Auna Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 20, 2025

Key Takeaways

  • Positive Sentiment: Consolidated EBITDA grew 5% on a foreign exchange‐neutral basis in Q2, driven by Mexico, Colombia, and Peru, signaling reasserted growth trajectory.
  • Positive Sentiment: Peru’s Onco Salud delivered another solid quarter with record‐low oncology medical loss ratio (<50%) and 10% growth in general health plans, boosting revenue and EBITDA.
  • Positive Sentiment: Mexico’s operations resumed growth with a 32% EBITDA margin, stabilized physician supplier relationships, and improved pricing, despite gradual volume recovery.
  • Positive Sentiment: Colombia achieved 9% EBITDA growth and a 1.4-point margin expansion through risk‐sharing models and improved payer cash flows, while strategically managing flat revenue.
  • Negative Sentiment: Near‐term growth remains uncertain due to ongoing trade and tariff headwinds in Mexico and unresolved interventions by payers in Colombia, impacting utilization and revenue visibility.
AI Generated. May Contain Errors.
Earnings Conference Call
Auna Q2 2025
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good morning, and welcome to Auna's Second Quarter twenty twenty five Earnings Conference Call. My name is Ellie, and I will be your operator for today's call. At this time, all participants are in listen only mode. Please note that this call is being recorded. There will be an opportunity to ask a question at the end of today's presentation.

Operator

Now I would like to turn the call over to Ana Maria Moa, Head of Investor Relations. Ma'am, please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and welcome to Awuna's conference call to review our second 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 Aguna'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 note otherwise.

Speaker 1

Let's move to Slide two. In addition to reporting unaudited financial results in accordance with International Financial Standards, we will discuss certain non IFRS financial measures and operating metrics, including foreign exchange neutral calculations. Investors should carefully read the definitions of these measures and metrics included in our earnings press release of 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.

Speaker 1

This includes, 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 F filing with the U. S. Securities and Exchange Commission and our earnings press release. Slide three, please.

Speaker 1

On today's call, we have Suso Zamora, our Executive Chairman and President Giselle Remy, our Chief Financial Officer and Executive Vice President and Lorenzo Massar, our Executive Vice President of Strategy and Equity Capital Markets. They will discuss Aguna's consolidated and segment financial and operating results for the second quarter and we'll also provide updates on our various strategic growth initiatives. After that, we will open the call for your questions. Tutto, please go ahead.

Speaker 2

Thanks, Ana Maria, and good morning, everyone. We appreciate you joining our latest results call. During the second quarter, our Mexico business resumed its growth, while our Colombian operations strengthened, with EBITDA growing again in this segment as well. Combined with the top line and EBITDA growth of our Peruvian operations, this resulted in consolidated FX neutral EBITDA growing 5%, slowly reasserting our trajectory. All three geographies contributed to the quarter's growth in their respective geographies.

Speaker 2

This demonstrates the strength of our regional healthcare platform's fundamentals and is encouraging with respect to recovering more growth during the remainder of the year. We remain bullish in the medium to long term. Returning to the quarter's highlights, a key aspect of Peru's performance was retaining within our healthcare network more patients from upstream services, such as emergency, treatments and outpatient visits, leading to increased surgery volumes that have a higher average ticket. Onco Salud, the health plan side of our Peru business, delivered another solid quarter with respect to revenue and EBITDA, in addition to achieving a record low oncology MLR. In Mexico, we stabilized our doctor supplier relationship, and there was a nascent volume recovery from the first quarter, indicating that the adjustments we have made are working.

Speaker 2

These adjustments enable physicians to more easily transition to our standards and practices in this particular area. As a reminder, this hasn't been the first time we've encountered operational setbacks when bringing an illness care model to a new market, which is a complex and gradual process and which, of course, is disruptive to legacy medical protocols and practices. Also, as a reminder, our model is the one sought after by Mexico's insurance companies and other payers with the aim of improving patient outcomes while effectively managing the cost of health care. Another bright spot in the quarter was our results in Colombia, where EBITDA and margin improved versus the first quarter as the tactical measures that we've implemented to manage risk and improve cash flows have proven to be effective. Although our leverage ratio remained unchanged, rest assured that we haven't lost sight of our medium term target of three times net debt to EBITDA.

