Auna SA

Good afternoon, and welcome to AUNA's first quarter 2024 earnings conference call. My name is Krista, and I will be your operator for today's call. At this time, all participants are in a listen-only mode, and please note that this call is being recorded. There will be an opportunity for you to ask questions at the end of today's presentation. Now, I would like to turn the call over to Ana Maria Mora, Head of Investor Relations. Ma'am, please go ahead.

Thank you, and hello, everyone, and welcome to AUNA's conference call to discuss the Q1 2024 results. Please note that there is a webcast presentation to accompany the discussion during this call. If you need a copy of the presentation, please contact AUNA's investor relations team. Before we begin, I would like to remind all participants that our comments today will include forward-looking statements. In addition to reporting an audited financial results in accordance with international financial reporting standards, we will discuss certain non-IFRS financial measures and operating metrics, including foreign exchange neutral calculations. Investors should carefully read the definitions of these measures and metrics included in our earnings press release of today to ensure that they understand them. Non-IFRS financial measures and operating metrics should not be considered in isolation as substitutes for or superior to IFRS financial measures and are provided as supplemental information only. Before we begin our prepared remarks, Please also note that certain statements made during the course of today's discussion may constitute forward-looking statements, which are based on management, current expectations, and beliefs, and which are subject to a number of risks and uncertainties that could cause actual results to materially differ, including factors that may be beyond the company's control. These include, but are not limited to, expectations and assumptions related to the integration and performance of the businesses we acquire. For a description of these risks, please refer to our filings with the U.S. Securities and Exchange Commission and our earnings press release. Speaking on today's call, Isuzu Zamora, our Executive Chairman and President, who will discuss AUNA consolidated and segment financial and operating results, as well as provide updates on our various strategic growth initiatives. Giselle Remy, our Chief Financial Officer and Executive Vice President, will follow with a more detailed review of AUNA's consolidated financial results. After that, SUSE will provide a wrap-up of our first quarter performance as well as discuss our performance outlook. We'll then open the call for your questions. Suso, please go ahead.

