.
We could be growing at a higher pace. This was the choice of the company to slow down this growth a little bit. Moving on to labs and vaccines. Here there was a slight contraction versus last year, and the main reason here is the incorporation of some vaccines to the public healthcare system. Remember that we do not operate with vaccines in a public system, so some important vaccines that we used to sell to clinics, to vaccination rooms, migrated to the public healthcare system, and that led to a small contraction in our revenue in quarter one. We will probably have a lower basis than what we had because this is a portion of the private market that now will disappear.
Some of these vaccines are relatively expensive, the private sector will probably carry on with the smaller volumes in the future. Looking at retail. For retail, we saw a drop in revenue, this was fully planned. We made a lot of adjustments in retail, particularly in the end of last year. We had a major price increase. We repositioned our portfolio. We decided to move away from some categories and prioritize others. Even with this contraction in our revenue, we had a substantial increment in our margin and gross profit. Despite the drop in net revenue, the gross profit more than compensated for this small contraction. Retail is now starting a different dynamic starting this year. As for services, there was also a small drop in our revenue.
Here we're still seeing the effect of the different comparison basis from last year. For a few quarters now, particularly in sterile solutions, we saw some verticalizations by important clients that ended up affecting the performance of our services BU. When we look at the impact on our gross profit, there was a considerable increase versus last year, a two percentage point expansion in our gross margin. This result is quite positive. We had high expectations of being able to recover our gross margin as we implemented our strategy, and we see that quarter after quarter, we've been able to operate with better margins, at the same time preserving the volume of business that we want to maintain.
This combination of commercial selectiveness, focusing on specific segments and moving away from businesses that do not bring appropriate return, we see that despite the nearly zero growth in our top line or very low growth in our top line, we were able to grow our gross profit nearly 16%. This is the direction that we're taking in our commercial strategy. This is what we have been reinforcing quarter after quarter, and we're starting to see the results now very clearly. Our adjusted EBITDA shows this very clearly. It was an increase of more than 30%, more than BRL 200 million in EBITDA, BRL 208 million to be more precise, which is very positive. There was also a major increase in our margin, both compared to quarter four last year and also quarter one last year.
This result is a combination of the better performance in our gross profit, due to everything that I already mentioned, and also very strong discipline in expense management. We are starting to capture some major benefits in our freight lines, resulting from all the actions that we took last year. When we look at the results, I think you can clearly see a very relevant evolution comparing where we came from 18 months ago when we started to implement these adjustments in a more relevant manner, and where we're landing now in quarter one, 2026. Also, if you look at the past six months, they all point to significantly better results than what we had in 2024 and the first half of 2025.
We understand that there's still a lot of improvements that we must make. It is clear that the commitments that we took on with the market to improve our profitability, focus on cash generation, and reducing our leverage, we are delivering successfully. On chart number 11, we have our financial result. We saw an increase in our financial expenses in quarter one. I think there are two important highlights here. In quarter one 2025, we had some non-recurrent gains in our financial results due to the buyback of debentures in line of what we had agreed upon with our lenders in the end of 2024, and also because the base interest rate is higher now in quarter one 2026 than in quarter one 2025.
When we compare our operational results with our financial result, we can say that we ended quarter one with a net loss of BRL 35 million. The next chart shows our cash flow. We had a very positive performance in our cash flow in quarter one. Cash generation was a +BRL 45 million. Generating cash in the 1st quarter is always a huge challenge in our business because there are seasonal aspects that have an influence here. First, we have a very strong demand in March, right before the price, the annual price adjustment by CMED. The company needs to increase its inventory in quarter one, and this usually consumes working capital. There's an unfavorable seasonality in quarter one. It is always expected to have cash consumption in quarter one.
This year, with all the efforts, we were able to generate BRL 45 million in cash, which in our opinion, is a very positive result. When we look at our cycle indicators, we also see very positive points here. Our cash cycle ended at 54 days when we look at the normal cycle, and we adjust by the anticipation of receivables to 65 days. When we compare with quarter one last year, in both scenarios there's a relevant improvement, between four and five days of improvement. These four or five days mean about BRL 100 million-BRL 150 million in impact of these four days of reduction in our cycle. This is a relevant impact on the company's working capital.
The company has been working really hard to have more contained and more efficient levels of working capital, and we can see this very clearly based on the evolution of our cash cycle indicators. When we look at our working capital, over the net revenue, it's 16.6%. For quarter one, it's a very appropriate level. Our net debt, there's something important to highlight here. There was a slight increase in our net debt this quarter, and this was basically because cash generation in quarter one tends to be weaker, so this is totally expected. When we look at the company's leverage, there was a major reduction in our leverage in quarter one. Once again, in quarter one. We ended the quarter at 3.8x the net debt over the EBITDA.
Here it's important to highlight that we had a major drop of the covenants from Q4 2025 to Q1 2026. Our covenants in Q4 last year were 4.5, and now they dropped to four. We went even further with 3.88 after renegotiation of our covenants. On the right, we clearly see how much the company is evolving in terms of its leverage in the past few quarters. It is clear that our net debt is stable. Of course, there are some small seasonal variations, but it's very clear that we have reached stability, and operational results have improved greatly in the past quarters. These are very positive news. Also yesterday, we announced that we're going to hold three General Meetings to extend the term for the fourth, fifth, and sixth issuance of the debentures.