Speaker 2

Now turning to Slide five. Aounda's total capacity utilization decreased 2.5 percentage points to 64%, mainly explained by Colombia, where we have intentionally slowed growth by proactively managing contracted services with intervened payers to mitigate payment risk and prioritize a positive cash cycle, among other measures we've taken in Colombia. In Mexico, utilization ticked down again this quarter on lower surgery volumes and emergency visits that eventually drive hospitalizations and ICU admissions. As we managed to improve physician recruitment and engagement, we expect capacity utilization to recover in Mexico, and we remain focused on utilization related to high complexity services consistent with our growth strategy. At Oco Salud, the growth in general healthcare plans remained strong, growing 10% again this quarter, while membership in oncology plans grew 2% and the MLR of these plans fell for the fourth consecutive quarter to below 50%, which reflects efficiencies that we have gained with respect to pharmaceutical costs.

Speaker 2

Let's now take a closer look at each of our segment results, beginning with Mexico on Slide seven. Revenue in Mexico grew 5% year over year despite fewer surgeries and emergency treatments. This was due to higher average tickets for these services as well as the repricing of other services such as radiology and chemotherapy. The lower mix of high complexity services in the quarter meant that the pace of EBITDA growth was slower than revenue growth, something that you also see reflected in the margin decline in the chart on the right of this slide. Nonetheless, Mexico's margin level is a healthy one, and ongoing efficiency initiatives have lowered our pharmaceutical costs and those related to surgical equipment.

Speaker 2

Although we expect the adjustments that we've made regarding the implementation of the Eula Way will help recover growth going forward, market conditions remain soft as the impact of tariff uncertainty continue to ripple through Mexico's economy, particularly in the north of the country. A brief word about Oncoceleu Mexico. We continue making headway on this important growth front. Our policies now provide nationwide coverage through a network of doctors and hospitals as well as ancillary medical services like labs and preventative care. In

Operator

addition

Speaker 2

to Monterrey, this now includes Mexico City, Guadalajara and Tijuana. This is an important step forward towards scaling this new business and capitalizing on the massive gap in Mexico's health care market. Now let's turn to Peru on Slide eight, please. The five percent revenue growth in Peru's health care services was mainly driven by the increase in surgery volume, price increases and an improved services mix across our network of facilities in the country. Onco Salud revenue grew 7% on the 10% increase in total plan membership that I highlighted before, in addition to price increases that we made relative to inflation in the medical services sector.

Speaker 2

Besides the strong improvement in improved oncology MLR, its total MLR decreased 3.7 percentage points to just under 55% on an increase in general health care plans within the product mix. Now moving to Colombia on Slide nine. The strong improvement in Colombia resulted from implementing risk sharing models and diversifying our base of payers away from intervened ones. Salud Total, for example, is a payer that Iona began serving in Colombia on July 1 under a PGP contract with them, and we should start seeing this increasingly contribute to the top line in the upcoming quarters. Although Colombia's revenue was flat year over year, EBITDA increased 9% and the margin expanded 1.4 percentage points.

Speaker 2

As you can see in the chart at the right of the slide, the sequential improvements were even stronger. Also noteworthy is the quarter's lower provisions for impairment losses, which reflects the timely receipt of outstanding payments from Nuevo ETSE, the largest intervened payer that we serve in the country. With that, I'll turn the call over to Giselle, who will provide some detail on our financial results.

Speaker 3

Thanks, Souto. My review begins on Slide 11. Revenue grew across our business with the exception of Colombia where we intentionally tempered growth, maintaining revenue flat year over year, and we remain focused on risk mitigation and improving our cash conversion cycle there. Although Peru's revenue growth slowed in the quarter, it continued to be a strong top line contributor. Its 8% growth was mainly due to total plan member growth as well as surgery volume growth and price service mix.

Speaker 3

The top line of Mexico's healthcare business improved for the second consecutive quarter with revenue growing again year over year mainly due to a better pricing mix. Let's turn to Slide 12 please. Adjusted EBITDA was 5% higher in FX neutral terms in the quarter and down 3% on an as reported basis with the margin practically unchanged at just over 22%. The depreciations of the Mexican and Colombian pesos relative to the sole our reporting currency are noteworthy with the Peruvian soil versus the Mexican peso declining 16% and the Peruvian soil versus the Colombian peso declining 9% year over year. Peru's EBITDA grew 8%.

Speaker 3

Overall, Peru's margin remained unchanged at a very solid 21%. Mexico's EBITDA grew 2% in local currency and was impacted by devaluation on an as reported basis. EBITDA growth in Mexico was mainly due to revenue growth and cost efficiency measures implemented towards the end of last year. Resulting cost savings were partially offset by higher expenses associated with initiatives to enhance physician productivity. Mexico's adjusted EBITDA margin remained at a healthy 32%.

