NYSE:AUNA Auna Q2 2024 Earnings Report $6.99 -0.01 (-0.16%) As of 04:00 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Auna EPS ResultsActual EPS$0.03Consensus EPS $0.15Beat/MissMissed by -$0.12One Year Ago EPSN/AAuna Revenue ResultsActual Revenue$292.00 millionExpected Revenue$299.17 millionBeat/MissMissed by -$7.17 millionYoY Revenue GrowthN/AAuna Announcement DetailsQuarterQ2 2024Date8/21/2024TimeN/AConference Call DateWednesday, August 21, 2024Conference Call Time5:00PM ETUpcoming EarningsAuna's Q1 2025 earnings is scheduled for Tuesday, May 20, 2025, with a conference call scheduled on Wednesday, May 21, 2025 at 8:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Earnings HistoryCompany ProfilePowered by Auna Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 21, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Good morning, and welcome to ONA Second Quarter 2024 Earnings Conference Call. My name is Rob, and I will be the 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. Operator00:00:18Now I would like to turn the call over to Anna Maria Mora, Head of Investor Relations. Please go ahead. Speaker 100:00:26Thank you, operator. Hello, everyone, and welcome to Aguna's conference call to review our Q2 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 Aouna'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 regard to Mexico and Colombia unless we note otherwise. Speaker 100:00:59Let's move to slide 2. Before we begin, we would like to remind all participants that our comments today will include forward looking statements. In addition to reporting unaudited 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 read carefully 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 substitute for or superior to IFRS financial measures and are provided as supplemental information only. Speaker 100:01:50Before 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, expectations and assumptions related to the integration and performance of the businesses we acquire. For a description of these risks, please refer to our Form F-one filing with the U. S. Securities and Exchange Commission and our earnings press release. Speaker 100:02:30Slide 3, please. Speaking on today's call is Tuzo Zamora, our Executive Chairman and President, who will discuss Aonam's consolidated and segment financial and operating results as well as provide updates on our various strategic growth initiatives. Giselle Ramit, our Chief Financial Officer and Executive Vice President, will follow with a more detailed review of Auna's consolidated financial results. After that, Sousa will provide a wrap up of our 2nd quarter performance as well as discuss our performance outlook. We'll then open the call for your questions. Speaker 100:03:06Suso, please go ahead. Speaker 200:03:10Thank you, Annie, and welcome, everyone. Let's begin our review on Slide 4 with a few highlights on the quarter. Our growth first of all, our growth momentum accelerated in the second quarter as we continue to scale our vertically and horizontally integrated healthcare platform, as well as benefit from various synergies that we achieved through regional integration and scale. We continue to grow consistently and more predictably. Aruna's adjusted EBITDA increased 25% on an FX neutral basis, while our margin expanded 2 percentage points. Speaker 200:03:53Growth reflects the consistently strong performance of our operations in Peru and Colombia, and it validates once again the strength of our diversified and scalable healthcare platform, as well as the effectiveness of our growth strategy. Implementing the own away at our healthcare network in Monterrey is gradually beginning to bear fruit. We are seeing productivity starting to rise among new and existing physicians along with increases in certain high complexity services. Anco Mexico is another pillar of our growth plan for Mexico and we have launched in Monterrey the 2024 pilot of this integrated cancer insurance. This is the country's 1st monoline oncology insurance fully integrated into our network of healthcare services in Monterrey and will potentially grant access to many families to full healthcare solutions. Speaker 200:04:52With that context, let's take a closer look at our Q2 performance, beginning with our consolidated results on Slide 6, please. So our top line growth of 12.5 percent combined with improving operation efficiencies drove operating income 29% higher versus last year's quarter. And our adjusted EBITDA margin expanded 2 percentage points, helping drive adjusted EBITDA 25% on an FX neutral basis, higher along with an improved services mix and higher occupancy levels. As such, we remain on track to achieve our 2024 guidance for adjusted EBITDA growth of 20%, also on a constant currency basis. Peru and Colombia continue to perform strongly, underpinning our growth, while we deploy our business model in Mexico, where we expect to replicate our success on a much larger scale, given the size of Mexico's healthcare market, of course, and the low penetration levels of private healthcare in the country. Speaker 200:06:02The implementation of the OEI Centre is a gradual and a deliberate process of skill building that result in improved engagement with physicians that will produce increased volume and more so of high complexity procedures. And we are beginning to see the results of our engagement with physicians and as well with payers. Our future success in Mexico is a function of our capacity to replicate the consistent and predictable performance of our Peruvian and Colombian operations over many years. As you can see in the bottom left of this slide, occupancy across our healthcare platform increased 3.7 percentage points as we ramped up new and expanded care facilities. The vertically integrated model in Peru continued to deliver strong results, demonstrating again the value of our business model at maturity and at scale. Speaker 200:06:56Now, in this review, our Q2 performance on each of the business segments that comprise the integrated healthcare platform. Can we go to Slide 8 please? So here our healthcare business in Mexico, in the fast growing Monterrey area is steadily delivering better results. Thanks to improving productivity and higher surgery volumes. This reflects the progress we are making with finding a recruitment and incentive model with physicians. Speaker 200:07:29Occupancy levels were flat and 3% revenue growth was primarily driven by mix that is growth in high complexity services. Adjusted EBITDA was flat versus last year with a healthy 33% EBITDA margin. Aside from physician recruitment, we also intend to increase capacity utilization through initiatives with our payers, offering tailored products and bundled services. We are creating win win partnerships with insurance companies and employers as we do in Peru and Colombia. Longer term, Banco Mexico will be another growth driver. Speaker 200:08:09During the remainder of 2024, we are establishing the necessary operational capabilities in clinical and commercial areas as well as risk underwriting and other key functions. Let's move to Slide 9, please. So in respect to Peru, our fully integrated operations there saw adjusted EBITDA almost double from last year's Q2, as well as a continued margin expansion. Revenue grew 15%, mainly on a sustained occupancy level of nearly 72%, as well as the growth in planned membership and revenue mix across both segments. All of this reflects the harvesting of growth investments made in prior years focusing on high complexity and capacity utilization as well as synergies achieved across the platform. Speaker 200:09:05We've maintained the gains in EBITDA margin seen in the last quarter with our consolidated Peru margin at 21% for this 2nd quarter. Our Healthcare Services business benefited from an improved mix of high complexity services across our healthcare footprint in Peru. In our Healthcare Plans business, in addition to member growth, sales increased on higher revenues from our integrated hospitals, including co payments and non covered expenses. Revenue also benefited from price adjustments to our healthcare plans. In addition to top line growth, adjusted EBITDA benefited from a decline in SG and A, while member acquisition costs decreased on higher efficiency levels. Speaker 200:09:55Our oncological MLR is at 54.7% year to date, increasing versus 51.5% in the last quarter, mainly impacted by an increase in intercompany fees between our Onco Salud insurance company and our integrated oncology hospitals. Given that the intercompany effect is eliminated at the gross margin level in our healthcare plan business, gross margin remains flat in healthcare plans versus the Q1 of 2024. Lastly, on Peru, we continue implementing a number of strategic growth initiatives related to our healthcare network. We're seeking to convert more of the outpatient services we perform by cross selling adjacent services. We are strengthening our B2B relationships nationally to increase patient referrals through this channel and on the high complexity front, we are recruiting new doctors in the field of neurosurgery and traumatology. Speaker 200:10:55In the healthcare plans business, new growth initiatives include increasing the productivity of the direct sales channels by improving the sources of new leads and referrals, acquiring more B2B customers, and we continue to capture more of the healthier lower risk prospective customers who have a history of good health. If we move to Page 10, we can do a little dive into Colombia. In Colombia, driving the 18.3% growth in revenue was a greater mix of high complexity services and occupancy, which increased 6 percentage points to 81%. The more profitable mix of high complexity services coupled with higher occupancy drove a more than 10% increase in adjusted EBITDA and also helped Colombia maintain healthy margins. Additionally, we kept levels of SG and A expenses in check, thanks to efficiency initiatives and post merger synergies we have achieved. Speaker 200:11:58Given the current regulatory environment in Colombia, we will continue prioritizing working capital and profitability. With that, I'll turn the call over to Jisheng for a more detailed review of our Q2 results. Speaker 300:12:13Thank you, Sussou. Good afternoon, everyone. Let's move on to our consolidated results for the quarter, starting with revenue on