Auna SA

Good morning, and welcome to AUNA's first quarter 2025 earnings conference call. My name is Rob, and I will be the operator for today's call. At this time, all participants are in 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, Operator. Hello, everyone, and welcome to AUNA's conference call to review our first quarter 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 go to our investor relations website or contact AUNA's investor relations team. Please note that when we discuss variances, we will be doing so on a year-over-year basis and in FX neutral or local currency terms. with regards to Mexico and Colombia unless we know otherwise. Let's move to slide two. In addition to reporting an edited financial result in accordance with international financial reporting standards, we will discuss certain non-IFRS financial measures and operating metrics, including foreign exchange mutual calculations. Investors should carefully read the definitions of these measures and metrics included in our earnings press release of yesterday 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 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's 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, our expected adjusted EBITDA growth, the expected impact on revenues and profitability of certain initiatives we are pursuing in Mexico, and long-term financial position and flexibility as a result of certain initiatives we are pursuing related to payers in Colombia and our target leverage level. For a description of these risks, please refer to our Form 20-S filing with the U.S. Securities and Exchange Commission and our earnings press release. On today's call, we have Susan Zamora, our Executive Chairman and President, Giselle Remy, our Chief Financial Officer and Executive Vice President, and Lorenzo Massaro, our Executive Vice President of Strategy and Equity Capital Markets. They will discuss AUNA consolidated and segment financial and operating results for the first quarter and will also provide updates on our various strategic growth initiatives. After that, we will open the call for your questions. Tuzo, please go ahead.

Tuzo Garcia- Thanks, Ana Maria, and good morning, everyone. We appreciate you joining our results call. As reported, Aona delivered consolidated lower-than-expected results this quarter. Peruvian operations strongly outperformed in the first quarter, and our risk-sharing strategy gained traction in Colombia. we encountered operational setbacks which added to softness in the market, causing us to lose our growth momentum in this key market. Thus, our results were disappointing, with revenue and EBITDA increasing just 4% and 1%, respectively, on an FX-neutral basis. However, We fully expect to recover our volume growth in Mexico during the remainder of the year, having quickly implemented corrective measures, which I'll explain in a moment. In Peru, the benefits of vertically integrating our healthcare plans into our healthcare operations continue to accrue value, notwithstanding operating at high utilization rates. In addition, we expect to make additional gains through the efficiency program implemented in Peru last year. Peru's consistently strong performance bodes well for our Mexico operations, where we've been gradually replicating the AUNA way. However, as we know from our experience transforming and modernizing Peru's healthcare market and improving Colombia's sector, implementing a disruptive business and care model is complex, AND THE ROAD HAS BEEN BUMPY AT TIMES. FOR EXAMPLE, OUR MODEL REQUIRES THAT DOCTORS, NURSES AND OTHER CARE PROVIDERS SET ASIDE TRADITIONAL PRACTICES TO ADOPT THOSE OF THE OWNER WAY. WHILE THIS IS CENTRAL AND PRODUCES GREAT EFFICIENCIES AND PredictABILITY, IT IS AS WELL A CULTURAL AND OPERATIONAL SHIFT IN THE HEALTHCARE SECTOR. AS PART OF OUR STRATEGY, WE HAVE REDUCED THE NUMBER OF LEGACY SUPPLIERS IN MEXICO. SPECIFICALLY THOSE WHICH WERE CONSIDERED OBSTACLES TO THE IMPLEMENTATION OF THE AUNA WAY. PAYERS OF COURSE ARE ALIGNED WITH AUNA IN WANTING TO SEE THESE PRACTICES ELIMINATED IN MEXICO. HOWEVER, MANY PHYSICIANS ARE INTEGRATED ECONOMICALLY TO SUPPLIERS AND AS WE INITIATED MORE STRINGENT CONTROL AND APPROVAL OF MEDICAL SUPPLIES, PHYSICIAN PRODUCTIVITY FELL AT OUR HEALTHCARE FACILITIES DURING THE QUARTER. It is fair to declare we underestimated the economic impact this would have on physicians. Realizing this, we have put in place a progressive approach that allows our physicians to better consistent into our practice and standards. We have seen volumes starting to recover, indicating that we've taken a step in the right