Speaker 3

Colombia's margin improved considerably, up 4.5 percentage points versus the first quarter with a more profitable mix of payers, improved payment flows from Nueva Essen and lower impairments on accounts receivable. Let's now move to Slide 13. Adjusted net income increased six times year over year, positively impacted by FXN EBITDA growth and an FX variance. The largest impact was the positive non cash million FX variance, primarily related to the appreciation of the Peruvian sol against the U. S.

Speaker 3

Dollar outside the range of our call spread hedges. Net finance costs when excluding foreign exchange effects fell by million versus the comparable period last year. Finally, income taxes in the second quarter were million higher versus last year, primarily due to the fact that we recognize a deferred tax benefit in the comparable period last year, whereas our effective tax rate year to date is at a more stable rate of 37%. Moving on to cash on Slide 14. Our cash position decreased 13% versus the first quarter, but remained at a healthy level.

Speaker 3

Free cash flow was $143,000,000 versus $155,000,000 in the first six months of last year, primarily impacted by PEN19 million in payments to the Ophceon Oncology doctors as well as collections in the first quarter. Interest paid was down PEN41 million from PEN264 million in the same period last year. Slide 15, please. At the end of the quarter, we maintained a healthy debt structure with approximately half of our owners debt in local currencies and 86 of our U. S.

Speaker 3

Dollar debt hedged to the Peruvian slug. In the second quarter, we refinanced just over $62,000,000 of short term debt, an issuance that was well received and oversubscribed. This refinancing improved our maturity profile. Auna will try and continue to take advantage of favorable debt market conditions to continue improving our debt profile. Lastly, as Suso noted, we remain committed to further reducing leverage to three times net debt to EBITDA.

Speaker 3

That concludes my review. Now back to Suso who will wrap up today's presentation.

Speaker 2

Thanks, Lisele. Before taking your questions, I'd like to leave you with some key takeaways from what was another complex quarter. First, we are quite confident that our strategy, in particular the Yona Way, is the right model, a proven one to transform health care in Spanish speaking Latin America and in Spanish speaking Latin America where private health care remains fragmented, inefficient and underpenetrated. Through our regional platform, we are modernizing and integrating patient care to improve the patient experience and, most importantly, medical outcomes. In doing so, we expect to sustainably drive value for our fellow shareholders over the long term.

Speaker 2

Of course, there can be setbacks along the way, as we've seen recently in Mexico and in Colombia. We know from many years of experience that challenges will invariably arise and that operating environments can change, periodically throwing up obstacles to growth. But we have always adapted and overcome them, and our most recent quarterly results are encouraging. We believe we have made the right operational adjustments at Aounde's Mexican and Calimas segments, and we expect their performance to continue improving during the rest of the year. Aounde's near term growth outlook has obviously changed, and it is difficult to tell how we'll finish the year, given the trade and tariff uncertainty that is plaguing Mexico's economy and the lack of an immediate resolution for Colombia's intervening payers.

Speaker 2

Our Peru business continues making solid contributions in terms of growth and profitability, and it demonstrates the robustness and strong potential of our vertically integrated model when it's mature and operating at scale. Colombia remains an important contributor of scale as well as of medical best practices. The risk mitigation measures that we've implemented are proving effective, evidenced by intervened payers' continued compliance with our payment plans. We will continue to diversify and reprioritize our payer mix in the country, utilizing risk sharing models and proactively managing contracted services, all with the objective of safeguarding cash flows and overall operational stability. In Mexico, we expect volumes to continue to recover, having calibrated the implementation of our model in a way that allows physicians to more easily transition to a owner's care model and enables us to reengage high performing doctors and strengthen our relationships with them.

Speaker 2

And we remain excited about the enormous potential of Onco Salud, which is bringing an entirely new insurance product to Mexico and also about our overall oncology offering, which we're beginning to scale with the recently acquired Ocuciono Colojia practice group, an offering that we expect will be best in its class. That concludes our prepared remarks. Operator, please open the call for questions.

Operator

Thank you. At this time, we will open the floor for your questions. As a reminder, you can also submit your questions online by using the Q and A function of the webcast platform. Your first question comes from the line of Leandro Bastos of Citi. Your line is now open.

Speaker 4

Thanks. Hey guys, good morning. Good to see you. Two questions on our side actually. First one for Mexico.

Speaker 4

If you could just update where we are, considering the headwinds you had by the beginning of the year with physicians and suppliers. You mentioned that you made adjustments that some of the issues were addressed. So if you could just provide a broader update on how the situation is today? And also how should we think about volumes growth in the region, right? I mean, top line already improved in the second quarter, but volumes remain kind of a few weeks.