Slide 12. As Sussou mentioned, we delivered solid revenue growth in the quarter. We grew 18% in soles year on year or 13% in FX neutral terms as our mature segments in Peru and Colombia continue to drive growth and our Mexican business steadily positioned itself to replicate the same success. Speaker 300:12:50All our businesses have shown consistent growth on a year on year basis. Let's move on to Slide 13. Adjusted EBITDA growth for the quarter was 31% year on year in Solis or 25% on an FX neutral basis. With the margin expanding to 22.1% off the back of strong margins in the 3 geographies. Strong revenue growth coupled with efficiencies across the local and regional levels drove EBITDA growth and margin expansion. Speaker 300:13:33Operation in Peru maintained the margin gains that we saw in the Q1 of this year with an adjusted EBITDA margin of 21%, while our operation in Mexico sustained a 33% adjusted EBITDA margin despite investments and increases in costs and SG and A given the local and regional capabilities that we continue to build. Colombia had a 15.3% margin. Finally, across the region, we continue to be very disciplined with our SG and A. Let's now move on to Slide 14 to talk about net income. Oona maintained a positive adjusted net income in the quarter. Speaker 300:14:24Just a comparable period last year, adjusted net income in the Q2 of 2024 was favorably impacted by an increase in operating profit as well as a deferred tax benefit. However, these benefits were offset by the FX variance for the quarter, mainly due to the accounting impact of the movement of the Peruvian soil below the floor of the call spread hedges in place in Peru, generating an FX loss for the quarter versus an FX gain for the comparable quarter in 2023. Let's now move on to Slide 15 to look at cash flow generation thus far in 2024. Year to date operating cash flow generation remains solid off the back of growing operating results coupled with a stable cash conversion cycle. Organic CapEx also remained stable versus 2023 levels. Speaker 300:15:33Investment cash flow for the quarter had an extraordinary impact related to the PEN47 million payment of our Imat Oncomerica earn out obligation. Let's now move on to Slide 16 for an update on our balance sheet and debt position. Leverage continued to fall according to plan to 4.13x net debt to adjusted EBITDA in the Q2 of 2024. We continue to maintain steady deleveraging on the back of solid growth. Debt levels remain stable to what we saw in the Q1 of 2024, And we continue to maintain a healthy debt structure and maturity profile in support of our growth strategy. Speaker 300:16:27Finally, we continue to focus on cash flow generation and deleveraging with the objective of reaching our medium term target of 3x net debt to EBITDA. This concludes our discussion on the consolidated financial results. I will now let Sussou wrap up our presentation with his final remarks before we move on to Q and A. Speaker 200:16:52Thanks, Giselle. Before we open the call for questions, I would like to end the remarks with our outlook and near term priorities. Please turn to Slide 17. First, we remain on track to deliver adjusted EBITDA growth of at least 20% in FX neutral terms in 2024, as the fundamentals of our operations remain strong. Peru will continue to have a very material and positive impact on 2024 growth, while growth in our operations in Mexico will be more back ended towards the second half of the year, as the aforementioned initiatives mature into the second half of the year and in 2025. Speaker 200:17:31Finally, in the case of Colombia, we will grow moderately within the context of prioritizing cash flow. Onco Mexico will become another key growth driver in the coming years as we leverage our 35 years of experience with Onco Salud and leverage Banthera, now Aunas Seguro's capabilities to roll out Onco Mexico at scale. Lastly, we remain excited about Aunas future, given that we are only in the early stages of penetrating and consolidating Spanish speaking Latin America's highly fragmented and efficient and underserved healthcare market with our proven operating model and scalable regional platform. For perspective, despite the size and scale, we only have 1% market share today. So our growth runway is quite low. Speaker 200:18:24As always, patient centricity and value based care are at the heart of what we do each day with a focus on providing long term patient care and excellent medical outcomes through prevention, detection and treatment. With that, that concludes my remarks. Operator, please open the call for questions. Operator00:18:55Your first question comes from the line of Samuel Alves from BTG. Your line is open. Speaker 400:19:04Thanks. Good evening, Jesus, Giselle. Good evening, everyone. Two questions here from our end. The first one regarding the deceleration in top line in Mexico. Speaker 400:19:14What do you guys believe that drove this deceleration? And if it was caused mostly by a punctal comp effect versus 2023 in Q2? That's the first question. And the second question regarding Colombia, you guys comment on the press release about an increase in the impairment for PDAs. Just as a clarification, if you guys could provide like the amount of PDAs that you operated 2nd quarter results and how do you guys are monitoring this situation? Speaker 400:19:51Thank you very much. Speaker 200:19:54Thank you, Samuel. With respect to Mexico, I'm not concerned. There is some seasonality as you discussed in the Q1, but we are working in high complexity. And the shift to high complexity has certain impact that you will see very positive in the second half of the year. So and I see and I can of course see how high complexity is penetrating the revenue mix and how our physician hunting is delivering the right doctors and the right incremental volume and what we want to be doing in Monterrey. Speaker 200:20:38So I'm not concerned, it's in line with what we expect somewhat. With respect to Colombia, I don't know, Giselle, if you want to respond to Samuel? Speaker 100:20:49Yes, sure. Samuel, could you repeat the Colombia question, which I Speaker 300:20:53couldn't hear that well on this end? Speaker 200:20:58Related to the impairment? Speaker 400:21:03The comment that you guys are making the press release about the increase in the impairment for PDAs for doubtful accounts. Just if you guys could provide the amount of PDAs that are jeopardizing the 2nd quarter results and also if you guys see risks for higher PDAs in the coming quarters? Speaker 300:21:25Yes, sure, of course. So the impact of the additional impairment reflected in the Q2 is approximately CAD750,000 in the second quarter. And this is due to the fact that we have increased the impairment recognition given the current market context in Colombia. We see that accounts receivable, as you've seen in the press release, are stable versus what we saw last quarter. We think that there will be a slightly higher recognition of impairment in the year to go, probably consistent to what we're seeing in this quarter. Speaker 300:22:06But this is mainly just reflecting the higher risk situation of the market currently. Speaker 200:22:15Thank you very much. Thank you so much. Operator00:22:21Your next question comes from the line of Leandro Bastos from Citi. Your line is open. Speaker 400:22:29Hello, guys. Good evening. I have two questions as well. First one, if you could just comment a little bit the early impressions of Uncle Mexico, the launch in July, how you're seeing kind of how the product is kind of evolving in the region. And that will be the first one. Speaker 400:22:45And then the second, if you could talk a little bit about margins in Peru, there was a big increase year over year, especially in hospitals. So just to understand whether there was any one off last year and where were the main levers to increase margins at both hospitals also on Consolut despite kind of a rising MR loss. So if you can just kind of provide some color on this year over year, if it could be helpful. That will be it. Thank you so much. Speaker 200:23:13Thank you, Leandro. Giselle, let me take the first one and maybe half of the second one and maybe you can complement. So on Onco Mexico, and thank you for the question. So we are our goal, of course, in Elko Mexico is to lead in the long term private oncology market in Mexico. And to do that, we're deploying a set of initiatives now. Speaker 200:23:36As you mentioned, as of July 1, we launched our Elko Salud B2C insurance product for direct sales in our hospital floors. We have launched it in a pilot mode to test product market fit and to learn about the commercial channels and how they are performing. This is for us is a critical stage for a predictable future escalation of the commercial efforts of local Mexico. So we have put a small sales team in each of our hospitals to start creating awareness of the product. We have achieved some sales, a lot of leads, and we feel enthusiastic because we're opening new channels in the weeks to come. Speaker 200:24:19New channels, we're opening, I think a week from now or 2 weeks with our digital sales. After that, a couple of weeks of that, telemarketing sales. And also we were working with a large broker for B2B employer negotiations. So we are convinced that this product represents a new era in insurance and monorisk insurance in Mexico. It is clearly a disruptive product that doesn't exist in Mexico and engagement with our sales force is really rich. Speaker 200:24:51In addition, when we see Hong Kong, Mexico, we are in different stages as well of negotiations with 2 large payers in Monterrey offering solutions to their challenges. For example, a breast cancer value based contracting model that we are leveraging, of course, from Colombia and Peru. This is the first this is the first of its kind in Mexico. This would allow ALUNA to build the capacity to serve payers and position ALUNA as a value based oncology organization that is part of the solution to the raising health spending in oncology in the world, but in particular Mexico, of course, no. And in addition to that, very much related, we're also in the advanced stages of a physician practice association model with the most reputable oncology group in Monterrey. Speaker 200:25:44So this association will boost our local oncology activity and of course help us build a local