Good afternoon, everybody. Thank you very much, Annie. Welcome, everyone, to our earnings call, our first as a public company, and definitely an exciting moment in our journey. Let's begin our presentation, and please turn to slide four. So our regional, vertically, and horizontally integrated healthcare platform delivered strong top-line growth, and we're reporting an adjusted net income basis of 22 million soles. So from top to bottom, it's been a good quarter. These results reflect the growing scale advantages and increasing synergies of our regional platform. Peru's outperformance transcends our conviction in Mexico for our larger market. where we are deploying the same business model and implementing AUNO standards at OCA, the business we acquired in Monterrey, Mexico, in the second half of 2022. Excuse me. Our continued growth in Mexico indicates that our strategy is gaining traction in healthcare services, while the launch of OncoMexico is proceeding according to our plan. Our aim is to scale Mexico with a high degree of predictability. Let's take a closer look at our first quarter performance. Please turn to slide six operator. So starting with our consolidated results, focused and consistent execution of our growth strategy drove top line revenues across our geographic segments. Key performance drivers were a growing proportion of more profitable, high complexity services. of course, increased capacity utilization and improving our operational efficiencies. Our strong performance reflects a growing scale and returns from past investments in Peru and Colombia. And in addition, we made further progress deploying our business model in Mexico. A key highlight of the quarter was Peru, where EBITDA margins surpassed our internal 20% EBITDA target. We expect to continue to replicate the business practices that we had in Peru that have produced growing scale and the benefits thereof in Mexico. Adjusted net income, which excludes extraordinary non-recurring items, rose to 22 million soles. As operating results, more than covered financial expenses and taxes. Debt leverage, a key metric for all of us at Arundel, fell further. and we expect will continue to decline as we gain additional traction in the latter half of the year. In healthcare services, our organic and inorganic investments in Peru and Colombia are paying off. As we have further implemented the EUNA way, this obsession with our patient-centric model of high medical resolution with great patient journey and standardization that scales with high predictability and delivers growing financial results. We have been ramping up capacity utilization in Mexico through a physician relationship and incentive model. And at the same time, we have been developing referral initiatives with insurance companies and brokers. The strong growth in top line and average revenue per patient reflects a greater mix of high complexity services. Our focus on oncology, cardiology, neurology, and trauma shock. At OncoSalud, we continue to attract new customers to our oncology and general healthcare plan memberships. Combined with higher average monthly revenue per customer, this drove revenues 15% higher, 15% higher. While intercompany price increases impacted OncoSalute's cost of revenue, our very stable oncological MLR at 51.5% also produced stable gross margins. We flip to slide seven, operator. Now let's move on to our four segments to review specific segment results. In order to be consistent with the FX neutral metrics provided on a consolidated basis, variances for Mexico and Colombia will be provided on a local currency basis, while the financial charge remain in our functional currency, the Peruvian flag. Please turn to slide eight to discuss the results of our healthcare segment in Mexico. So in Mexico, we continue to advance strategic initiatives in the implementation of the own away. Our progress in the first quarter of 2024 is reflected in the 6% increase in health care services revenues versus fourth quarter 2023. Patients treated increased 4.7% with a range of services. Occupancy was stable at 41%. due to a temporary decrease in operational volume related to an earlier Easter holiday that fell in the first quarter versus in the second quarter in 2023. And physicians also attending two medical congresses that distracted many of them. This also occurred in the first quarter of this year versus in other quarters last year. The integra grew 38%. driven by growth in B2B plans. While the Integra is a small percentage of our revenues, it serves as a platform for launching OncoMexico. In addition to its nationwide insurance license, Integra gives us an established and extensive insurance distribution network in the country. Integra will be rebranded to own a solution in the future. Mexico's healthcare services adjusted EBITDA decreased versus the first quarter of 2023. on higher SG&A as a product of investments in regional commercial and operational capabilities necessary to deliver growth in the medium to long term, along with local administrative capabilities that have not yet been implemented in the first quarter 2023 after the acquisition. However, in a better measure, adjusted EBITDA grew 23% versus fourth quarter 23. And margins remain at a very healthy and stable level of 34%. I must highlight, we're solidly building our Mexican capabilities, and these replicate those in our business model that have years of proven results. During 2024, our organizational focus has been, and will continue to be, Mexico. And our progress in integrating Mexico to the Illinois team, promising. We are gradually bringing the NOA standards and top talent to OCA and gradually scaling this business in Monterrey, one of Mexico's fastest growing health care markets, benefiting, of course, from the new insurance phenomena. Again, we remain sharply focused on the implementation of our proven capabilities and thus to shift revenue mix towards standardized, more profitable, high complexity services and on increasing occupancy by attracting and retaining top-tier, high-yield physicians with incentives and other benefits that reward productivity within the owner network. Additionally, we are rolling out tailored packages and bundles for insurance and broker referrals, and these also attract out-of-pocket payers. We are on track for the launch of OncoMexico this year. Our other key initiatives during the quarter are the implementation of SAP and our hospital information system, for which had a great all-hands launch of these projects in Monterrey early in the year. We expect Mexico to perform well, definitely during the rest of the year with a higher impact in the second half of the year as we start harvesting the benefits of our own away strategy. Now please turn to slide nine to discuss the Colombian healthcare network. Revenue in Colombia increased 15.3% year over year. This growth was primarily driven by a 22% increase in average revenue per patient due to a better service mix with a higher participation of oncology services and a decrease in certain ambulatory, and in-home hospitalization services during the second half of 2023. The latter resulted in a 5% decrease in patients versus one first quarter of 2023. So growth is being facilitated by investments such as increasing the number of ICU beds that there are at our hospital in Monterrey. Outpatient consultations increased 46% in Columbia. while the number of patients we treated decreased 5% as we reallocated resources away from low-complexity areas, such as ambulatory and in-home services. This is our strategy to direct high-complexity services to more expensive and specialized hospital units and service low-complexity through digital channels, at-home deliveries, and for large volume facilities that benefit from scale. Occupancy levels grew significantly year over year to 79%, and this includes Clinica del Sur in Medellin, a relatively new facility that is ramping up. Adjusted EBITDA for the segment increased a strong 16% on top line growth, while margin was stable. Costs of services were up 19%, reflecting investments to support the delivery of high complexity services. However, SG&A was also stable during the quarter. In Colombia, we continue to develop new competencies in high complexity areas like oncology and neurosurgery and orthopedics and cardiology, such as our recent inauguration of the Center of Excellence for Pulmonary Oncology. We expect the SAP implementation to be completed this year. for Barranquilla and Medellin. This was a complex endeavor, one in which we've learned a lot, given the need to consolidate many operations with different and older legacy systems. Now please turn to the slide 10 to discuss our health care segment. The results of health care services in Peru are a product of leveraging the expansion of the network increasing the mix of high complexity and high ticket services and monetizing owner network referrals as a result of our proven strategy of deploying our urban health care ecosystems these drove adverse revenue per patient as did adjustments to owner's health care plan in order to align rates with the highest payer within our network we are also harvesting growth from other organic investments as well, such as the Clinica Chiclayo Hospital. We've also expanded Clinica Vallesur in Arequipa, and increasing the emergency service capacity at CLL. Another revenue driver in Peru was a two percentage point increase in occupancy. And again, this takes into consideration Chiclayo and Vallesur's expansions, which are new and are ramping up. This mainly resulted from the implementation of our model by which specialties and services are directed to the most appropriate AUNA facility, principally in terms of cost of treatment. This is our operational model by which we continue to scale certain facilities for certain treatments and thus gain the efficiencies of this particular operational scale. All of the revenue drivers I've covered drove operating leverage in the quarter. with an adjusted EBITDA increase of 70%. Now, please turn to slide 11 to discuss OncoSalud's Peru segment. At OncoSalud, our healthcare plans business, we grew revenues 16%, reflecting the strength of this business and its ability to rapidly implement new growth initiatives. A key driver was increased third-party revenue from Oncosaluz Integrated Hospital, which included co-payments, non-covered expenses, and medical grants from some international pharma labs. Other drivers included a 4% increase in the number of oncology plans. Our oncological MLR remained stable at 51.5%. Top-line growth drove the 24% increase in EBITDA with underlying operating leverage reflected in SG&A as a percentage of revenue, which fell three percentage points to 29%. Lower customer acquisition, lower customer acquisition costs and deliberately slower growth as a result of price increases for general health care plans also contributed to EBITDA growth. And with that, I'll pass it on to Giselle. If you can, please continue with the presentation.