direction. Again, I want to emphasize This is one of many challenges we have overcome in the past and resolved, where gradual shifts are needed to achieve the right balance between the traditional economics of physician practices and the modern medical protocols that we are implementing. This is a threshold event, one that, once crossed, will allow us to reap the full benefits of the efficiencies and profitability of the Auna Way in Mexico. We are also encouraged by the results of the strategy and measures that we implemented in Columbia since last year to mitigate payment risk. Revenue increased modestly in the first quarter, and we continue receiving timely payments from Nueva EPS, although we continue to prudently increase provisions, which continue to constrain the bottom line. In addition to improving payment flows, we are diversifying the mix of payers. reallocating service volumes to those that haven't been intervened by the country's regulator. Taken together, our cash flow outlook in Colombia has improved considerably. Although our debt leverage was unchanged from the fourth quarter, we remain committed to reaching our midterm target of three times or less. We'd also like to point out that AUNA's net income was positive for the fifth consecutive quarter. LET ME PUT ALL OF THIS INTO CONTEXT. DESPITE THE QUARTER'S OPERATIONAL SETBACKS IN MEXICO, THE UNDERLYING FUNDAMENTALS OF OUR HEALTHCARE PLATFORM ARE STILL VERY SOLID, AND WE ARE CONFIDENT ABOUT RECOVERING OUR GROWTH MOMENTUM IN MEXICO AS THE YEAR PROGRESSES. OUR STRATEGIC DIRECTION HAS NOT CHANGED, AND WE REMAIN EXCITED ABOUT OUR OWN ADMIT TO LONG-TERM EARNINGS POTENTIAL. Let's move to slide 5, please. As I've noted, Peru's outperformance drove our results in the first quarter. This was true for our operating results as well, with Peru nicely running at high capacity utilization. As a reminder, we are focused on increasing utilization through higher levels of high complexity services, not bed occupancy alone. These services have higher margins and are core drivers of profitability. In Peru, total capacity utilization increased 4.4 percentage points versus last year's quarter, while also increasing the delivery of high complexity services. In Mexico and Colombia, capacity utilization decreased 0.9 and 2.1 percentage points, respectively. BOTH DUE TO THE VOLUME DECLINES THAT I EXPLAINED EARLIER. THE HEALTHCARE PLANS SIDE OF PERU ALSO PERFORMED WELL DURING THE QUARTER WITH PLAN MEMBERSHIPS INCREASING 10% YEAR OVER YEAR AND THE ONCOLOGY MLR DECREASING 1.4% TO 51.6% VERSUS THE PREVIOUS QUARTER WHICH IS A VERY HEALTHY LEVEL. SLIDE 7, PLEASE. In Mexico, revenues decreased 4% and adjusted EBITDA by 5%, both on an FX-neutral basis. More generally, the macroeconomic environment and the uncertainty around tariffs and employment have tempered investment and consumption, including for medical services. In addition, we consider the impact of the supplier relationships on productivity to be transitional. This is reflected in volumes beginning to recover. To a lesser extent, softer market conditions with stronger than expected seasonality effects also limited our top line and profitability during the quarter. Nonetheless, we were able to maintain our attractive margins, a product of the cost efficiencies we began implementing since last year. Let's move to Peru on slide eight, please. As you can see in the chart on the right side of this slide, operating leverage drove a 19 percent increase in adjusted EBITDA on the 10 percent increase in revenue during the quarter. You can also see that per use EBITDA margin continued improving. The impact of the efficiency initiative that we've implemented is particularly gratifying when you consider our current utilization levels improved. THESE LATEST RESULTS FURTHER DEMONSTRATE THE EARNINGS POWER OF OUR VERTICALLY INTEGRATED BUSINESS MODEL WHEN IT'S MATURE AND OPERATING AT SCALE. SLIDE 9, PLEASE. AS PREVIOUSLY COMMUNICATED, WE MOVED TO SLOW DOWN OUR GROWTH IN COLUMBIA TO MITIGATE PAYER PAYMENT RISK AND PRIORITIZE A POSITIVE CASH CYCLE. THESE INTERIM MEASURES WHICH INCLUDE DIVERSIFYING OUR PAYER MIX ARE PAYING OFF. with improved payment flows, including those from Nueva EPS, and a much better cash flow outlook, while partially offsetting provisions. It's important to note here the marked decline in adjusted EBITDA. Please recall that in the fourth quarter, Colombia benefited from retroactive price adjustments and procurement rebates, which typically happen in the fourth quarter of each year. I'LL NOW TURN THE CALL OVER TO GISE, WHO WILL PROVIDE SOME MORE DETAILS ON OUR FIRST QUARTER RESULTS.