oncology centers of excellence that we have planned. I want to I have a question to Andrew because we are very much focused on this and I would love it as the market is focused on this as well. This is the highest priority project we have, given that it does not consume capital until later stages, for we are of course using the installed capacity in Monterrey for the deployment And it promises a total addressable market to at least 10 times what we have already developed and harvested in Peru. So that's on Onco Mexico. And on Peru, I would just like to introduce the response from GCE. Speaker 200:26:30It is again what we have done and what we know how to do and how scale works in our favor. Peru is harvesting this very successful integrated model vertical integrated model of care. And the more we penetrate our sales with that or revenue that, the more scale it grants, the higher margin gets also delivered. So, Jisa, can you complement this? Speaker 300:26:59Yes, of course. Thank you, Susan. Margin for the consolidated Peru business will be at the approximately 20% level for Peru this year. And you guys already saw us at 20% in the Q1. So the 21% that we're seeing this quarter is just basically consistent with that and maintaining the gains that we had already seen in the Q1 of the year. Speaker 300:27:27Growth versus last year as far as the EBITDA in Peru does have a slight seasonality impact in the base of last year because of some SG and A seasonality last year. However, the 20% margin levels for this year are sustainable and that is what we should be seeing in 2024. Speaker 400:27:53Great, guys. Thank you so much. Very clear. Operator00:27:57Your next question comes from the line of Paul Ricciosipeda from Morgan Stanley. Your line is open. Speaker 500:28:06Thank you. Thank you, Suso, Heceti for the opportunity here. So two questions. The first one again about Colombia. We know that the discussions about the healthcare system seems to persist there. Speaker 500:28:20How are your risk assessments about future impacts, notably in terms of the cash flows from the EPSs or or for address or even risks of having to negotiate tickets and other things like that. So little bit on your risk assessments about the country. And second question about the MLR in Peru, we saw it's kind of varying a little bit, varying up now. So if you see that is a problem of seasonality or the fact that the mix of the B2B mix or if there is any influence on freshness of wallet or lack of freshness of the wallet, if there was differences in designs of policies or health technology pressure. So whatever reason that is making this MLR oscillate? Speaker 500:29:17Thank you. Speaker 200:29:19Great. Thank you very much, Pavel. So I'll try to give introductions on both and maybe you can complement Yse as well. On the first one Colombia, I think we've seen the worst of it. A lot of discussion on the reform that didn't pass, a lot of pressure. Speaker 200:29:37Yes, an intervention of a large payer. But with the agenda that these intervened payer should perform better than when it was not intervened. So in terms of a hospital group like us, we do not see our accounts receivables growing a number of days. So and notwithstanding that, of course, we're risk averse and we've taken a position to make sure that our revenues do not have risk of collections. So you'll see us, I think if we didn't have that consideration, we'd grow very fast in Colombia. Speaker 200:30:21But we are now being very conservative and saying, listen, let's make sure that we everything we every service that we deliver and we issue in our account receivable is because we're going to collect it within the days that we have as a policy and not anything more than that. So you'll see us growing, but and we can grow faster, but we want to make sure we don't take any more risk. In general terms, I see Colombia and the whole discussion in the healthcare sector, I think being directed to an important and structural solution in 2025. As I like to recall everybody, 85 percent of the hospital and hospital groups in Colombia are private. All of us depend on the payment system working well. Speaker 200:31:20That has been a very big concern of the central government as well as many regional governments and that puts pressure on all the different stakeholders to make it work. And so that I would say as an introduction to Colombia. Giselle, do you want to add something else? Speaker 300:31:41Yes. What I would add, Sussan, just as we mentioned earlier, accounts receivable days have been stable versus last quarter as well as the net cash conversion cycle. So basically as far as our risk assessment, given the market context, we are of course prioritizing cash flow and we will be maintaining our accounts receivable days, and we will be managing the business as a function of maintaining those days stable. Speaker 200:32:13Yes. And on the MLR, Paul, so first of all, clarifying. We calculate our MLR for health care plan business on a standalone basis for the insurance subsidiary. Therefore, if our hospital subsidiaries increase intercompany fee, this is of course is reflected in MLR. So the increase in our oncologic MLR versus Q1 2022 is primarily due to higher intercompany fees charged to the insurance facility. Speaker 200:32:46And we made an internal policy change where we used to charge the insurance company the average cost of treatment of a third party payer. And now we're putting a higher hurdle to the insurance company and putting, the highest private, payer for that service. So it's a higher threshold. It does not affect it at all. I do want to say that it changes the number a little bit, But this is the way we make sure that the MLR is always totally manageable. Speaker 200:33:20The healthcare network has good margins and there's no subsidy from what's happening. The other thing that I would like to share is, again, this effect is eliminated at the gross margin level in the healthcare plans business and gross margin is flat versus Q1, 2024. We do not expect our oncologic MRR in the low 50s to change materially because as you might recall and as we've represented in the past, we continue to adjust our plan prices accordingly. So, remember, in our Una MLR is not a result, but it is baked into it. We will make sure that we price according to the MLR that we want. Speaker 200:34:13And that flexibility to do that in Peru and in the future Mexico is a very, very attractive condition to the market. You want to say anything on MLRG, if you could complement? Thank you. Speaker 300:34:28No, I think that was quite thorough. Speaker 200:34:30Okay. Speaker 500:34:31Thank you, Suso. Thank you, Fisalia. Operator00:34:36Your next question comes from the line of Jocelyn Janssen from Lucre. Your line is open. Speaker 600:34:42Hello. Thank you very much, Suso and Cicelya for taking my question. Well, I've seen that in terms of consolidated cash flows, the net cash of operating activities covered the interest expenses. So but still there is the free cash flow is negative. So my question is regarding CapEx and which amount of CapEx are you expecting for the remaining of the year and for the next year? Speaker 600:35:27And when do you expect to have a positive free cash flow? And regarding MMA activities and dividends payments, are you still thinking of not do any of those activities or pay the dividends until that net leverage reach its 3 times target? Those are my questions. Speaker 200:35:56Okay. I'm going to start responding then with the last part and Jisoo, you're going to explain our cash flow. So we're a growth company and we don't we have a dividend policy of no dividends. So it's not a question of leverage. I don't think we'll change that policy for the foreseeable future. Speaker 200:36:19So we see ourselves as very much reinvesting our free cash flow in the future when those start to accumulate and grow more than dividends. I think most of the shareholders know that our policy and that's how we envision ourselves in the future. Angie Se, on the free cash flow please? Speaker 300:36:41Yes, of course. Thank you for the question. In the year to date numbers, you will note that we have an impact due to an extraordinary payment for the earn out obligation related to the Imac Oncomerica acquisition. So that was a non recurring payment. In the context of the year to go numbers, we should see in the year to go organic free cash flow covering the interest payments. Speaker 300:37:15And furthermore, as far as the annual CapEx numbers and plans, we do not expect annual CapEx to be more than $50,000,000 for the year on a consolidated level. Speaker 600:37:36Sorry, dollars 50,000,000 Speaker 300:37:41dollars 50,000,000 for the year. Speaker 600:37:47Okay. Thank you very much. Operator00:37:53Your next question comes from Alejandro Gomez. Your line is open. Speaker 700:38:01Hi, Suso. This is Alejandro from HSBC. Two questions. First, pricing contraction in Mexico, 2020 basically. Can you explain, I mean, how relevant the decision was in the coaching process given the contractual Are they expecting to change going forward? Speaker 700:38:26And then I'll follow-up with Mexico. Speaker 200:38:31I'm sorry, Alejandro, you were breaking out. I think your question is about the decisions, right, in Mexico? Speaker 700:38:39Yes. I mean, my question is regarding the margin contraction for Mexico. So the question is, I mean, how relevant is the physicians recruiting process and what's the expectations going forward? Speaker 200:38:58Okay. First of all, on I mean, we see a lot of, as I mentioned before, some seasonality in Mexico. Our expectation in margins in Mexico is that directionally we are on the right track, gaining momentum in the growth, but in line with our expectation. Now in terms of physicians, yes, I think we've rolled out a winning new physician model that is attractive for high volume independent physicians, very compelling for younger physicians looking for, let's call it a home with institutional capabilities and their practices with volume, best practice and support are the key offerings. And I think we are delivering that. Speaker 200:39:38I'm excited of what we're collecting. We've reformulated the offering to physicians and not only to produce approximately like 300 new hires, but also to produce productivity of the 1,000 doctors that we have already. This has