Because considering the results we have been delivering and all the commitments that we are delivering quarter- after- quarter, we are now in a very favorable position, so that during those meetings we can effectively roll over the debt maturing in the first half and second half of this year, and also next year. We will be finalizing that phase of major adjustments that we started implementing in the end of 2024, and now we can certainly say that we are very close to having a company with stable leveraging indicators and with operational results already recovered. I stop here, and we will open now for questions. Thank you.
We will now start a Q&A session. To ask a question, please click on the Q&A icon on the bottom of your screen and send your question in writing. When we call your name, a request to activate your microphone will appear on the screen, and you can turn on your microphone at that point. The first question is from Felipe Amancio, Itaú. You can ask your question now.
Good morning. I have two questions. First question is about the seasonality of your cash cycle. You really highlighted this point during your presentation, the seasonality of your working capital in quarter one. Can you please remind us of the trajectory of the seasonality between quarters during the year, and what you expect for 2026? This is my first question. The second question is about the competitive environment. We are seeing some recent movements and changes in the sector involving other players. How do you see the competitive environment, and is it somehow helping your good results in hospitals and clinics?
This is Fred. Thank you for your question. The seasonality, usually the first quarter is a cash consumption quarter, quarters two and three you recover what was consumed in quarter one, and quarter four is not so different from the others. The excess working capital that you consume in quarter one, you recover throughout quarters two and three. This is the regular, the usual seasonality. When we look at our cash generation this year, we don't give any formal guidance, but our view is that we are generating sufficient cash to serve the interest rates, to service the interest rates, and with some clearance here. This is how we are piloting the business. If we need to decelerate our growth, we will. We will be piloting the business so that we can generate the cash that we need to pay our debt with some clearance.
As for the competitive scenario, yes, we believe the competitive scenario is very favorable right now. This is one of the reasons why in hospitals and clinics we have been able to improve our margin and resume our growth despite our highly selective commercial strategy. We are not tapping all opportunities that come our way. We have been declining some businesses that we don't think have an appropriate margin or working capital below the minimum hurdles that we have established to run our business. Yes, we believe the competitive scenario has been favorable to our strategy.
Thank you. Have a great day.
The next question is from Guilherme Vilela, JP Morgan.
Good morning. Can you please help me better understand the dynamics of your gross revenue and net revenue? The gross revenue increased 2% and net revenue was down 2%. I want to understand what are the rebate effects and tax effects that may have influenced this revenue in quarter one. A follow-up question about your gross margin. Can you help me understand the grid of your gross margin from 3.8%-15.8%? What in this is pricing, what is mix, procurement, any efficiencies or commercial conditions, or even one-off items that may have influenced? Thank you.
In respect to our gross margin, gross revenue and net revenue, there are some effects here. One is structural. We have a much lower level of returns. We are working on a set of improvements in our operational indicators to decrease the number of mistakes in our orders or deliveries. Part of it is explained by the lower level of returns and also the mix. Because within drugs, we have some drugs that are exempt, tax-exempt. You have drugs that have a tax rate of 18, 19, 22. Yes, there's an important participation of the mix. Product mix and also channel mix. Because the taxes all over consumer products and distribution can be quite different. Yes, there's the product mix, there's the business mix, and the lower returns.
Now, about the gross margin, the important point here is that we had a significant growth of our gross margin in all our segments, particularly in consumer. In consumer is where we saw the greatest growth in our gross margin. There's many reasons for that. We changed our portfolio. We changed our prices. We moved away from some segments and prioritized others. We changed our commercial policies. There are different effects here, and we are now running our consumer business with structurally higher margins than what we used to have in the past. When we look at distribution, in distribution we also have higher margins, and here what I can tell you basically is that this is an effect of price.
We're focusing on improving commercial conditions. We are declining businesses. We are exiting contracts that have a very low margin. When we look at distribution, yes, I think pricing is the main reason, is the main effect here. When we look at the other business units, in sum, the businesses that we lost are businesses with that had a much lower margin than the average margin that we operate with. Despite the drop in revenue, margins are higher. In sum, we are trying to operate at higher margins in all our segments. It's not necessarily that the margin in quarter one will be exactly the same in the coming quarters. I think there are some one-off aspects also. For example, a positive foreign exchange effect in some of our inputs, and we are now assessing whether we're going to transfer that to the price or not.
There are some points here that helped the gross, helped us having a slightly higher gross margin in quarter one than we usually see. This is what's happening. Yes, we should operate with significantly higher levels of gross margin than in the past.
Thank you.
To ask a question, click on the Q&A icon and write your name and your company name to join the queue. Since we have no further questions, this question and answer session is now closed. I'd like to turn the conference back for the company's final remarks.
Thank you very much for attending. The company will continue on this trajectory of focus, sharp focus, simplification, selectiveness, and certainly transformation of its culture and its organizational structure. Thank you very much for attending and have a great day.
Viveo's earnings conference call is now closed. The investor relations department will be at your service should you have any further questions after this call. Thank you for attending and have a great day.