already produced incremental revenues and other new doctors. And also on the hunting, we see also really good success. I mean, we're hitting something like 50 percent of the doctors that we target, we're able to hire. Speaker 200:40:25So we're hitting we have a great, I think, high success factor. And remember, we do this very deliberately, especially in high complexity. In high complexity, 27% of those 300 doctors that I mentioned are in the specialties that we procure that is in high complexity. And that is producing at least almost 40% of the incremental revenues in of the new doctors. So we are excited about what we're seeing, changing the way doctors are compensated, doctors are hired in Mexico, something we've done elsewhere, but it does take time. Speaker 200:41:10And we do harvest gradually incremental value from the different way that we relate to doctors. We are again, I would like to say, we're on track with what we expect, and we're gaining momentum. But this is not a step up function. This is a gradual increase of more and more doctors in what we do well, which is high complexity, more and more doctors, also capturing their spillover effect of adjacent services of what they bring to our hospitals there. Thank Speaker 700:41:48you. Speaker 200:41:48Keith, do you want to say anything about the margin in Mexico or do you want to compliment something or Speaker 300:41:53Yes. What I would complement, Alessandro, is that margin impacts versus last year are more don't really have anything to do with the physician model. It's more related to the increases in costs and SG and A given the investments that we're making on the local and regional level that we mentioned last quarter in our release. Speaker 200:42:21Yes, that's a good point. And I always want to remind everybody, I mean, there is a step up in all these indirect costs because the owner way is a little more expensive, scales really nicely, very predictably, adds a lot of value to the patient, to the medical community, medical resolution and good sustainable margin. But there is a little bit of a step up because most of the recent assets that we acquired had very different standards to ours. I think that's stable now, GSA, for the future. I don't want to commit to anything, but I think, today the standards of operations in all our hospitals throughout the regions are the same in terms of compliance, in terms of security of the patients, in terms of the protocols. Speaker 200:43:09I think today all the facilities I think have ongoing expenses that are very much related to the owner way and the standards we have defined in the owner way. Speaker 700:43:24Thank you. Thank you, Will. Speaker 200:43:26Thank you, Alejandro. Operator00:43:29Your next question comes from the line of Caio Muscardini from Santander. Your line is open. Speaker 800:43:35Hi, good afternoon, Suso, Descend. Good afternoon, everyone. So the first question is regarding the G and A level in Mexico. I would like to ask if we are already at a more normalized level or if there are further investments to be made in the region, right? And the second question regarding onco solid price hikes. Speaker 800:43:56What type of price hikes are you expecting for the next cycle? Are you going to reduce the level of medical loss ratio through the price hikes or you are okay with this current level? So that's it. Thank you. Speaker 200:44:11So I'll start with the second one. So we've had 35 years of 50% to 55% NIMLR in oncology. So we're not going to deviate from that. And that's why we repriced, so I was at 50% to 55%. This is the way we manage the business. Speaker 200:44:31It's nothing that's related to 1 quarter, the next quarter. And this is a continuous way we operate MLR. So no, there will be no change in the MLR and where we will fall in, in the future. I don't plan it nor expect it in any other way because of the way we run the business though. And the first question was Speaker 300:45:11In the case of SG and A in Mexico, we are now at a more stable absolute level. As you will note, this quarter, Q2 also versus the Q1 of this year, right? That's on an absolute level. We are more normalized. Growth rates versus last year basically had a little bit more volatility because we still had an impact from the reclassification that we mentioned last quarter. Speaker 300:45:43So while you will see it growing less this quarter versus last year, once we clean out those impacts, it was still growing similarly to what we saw in the Q1, right? So what we should see for the year to go is stable normalized levels on an absolute level versus what we saw this quarter. Speaker 200:46:05That is perfect. Thank you. Operator00:46:14And there are no more questions from the phone line. So I will now turn the call over to Anna Maria Mora from ONA who will proceed with questions from the webcast platform. Speaker 200:46:33Annie? Speaker 100:46:35Hi, Sussan. Yes, thank you, operator. The first question that we have on the webcast comes from Estela Strano from JPMorgan. Could you please provide details on how the accreditations and relationships with doctors are evolving in Mexico? Also, what are the company expectations for ticket mix regarding volumes and complexity? Speaker 100:47:02Thank you. Speaker 200:47:06Great. I think I did answer part of this, but maybe I can add a little more color to it. So in terms of the physician hunting and the results and as I said before, we've added 321 new doctors and almost 30% of them are in high complexity practices. I like the trauma. We're growing rapidly in new doctors. Speaker 200:47:38General surgeons of course. We're growing rapidly as well in obstetrics and gynecology and that's going very well as well as cardiology. So you see again the coincidence of what we plan to do and what we are actually harvesting in terms of the physician model. So again, it's a 2 pronged approach the way we relate to physicians. It is about productivity and being demanding and managing doctors and the value they deliver to our facilities in Monterrey, how much of adjacent services we collect from them. Speaker 200:48:23And of course, it's also about hunting for new doctors and the specialty that we want. And I think, as I said before, this is coming as we expect. And we'll see you'll see us harvest this in the coming quarters. Did I miss the other question, Nani? And there was a part of the question. Speaker 300:48:43No. Speaker 200:48:44That was it. Okay. Thank you, Estela. And let's hear the next question, Annie. Speaker 100:48:50Yes. So we have a couple of questions in regards to Mexico as well. The next one comes from Pedro Floriani. What can we expect in terms of occupancy rate in the Mexico hospital for the second half of the year? How is the first half of the year track in terms of what was budgeted and how should we see that evolving? Speaker 200:49:17Great. So, I mean, we don't feel very comfortable giving a lot of guidance on occupancy, especially occupancy on beds, which is such a random, I think, number when we are at such high complexity, we're looking at surgery rooms and chemotherapies and radiation treatment rooms and their capacity. And what we do see is that high complexity occupation, the services that we deliver are growing. We see it in surgery. We see it in the 3 hospitals. Speaker 200:49:58We see it in practice such as trauma, as I mentioned before, the new doctors, urology is growing very nicely. Neurosciences is growing at a very high click as well. No, something we're not a specialist in, but it's growing very quickly is also plastic surgery, no, and cardiology, as I mentioned before. Again, the practice that we're really good at and that we capture. So we see these treatment rooms, these surgery rooms, their capacities are growing much faster than bed utilization. Speaker 200:50:31Now I don't want to not answer the question. We do have a plan to increase bed utilization in the hospitals. And we see that in the second half of the year, you will see the increase in how we fill up more of the beds in the 3 hospitals we have. So I would like to I don't know, Giselle, do you want to comment on that or even in that? Speaker 100:51:00What I would add, Sussu, is Speaker 300:51:01what you've already mentioned. As far as trends for the rest of the year, we continue on track to deliver our consolidated guidance of 20 percent EBITDA growth FX neutral. Speaker 100:51:22Thank you, Susan. Just one more question. This comes from Saicat Majumder. The question is, are you seeing any positive impact from packages and bundling services in Speaker 200:51:37Mexico? Well, definitely, definitely. That's a key element of our growth in high complexity. And I can already see how we're growing in some packages. Some are simpler packages, in terms of obstetrics and others are a little more complex. Speaker 200:52:02That is delivering growth. In addition, something very attractive that we've done in our hospital recently is to put counters to make sure that we capture any additional prescription as we call it cross selling and deprecation services. So in most of the floors, the patients will leave and before they hit the elevator, we're asking, what's the doctor prescribed? What is the next test, when is it, and we make sure that those tests, those imaging, those pharma, those labs get captured within our hospitals. And that's also measured on a weekly basis and that's also having a great impact as well. Speaker 100:52:53Thank you, Tuzo. Well, at this point, I believe all of the questions have been answered. So I will pass the call back over to you, Suso, for your closing remarks. Speaker 200:53:08Well, thank you again, everybody. We really appreciate everybody joining us today. And It's been nice meeting some of you during recent road shows and at investor conferences in the U. S. And as well as Europe. Speaker 200:53:22We are keen to continue engaging with Onda shareholders as well as the prospective investors. Please let us know if we can do anything better in terms of these calls. We trusted our recent financial and operating results to make clear the fundamental strengths of Aouna, the Aouna's diversified and integrated healthcare platform as well as our ability to scale it further in the region. Please do let us know if we can do this better. Thank you very much everybody and have a great rest of your day. Operator00:53:53This concludes today's conference call. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallAuna Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K) Auna Earnings HeadlinesAuna S.A. plans additional senior notes offeringMay 7 at 6:38 PM | investing.comAuna Announces Proposed Offering of Additional 10.000% Senior Secured Notes Due 2029May 6 at 12:04 PM | gurufocus.comURGENT: Someone's Moving Gold Out of London...People who don’t understand the gold market are about to lose a lot of money. Unfortunately, most so-called “gold analysts” have it all wrong… They tell you to invest in gold ETFs - because the popular mining ETFs will someday catch fire and close the price gap with spot gold. 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There are 9 speakers on the call. Operator00:00:00Good morning, and welcome to ONA Second Quarter 2024 Earnings Conference Call. My name is Rob, and I will be the 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. Operator00:00:18Now I would like to turn the call over to Anna Maria Mora, Head of Investor Relations. Please go ahead. Speaker 100:00:26Thank you, operator. Hello, everyone, and welcome to Aguna's conference call to review our Q2 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 Aouna'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 regard to Mexico and Colombia unless we note otherwise. Speaker 100:00:59Let's move to slide 2. Before we begin, we would like to remind all participants that our comments today will include forward looking statements. In addition to reporting unaudited 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 read carefully 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 substitute for or superior to IFRS financial measures and are provided as supplemental information only. Speaker 100:01:50Before 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, expectations and assumptions related to the integration and performance of the businesses we acquire. For a description of these risks, please refer to our Form F-one filing with the U. S. Securities and Exchange Commission and our earnings press release. Speaker 100:02:30Slide 3, please. Speaking on today's call is Tuzo Zamora, our Executive Chairman and President, who will discuss Aonam's consolidated and segment financial and operating results as well as provide updates on our various strategic growth initiatives. Giselle Ramit, our Chief Financial Officer and Executive Vice President, will follow with a more detailed review of Auna's consolidated financial results. After that, Sousa will provide a wrap up of our 2nd quarter performance as well as discuss our performance outlook. We'll then open the call for your questions. Speaker 100:03:06Suso, please go ahead. Speaker 200:03:10Thank you, Annie, and welcome, everyone. Let's begin our review on Slide 4 with a few highlights on the quarter. Our growth first of all, our growth momentum accelerated in the second quarter as we continue to scale our vertically and horizontally integrated healthcare platform, as well as benefit from various synergies that we achieved through regional integration and scale. We continue to grow consistently and more predictably. Aruna's adjusted EBITDA increased 25% on an FX neutral basis, while our margin expanded 2 percentage points. Speaker 200:03:53Growth reflects the consistently strong performance of our operations in Peru and Colombia, and it validates once again the strength of our diversified and scalable healthcare platform, as well as the effectiveness of our growth strategy. Implementing the own away at our healthcare network in Monterrey is gradually beginning to bear fruit. We are seeing productivity starting to rise among new and existing physicians along with increases in certain high complexity services. Anco Mexico is another pillar of our growth plan for Mexico and we have launched in Monterrey the 2024 pilot of this integrated cancer insurance. This is the country's 1st monoline oncology insurance fully integrated into our network of healthcare services in Monterrey and will potentially grant access to many families to full healthcare solutions. Speaker 200:04:52With that context, let's take a closer look at our Q2 performance, beginning with our consolidated results on Slide 6, please. So our top line growth of 12.5 percent combined with improving operation efficiencies drove operating income 29% higher versus last year's quarter. And our adjusted EBITDA margin expanded 2 percentage points, helping drive adjusted EBITDA 25% on an FX neutral basis, higher along with an improved services mix and higher occupancy levels. As such, we remain on track to achieve our 2024 guidance for adjusted EBITDA growth of 20%, also on a constant currency basis. Peru and Colombia continue to perform strongly, underpinning our growth, while we deploy our business model in Mexico, where we expect to replicate our success on a much larger scale, given the size of Mexico's healthcare market, of course, and the low penetration levels of private healthcare in the country. Speaker 200:06:02The implementation of the OEI Centre is a gradual and a deliberate process of skill building that result in improved engagement with physicians that will produce increased volume and more so of high complexity procedures. And we are beginning to see the results of our engagement with physicians and as well with payers. Our future success in Mexico is a function of our capacity to replicate the consistent and predictable performance of our Peruvian and Colombian operations over many years. As you can see in the bottom left of this slide, occupancy across our healthcare platform increased 3.7 percentage points as we ramped up new and expanded care facilities. The vertically integrated model in Peru continued to deliver strong results, demonstrating again the value of our business model at maturity and at scale. Speaker 200:06:56Now, in this review, our Q2 performance on each of the business segments that comprise the integrated healthcare platform. Can we go to Slide 8 please? So here our healthcare business in Mexico, in the fast growing Monterrey area is steadily delivering better results. Thanks to improving productivity and higher surgery volumes. This reflects the progress we are making with finding a recruitment and incentive model with physicians. Speaker 200:07:29Occupancy levels were flat and 3% revenue growth was primarily driven by mix that is growth in high complexity services. Adjusted EBITDA was flat versus last year with a healthy 33% EBITDA margin. Aside from physician recruitment, we also intend to increase capacity utilization through initiatives with our payers, offering tailored products and bundled services. We are creating win win partnerships with insurance companies and employers as we do in Peru and Colombia. Longer term, Banco Mexico will be another growth driver. Speaker 200:08:09During the remainder of 2024, we are establishing the necessary operational capabilities in clinical and commercial areas as well as risk underwriting and other key functions. Let's move to Slide 9, please. So in respect to Peru, our fully integrated operations there saw adjusted EBITDA almost double from last year's Q2, as well as a continued margin expansion. Revenue grew 15%, mainly on a sustained occupancy level of nearly 72%, as well as the growth in planned membership and revenue mix across both segments. All of this reflects the harvesting of growth investments made in prior years focusing on high complexity and capacity utilization as well as synergies achieved across the platform. Speaker 200:09:05We've maintained the gains in EBITDA margin seen in the last quarter with our consolidated Peru margin at 21% for this 2nd quarter. Our Healthcare Services business benefited from an improved mix of high complexity services across our healthcare footprint in Peru. In our Healthcare Plans business, in addition to member growth, sales increased on higher revenues from our integrated hospitals, including co payments and non covered expenses. Revenue also benefited from price adjustments to our healthcare plans. In addition to top line growth, adjusted EBITDA benefited from a decline in SG and A, while member acquisition costs decreased on higher efficiency levels. Speaker 200:09:55Our oncological MLR is at 54.7% year to date, increasing versus 51.5% in the last quarter, mainly impacted by an increase in intercompany fees between our Onco Salud insurance company and our integrated oncology hospitals. Given that the intercompany effect is eliminated at the gross margin level in our healthcare plan business, gross margin remains flat in healthcare plans versus the Q1 of 2024. Lastly, on Peru, we continue implementing a number of strategic growth initiatives related to our healthcare network. We're seeking to convert more of the outpatient services we perform by cross selling adjacent services. We are strengthening our B2B relationships nationally to increase patient referrals through this channel and on the high complexity front, we are recruiting new doctors in the field of neurosurgery and traumatology. Speaker 200:10:55In the healthcare plans business, new growth initiatives include increasing the productivity of the direct sales channels by improving the sources of new leads and referrals, acquiring more B2B customers, and we continue to capture more of the healthier lower risk prospective customers who have a history of good health. If we move to Page 10, we can do a little dive into Colombia. In Colombia, driving the 18.3% growth in revenue was a greater mix of high complexity services and occupancy, which increased 6 percentage points to 81%. The more profitable mix of high complexity services coupled with higher occupancy drove a more than 10% increase in adjusted EBITDA and also helped Colombia maintain healthy margins. Additionally, we kept levels of SG and A expenses in check, thanks to efficiency initiatives and post merger synergies we have achieved. Speaker 200:11:58Given the current regulatory environment in Colombia, we will continue prioritizing working capital and profitability. With that, I'll turn the call over to Jisheng for a more detailed review of our Q2 results. Speaker 300:12:13Thank you, Sussou. Good afternoon, everyone. Let's move on to our consolidated results for the quarter, starting with revenue on Slide 12. As Sussou mentioned, we delivered solid revenue growth in the quarter. We grew 18% in soles year on year or 13% in FX neutral terms as our mature segments in Peru and Colombia continue to drive growth and our Mexican business steadily positioned itself to replicate the same success. Speaker 300:12:50All our businesses have shown consistent growth on a year on year basis. Let's move on to Slide 13. Adjusted EBITDA growth for the quarter was 31% year on year in Solis or 25% on an FX neutral basis. With the margin expanding to 22.1% off the back of strong margins in the 3 geographies. Strong revenue growth coupled with efficiencies across the local and regional levels drove EBITDA growth and margin expansion. Speaker 300:13:33Operation in Peru maintained the margin gains that we saw in the Q1 of this year with an adjusted EBITDA margin of 21%, while our operation in Mexico sustained a 33% adjusted EBITDA margin despite investments and increases in costs and SG and A given the local and regional capabilities that we continue to build. Colombia had a 15.3% margin. Finally, across the region, we continue to be very disciplined with our SG and A. Let's now move on to Slide 14 to talk about net income. Oona maintained a positive adjusted net income in the quarter. Speaker 300:14:24Just a comparable period last year, adjusted net income in the Q2 of 2024 was favorably impacted by an increase in operating profit as well as a deferred tax benefit. However, these benefits were offset by the FX variance for the quarter, mainly due to the accounting impact of the movement of the Peruvian soil below the floor of the call spread hedges in place in Peru, generating an FX loss for the quarter versus an FX gain for the comparable quarter in 2023. Let's now move on to Slide 15 to look at cash flow generation thus far in 2024. Year to date operating cash flow generation remains solid off the back of growing operating results coupled with a stable cash conversion cycle. Organic CapEx also remained stable versus 2023 levels. Speaker 300:15:33Investment cash flow for the quarter had an extraordinary impact related to the PEN47 million payment of our Imat Oncomerica earn out obligation. Let's now move on to Slide 16 for an update on our balance sheet and debt position. Leverage continued to fall according to plan to 4.13x net debt to adjusted EBITDA in the Q2 of 2024. We continue to maintain steady deleveraging on the back of solid growth. Debt levels remain stable to what we saw in the Q1 of 2024, And we continue to maintain a healthy debt structure and maturity profile in support of our growth strategy. Speaker 300:16:27Finally, we continue to focus on cash flow generation and deleveraging with the objective of reaching our medium term target of 3x net debt to EBITDA. This concludes our discussion on the consolidated financial results. I will now let Sussou wrap up our presentation with his final remarks before we move on to Q and A. Speaker 200:16:52Thanks, Giselle. Before we open the call for questions, I would like to end the remarks with our outlook and near term priorities. Please turn to Slide 17. First, we remain on track to deliver adjusted EBITDA growth of at least 20% in FX neutral terms in 2024, as the fundamentals of our operations remain strong. Peru will continue to have a very material and positive impact on 2024 growth, while growth in our operations in Mexico will be more back ended towards the second half of the year, as the aforementioned initiatives mature into the second half of the year and in 2025. Speaker 200:17:31Finally, in the case of Colombia, we will grow moderately within the context of prioritizing cash flow. Onco Mexico will become another key growth driver in the coming years as we leverage our 35 years of experience with Onco Salud and leverage Banthera, now Aunas Seguro's capabilities to roll out Onco Mexico at scale. Lastly, we remain excited about Aunas future, given that we are only in the early stages of penetrating and consolidating Spanish speaking Latin America's highly fragmented and efficient and underserved healthcare market with our proven operating model and scalable regional platform. For perspective, despite the size and scale, we only have 1% market share today. So our growth runway is quite low. Speaker 200:18:24As always, patient centricity and value based care are at the heart of what we do each day with a focus on providing long term patient care and excellent medical outcomes through prevention, detection and treatment. With that, that concludes my remarks. Operator, please open the call for questions. Operator00:18:55Your first question comes from the line of Samuel Alves from BTG. Your line is open. Speaker 400:19:04Thanks. Good evening, Jesus, Giselle. Good evening, everyone. Two questions here from our end. The first one regarding the deceleration in top line in Mexico. Speaker 400:19:14What do you guys believe that drove this deceleration? And if it was caused mostly by a punctal comp effect versus 2023 in Q2? That's the first question. And the second question regarding Colombia, you guys comment on the press release about an increase in the impairment for PDAs. Just as a clarification, if you guys could provide like the amount of PDAs that you operated 2nd quarter results and how do you guys are monitoring this situation? Speaker 400:19:51Thank you very much. Speaker 200:19:54Thank you, Samuel. With respect to Mexico, I'm not concerned. There is some seasonality as you discussed in the Q1, but we are working in high complexity. And the shift to high complexity has certain impact that you will see very positive in the second half of the year. So and I see and I can of course see how high complexity is penetrating the revenue mix and how our physician hunting is delivering the right doctors and the right incremental volume and what we want to be doing in Monterrey. Speaker 200:20:38So I'm not concerned, it's in line with what we expect somewhat. With respect to Colombia, I don't know, Giselle, if you want to respond to Samuel? Speaker 100:20:49Yes, sure. Samuel, could you repeat the Colombia question, which I Speaker 300:20:53couldn't hear that well on this end? Speaker 200:20:58Related to the impairment? Speaker 400:21:03The comment that you guys are making the press release about the increase in the impairment for PDAs for doubtful accounts. Just if you guys could provide the amount of PDAs that are jeopardizing the 2nd quarter results and also if you guys see risks for higher PDAs in the coming quarters? Speaker 300:21:25Yes, sure, of course. So the impact of the additional impairment reflected in the Q2 is approximately CAD750,000 in the second quarter. And this is due to the fact that we have increased the impairment recognition given the current market context in Colombia. We see that accounts receivable, as you've seen in the press release, are stable versus what we saw last quarter. We think that there will be a slightly higher recognition of impairment in the year to go, probably consistent to what we're seeing in this quarter. Speaker 300:22:06But this is mainly just reflecting the higher risk situation of the market currently. Speaker 200:22:15Thank you very much. Thank you so much. Operator00:22:21Your next question comes from the line of Leandro Bastos from Citi. Your line is open. Speaker 400:22:29Hello, guys. Good evening. I have two questions as well. First one, if you could just comment a little bit the early impressions of Uncle Mexico, the launch in July, how you're seeing kind of how the product is kind of evolving in the region. And that will be the first one. Speaker 400:22:45And then the second, if you could talk a little bit about margins in Peru, there was a big increase year over year, especially in hospitals. So just to understand whether there was any one off last year and where were the main levers to increase margins at both hospitals also on Consolut despite kind of a rising MR loss. So if you can just kind of provide some color on this year over year, if it could be helpful. That will be it. Thank you so much. Speaker 200:23:13Thank you, Leandro. Giselle, let me take the first one and maybe half of the second one and maybe you can complement. So on Onco Mexico, and thank you for the question. So we are our goal, of course, in Elko Mexico is to lead in the long term private oncology market in Mexico. And to do that, we're deploying a set of initiatives now. Speaker 200:23:36As you mentioned, as of July 1, we launched our Elko Salud B2C insurance product for direct sales in our hospital floors. We have launched it in a pilot mode to test product market fit and to learn about the commercial channels and how they are performing. This is for us is a critical stage for a predictable future escalation of the commercial efforts of local Mexico. So we have put a small sales team in each of our hospitals to start creating awareness of the product. We have achieved some sales, a lot of leads, and we feel enthusiastic because we're opening new channels in the weeks to come. Speaker 200:24:19New channels, we're opening, I think a week from now or 2 weeks with our digital sales. After that, a couple of weeks of that, telemarketing sales. And also we were working with a large broker for B2B employer negotiations. So we are convinced that this product represents a new era in insurance and monorisk insurance in Mexico. It is clearly a disruptive product that doesn't exist in Mexico and engagement with our sales force is really rich. Speaker 200:24:51In addition, when we see Hong Kong, Mexico, we are in different stages as well of negotiations with 2 large payers in Monterrey offering solutions to their challenges. For example, a breast cancer value based contracting model that we are leveraging, of course, from Colombia and Peru. This is the first this is the first of its kind in Mexico. This would allow ALUNA to build the capacity to serve payers and position ALUNA as a value based oncology organization that is part of the solution to the raising health spending in oncology in the world, but in particular Mexico, of course, no. And in addition to that, very much related, we're also in the advanced stages of a physician practice association model with the most reputable oncology group in Monterrey. Speaker 200:25:44So this association will boost our local oncology activity and of course help us build a local oncology centers of excellence that we have planned. I want to I have a question to Andrew because we are very much focused on this and I would love it as the market is focused on this as well. This is the highest priority project we have, given that it does not consume capital until later stages, for we are of course using the installed capacity in Monterrey for the deployment And it promises a total addressable market to at least 10 times what we have already developed and harvested in Peru. So that's on Onco Mexico. And on Peru, I would just like to introduce the response from GCE. Speaker 200:26:30It is again what we have done and what we know how to do and how scale works in our favor. Peru is harvesting this very successful integrated model vertical integrated model of care. And the more we penetrate our sales with that or revenue that, the more scale it grants, the higher margin gets also delivered. So, Jisa, can you complement this? Speaker 300:26:59Yes, of course. Thank you, Susan. Margin for the consolidated Peru business will be at the approximately 20% level for Peru this year. And you guys already saw us at 20% in the Q1. So the 21% that we're seeing this quarter is just basically consistent with that and maintaining the gains that we had already seen in the Q1 of the year. Speaker 300:27:27Growth versus last year as far as the EBITDA in Peru does have a slight seasonality impact in the base of last year because of some SG and A seasonality last year. However, the 20% margin levels for this year are sustainable and that is what we should be seeing in 2024. Speaker 400:27:53Great, guys. Thank you so much. Very clear. Operator00:27:57Your next question comes from the line of Paul Ricciosipeda from Morgan Stanley. Your line is open. Speaker 500:28:06Thank you. Thank you, Suso, Heceti for the opportunity here. So two questions. The first one again about Colombia. We know that the discussions about the healthcare system seems to persist there. Speaker 500:28:20How are your risk assessments about future impacts, notably in terms of the cash flows from the EPSs or or for address or even risks of having to negotiate tickets and other things like that. So little bit on your risk assessments about the country. And second question about the MLR in Peru, we saw it's kind of varying a little bit, varying up now. So if you see that is a problem of seasonality or the fact that the mix of the B2B mix or if there is any influence on freshness of wallet or lack of freshness of the wallet, if there was differences in designs of policies or health technology pressure. So whatever reason that is making this MLR oscillate? Speaker 500:29:17Thank you. Speaker 200:29:19Great. Thank you very much, Pavel. So I'll try to give introductions on both and maybe you can complement Yse as well. On the first one Colombia, I think we've seen the worst of it. A lot of discussion on the reform that didn't pass, a lot of pressure. Speaker 200:29:37Yes, an intervention of a large payer. But with the agenda that these intervened payer should perform better than when it was not intervened. So in terms of a hospital group like us, we do not see our accounts receivables growing a number of days. So and notwithstanding that, of course, we're risk averse and we've taken a position to make sure that our revenues do not have risk of collections. So you'll see us, I think if we didn't have that consideration, we'd grow very fast in Colombia. Speaker 200:30:21But we are now being very conservative and saying, listen, let's make sure that we everything we every service that we deliver and we issue in our account receivable is because we're going to collect it within the days that we have as a policy and not anything more than that. So you'll see us growing, but and we can grow faster, but we want to make sure we don't take any more risk. In general terms, I see Colombia and the whole discussion in the healthcare sector, I think being directed to an important and structural solution in 2025. As I like to recall everybody, 85 percent of the hospital and hospital groups in Colombia are private. All of us depend on the payment system working well. Speaker 200:31:20That has been a very big concern of the central government as well as many regional governments and that puts pressure on all the different stakeholders to make it work. And so that I would say as an introduction to Colombia. Giselle, do you want to add something else? Speaker 300:31:41Yes. What I would add, Sussan, just as we mentioned earlier, accounts receivable days have been stable versus last quarter as well as the net cash conversion cycle. So basically as far as our risk assessment, given the market context, we are of course prioritizing cash flow and we will be maintaining our accounts receivable days, and we will be managing the business as a function of maintaining those days stable. Speaker 200:32:13Yes. And on the MLR, Paul, so first of all, clarifying. We calculate our MLR for health care plan business on a standalone basis for the insurance subsidiary. Therefore, if our hospital subsidiaries increase intercompany fee, this is of course is reflected in MLR. So the increase in our oncologic MLR versus Q1 2022 is primarily due to higher intercompany fees charged to the insurance facility. Speaker 200:32:46And we made an internal policy change where we used to charge the insurance company the average cost of treatment of a third party payer. And now we're putting a higher hurdle to the insurance company and putting, the highest private, payer for that service. So it's a higher threshold. It does not affect it at all. I do want to say that it changes the number a little bit, But this is the way we make sure that the MLR is always totally manageable. Speaker 200:33:20The healthcare network has good margins and there's no subsidy from what's happening. The other thing that I would like to share is, again, this effect is eliminated at the gross margin level in the healthcare plans business and gross margin is flat versus Q1, 2024. We do not expect our oncologic MRR in the low 50s to change materially because as you might recall and as we've represented in the past, we continue to adjust our plan prices accordingly. So, remember, in our Una MLR is not a result, but it is baked into it. We will make sure that we price according to the MLR that we want. Speaker 200:34:13And that flexibility to do that in Peru and in the future Mexico is a very, very attractive condition to the market. You want to say anything on MLRG, if you could complement? Thank you. Speaker 300:34:28No, I think that was quite thorough. Speaker 200:34:30Okay. Speaker 500:34:31Thank you, Suso. Thank you, Fisalia. Operator00:34:36Your next question comes from the line of Jocelyn Janssen from Lucre. Your line is open. Speaker 600:34:42Hello. Thank you very much, Suso and Cicelya for taking my question. Well, I've seen that in terms of consolidated cash flows, the net cash of operating activities covered the interest expenses. So but still there is the free cash flow is negative. So my question is regarding CapEx and which amount of CapEx are you expecting for the remaining of the year and for the next year? Speaker 600:35:27And when do you expect to have a positive free cash flow? And regarding MMA activities and dividends payments, are you still thinking of not do any of those activities or pay the dividends until that net leverage reach its 3 times target? Those are my questions. Speaker 200:35:56Okay. I'm going to start responding then with the last part and Jisoo, you're going to explain our cash flow. So we're a growth company and we don't we have a dividend policy of no dividends. So it's not a question of leverage. I don't think we'll change that policy for the foreseeable future. Speaker 200:36:19So we see ourselves as very much reinvesting our free cash flow in the future when those start to accumulate and grow more than dividends. I think most of the shareholders know that our policy and that's how we envision ourselves in the future. Angie Se, on the free cash flow please? Speaker 300:36:41Yes, of course. Thank you for the question. In the year to date numbers, you will note that we have an impact due to an extraordinary payment for the earn out obligation related to the Imac Oncomerica acquisition. So that was a non recurring payment. In the context of the year to go numbers, we should see in the year to go organic free cash flow covering the interest payments. Speaker 300:37:15And furthermore, as far as the annual CapEx numbers and plans, we do not expect annual CapEx to be more than $50,000,000 for the year on a consolidated level. Speaker 600:37:36Sorry, dollars 50,000,000 Speaker 300:37:41dollars 50,000,000 for the year. Speaker 600:37:47Okay. Thank you very much. Operator00:37:53Your next question comes from Alejandro Gomez. Your line is open. Speaker 700:38:01Hi, Suso. This is Alejandro from HSBC. Two questions. First, pricing contraction in Mexico, 2020 basically. Can you explain, I mean, how relevant the decision was in the coaching process given the contractual Are they expecting to change going forward? Speaker 700:38:26And then I'll follow-up with Mexico. Speaker 200:38:31I'm sorry, Alejandro, you were breaking out. I think your question is about the decisions, right, in Mexico? Speaker 700:38:39Yes. I mean, my question is regarding the margin contraction for Mexico. So the question is, I mean, how relevant is the physicians recruiting process and what's the expectations going forward? Speaker 200:38:58Okay. First of all, on I mean, we see a lot of, as I mentioned before, some seasonality in Mexico. Our expectation in margins in Mexico is that directionally we are on the right track, gaining momentum in the growth, but in line with our expectation. Now in terms of physicians, yes, I think we've rolled out a winning new physician model that is attractive for high volume independent physicians, very compelling for younger physicians looking for, let's call it a home with institutional capabilities and their practices with volume, best practice and support are the key offerings. And I think we are delivering that. Speaker 200:39:38I'm excited of what we're collecting. We've reformulated the offering to physicians and not only to produce approximately like 300 new hires, but also to produce productivity of the 1,000 doctors that we have already. This has already produced incremental revenues and other new doctors. And also on the hunting, we see also really good success. I mean, we're hitting something like 50 percent of the doctors that we target, we're able to hire. Speaker 200:40:25So we're hitting we have a great, I think, high success factor. And remember, we do this very deliberately, especially in high complexity. In high complexity, 27% of those 300 doctors that I mentioned are in the specialties that we procure that is in high complexity. And that is producing at least almost 40% of the incremental revenues in of the new doctors. So we are excited about what we're seeing, changing the way doctors are compensated, doctors are hired in Mexico, something we've done elsewhere, but it does take time. Speaker 200:41:10And we do harvest gradually incremental value from the different way that we relate to doctors. We are again, I would like to say, we're on track with what we expect, and we're gaining momentum. But this is not a step up function. This is a gradual increase of more and more doctors in what we do well, which is high complexity, more and more doctors, also capturing their spillover effect of adjacent services of what they bring to our hospitals there. Thank Speaker 700:41:48you. Speaker 200:41:48Keith, do you want to say anything about the margin in Mexico or do you want to compliment something or Speaker 300:41:53Yes. What I would complement, Alessandro, is that margin impacts versus last year are more don't really have anything to do with the physician model. It's more related to the increases in costs and SG and A given the investments that we're making on the local and regional level that we mentioned last quarter in our release. Speaker 200:42:21Yes, that's a good point. And I always want to remind everybody, I mean, there is a step up in all these indirect costs because the owner way is a little more expensive, scales really nicely, very predictably, adds a lot of value to the patient, to the medical community, medical resolution and good sustainable margin. But there is a little bit of a step up because most of the recent assets that we acquired had very different standards to ours. I think that's stable now, GSA, for the future. I don't want to commit to anything, but I think, today the standards of operations in all our hospitals throughout the regions are the same in terms of compliance, in terms of security of the patients, in terms of the protocols. Speaker 200:43:09I think today all the facilities I think have ongoing expenses that are very much related to the owner way and the standards we have defined in the owner way. Speaker 700:43:24Thank you. Thank you, Will. Speaker 200:43:26Thank you, Alejandro. Operator00:43:29Your next question comes from the line of Caio Muscardini from Santander. Your line is open. Speaker 800:43:35Hi, good afternoon, Suso, Descend. Good afternoon, everyone. So the first question is regarding the G and A level in Mexico. I would like to ask if we are already at a more normalized level or if there are further investments to be made in the region, right? And the second question regarding onco solid price hikes. Speaker 800:43:56What type of price hikes are you expecting for the next cycle? Are you going to reduce the level of medical loss ratio through the price hikes or you are okay with this current level? So that's it. Thank you. Speaker 200:44:11So I'll start with the second one. So we've had 35 years of 50% to 55% NIMLR in oncology. So we're not going to deviate from that. And that's why we repriced, so I was at 50% to 55%. This is the way we manage the business. Speaker 200:44:31It's nothing that's related to 1 quarter, the next quarter. And this is a continuous way we operate MLR. So no, there will be no change in the MLR and where we will fall in, in the future. I don't plan it nor expect it in any other way because of the way we run the business though. And the first question was Speaker 300:45:11In the case of SG and A in Mexico, we are now at a more stable absolute level. As you will note, this quarter, Q2 also versus the Q1 of this year, right? That's on an absolute level. We are more normalized. Growth rates versus last year basically had a little bit more volatility because we still had an impact from the reclassification that we mentioned last quarter. Speaker 300:45:43So while you will see it growing less this quarter versus last year, once we clean out those impacts, it was still growing similarly to what we saw in the Q1, right? So what we should see for the year to go is stable normalized levels on an absolute level versus what we saw this quarter. Speaker 200:46:05That is perfect. Thank you. Operator00:46:14And there are no more questions from the phone line. So I will now turn the call over to Anna Maria Mora from ONA who will proceed with questions from the webcast platform. Speaker 200:46:33Annie? Speaker 100:46:35Hi, Sussan. Yes, thank you, operator. The first question that we have on the webcast comes from Estela Strano from JPMorgan. Could you please provide details on how the accreditations and relationships with doctors are evolving in Mexico? Also, what are the company expectations for ticket mix regarding volumes and complexity? Speaker 100:47:02Thank you. Speaker 200:47:06Great. I think I did answer part of this, but maybe I can add a little more color to it. So in terms of the physician hunting and the results and as I said before, we've added 321 new doctors and almost 30% of them are in high complexity practices. I like the trauma. We're growing rapidly in new doctors. Speaker 200:47:38General surgeons of course. We're growing rapidly as well in obstetrics and gynecology and that's going very well as well as cardiology. So you see again the coincidence of what we plan to do and what we are actually harvesting in terms of the physician model. So again, it's a 2 pronged approach the way we relate to physicians. It is about productivity and being demanding and managing doctors and the value they deliver to our facilities in Monterrey, how much of adjacent services we collect from them. Speaker 200:48:23And of course, it's also about hunting for new doctors and the specialty that we want. And I think, as I said before, this is coming as we expect. And we'll see you'll see us harvest this in the coming quarters. Did I miss the other question, Nani? And there was a part of the question. Speaker 300:48:43No. Speaker 200:48:44That was it. Okay. Thank you, Estela. And let's hear the next question, Annie. Speaker 100:48:50Yes. So we have a couple of questions in regards to Mexico as well. The next one comes from Pedro Floriani. What can we expect in terms of occupancy rate in the Mexico hospital for the second half of the year? How is the first half of the year track in terms of what was budgeted and how should we see that evolving? Speaker 200:49:17Great. So, I mean, we don't feel very comfortable giving a lot of guidance on occupancy, especially occupancy on beds, which is such a random, I think, number when we are at such high complexity, we're looking at surgery rooms and chemotherapies and radiation treatment rooms and their capacity. And what we do see is that high complexity occupation, the services that we deliver are growing. We see it in surgery. We see it in the 3 hospitals. Speaker 200:49:58We see it in practice such as trauma, as I mentioned before, the new doctors, urology is growing very nicely. Neurosciences is growing at a very high click as well. No, something we're not a specialist in, but it's growing very quickly is also plastic surgery, no, and cardiology, as I mentioned before. Again, the practice that we're really good at and that we capture. So we see these treatment rooms, these surgery rooms, their capacities are growing much faster than bed utilization. Speaker 200:50:31Now I don't want to not answer the question. We do have a plan to increase bed utilization in the hospitals. And we see that in the second half of the year, you will see the increase in how we fill up more of the beds in the 3 hospitals we have. So I would like to I don't know, Giselle, do you want to comment on that or even in that? Speaker 100:51:00What I would add, Sussu, is Speaker 300:51:01what you've already mentioned. As far as trends for the rest of the year, we continue on track to deliver our consolidated guidance of 20 percent EBITDA growth FX neutral. Speaker 100:51:22Thank you, Susan. Just one more question. This comes from Saicat Majumder. The question is, are you seeing any positive impact from packages and bundling services in Speaker 200:51:37Mexico? Well, definitely, definitely. That's a key element of our growth in high complexity. And I can already see how we're growing in some packages. Some are simpler packages, in terms of obstetrics and others are a little more complex. Speaker 200:52:02That is delivering growth. In addition, something very attractive that we've done in our hospital recently is to put counters to make sure that we capture any additional prescription as we call it cross selling and deprecation services. So in most of the floors, the patients will leave and before they hit the elevator, we're asking, what's the doctor prescribed? What is the next test, when is it, and we make sure that those tests, those imaging, those pharma, those labs get captured within our hospitals. And that's also measured on a weekly basis and that's also having a great impact as well. Speaker 100:52:53Thank you, Tuzo. Well, at this point, I believe all of the questions have been answered. So I will pass the call back over to you, Suso, for your closing remarks. Speaker 200:53:08Well, thank you again, everybody. We really appreciate everybody joining us today. And It's been nice meeting some of you during recent road shows and at investor conferences in the U. S. And as well as Europe. Speaker 200:53:22We are keen to continue engaging with Onda shareholders as well as the prospective investors. Please let us know if we can do anything better in terms of these calls. We trusted our recent financial and operating results to make clear the fundamental strengths of Aouna, the Aouna's diversified and integrated healthcare platform as well as our ability to scale it further in the region. Please do let us know if we can do this better. Thank you very much everybody and have a great rest of your day. Operator00:53:53This concludes today's conference call. You may now disconnect.Read morePowered by