Speaker 4

So if you could provide some outlook. So how could we think about that going forward? I think it will be helpful to hear. So that will be the first question. Second, about oncology MLR, which reached, I think, record lows during the quarter.

Speaker 4

Just to understand if you see room to go further down for the year or if the strategy would be to eventually try to reinvest more on prices at current levels. So that will be my question. Thanks so much.

Speaker 2

Great. Thank you very much, Leandro. I appreciate the different questions. Let me just make sure I answer them all or else, Difei, if you can complement it, I'd appreciate it. On Mexico, so in Mexico margins remained in the 30s and we were we think that we'll repeat those margins in the future.

Speaker 2

This is a product of slightly higher growth as volume from a physician group stabilized. And it's also important to know that the second quarter is normally better than the first quarter. But I think that we remain very optimistic that our physician relationships have not only stabilized but seem to promise you know, alignment with our with our doctors. Know? We think that the implementation has looked heard enough and start harvesting.

Speaker 2

You know? This these the volumes of the doctors will be will be bringing again. You It's important to recognize and more than recognize to be realistic about the speed of such implementation. As physicians that are not aligned with their model, they take surgeries elsewhere seeking the high commission suppliers granted them. And physicians that are aligned come to us and move their practices to their own, but this move is slower as they benefit from the allocation of all our volume.

Speaker 2

So there's a little bit of a dislocation there, but we're excited about what we see in the near term loan. In terms of MLR, I'm gonna jump to MLR. MLR is is something that, as you well know, we've been very successful in managing for years. You know? And and we do that given, you know, our model.

Speaker 2

I know our fluctuates according to the product mix in the membership and the cost associated with our service. We've been operating at 50%, a little bit of another percent in the last fifteen years. Quarter fluctuations are not meaningful and should not be taken as special. Our 50% to let's say 54% MLR results from continuous cost containment and price adjustments to our plans. And this is a pillar of our strategy and results, but I wanna emphasize the predictability and the result in that range, you know, is is is our strategy.

Speaker 2

You know? So I think that on MLR, it it should not be read as anything that we're we're within the range, you know, and we will continue to deliver within the range. You know? Don't know, Jisi, if you would like to add anything in addition.

Speaker 3

No, Susan. Nothing on my end. I think that's very clear.

Speaker 2

There was a general question that I missed in the middle about growth. I couldn't hear that. I had a little mumbling. I don't know if I if I missed anything, Jisi.

Speaker 3

Well, the I mean, in the on the Mexico topic, I think it was relative to volumes. And I think what Suso mentioned in the first part of the answer as far as, you know, the stabilization of volumes after the the supplier doctor supplier relationship impacts we measured we mentioned in the last quarter. What we're seeing is positive signs as Susho mentioned. But I would also add as he mentioned that this is a process which takes some time in stabilizing the new model and basically stabilizing the the doctor rotation that we might have as a product of the new model.

Speaker 2

Great. Yes. Thank you, Anjithya.

Speaker 4

That's great. Thank you so much, guys. Have a good day.

Operator

Your next question comes from the line of Arthur Alves of Morgan Stanley. Your line is now open.

Speaker 5

Good morning, Suso, Itad. Thanks for taking our question. Just a quick question on Colombia. We were wondering if you are making any new agreement in Colombia, particularly additional risk sharing contracts and also the relationship between the new payer and how is that going? And if you have any new developments there?

Speaker 5

Thank you.

Speaker 2

Great. Yeah. Thank you. So in general, and starting with the latter part of the question, are making great progress you know, in terms of collections, you know, and and that is being represented in less provisioning and you'll see that I think in the future. We're excited about the what the team has achieved in Colombia And there's been a reversal of, I think, higher provisions that we had in the past now.

Speaker 2

Our collection in Castlight in Colombia has definitely improved, especially with the intervening payers, especially with Nueva Epece. And more importantly, the dialogue we have in Nevaeh Pesa is very constructive. They're very respectful. And and they've been compliant. They they've been delivering on a on an agreement that we signed, you know, many months ago on a monthly payment with respect to the to the passive account.

Speaker 2

So it's it's I think I think the the the cash acquisition in Colombia, much improved, and I think we'll continue to improve, In terms of we have made also good progress in terms of revenue tied to to intervene private payers. You know, we've decreased our concentration from 26 to something like 90%. You know? And and the same view, our risk sharing models has has increased from, like, 7% of total revenues in Colombia to a little over 10%. You know?

Speaker 2

And we continue to see that that as a very important avenue of growth in Colombia. I don't know, Jisi, if there's anything else you wanna compliment?

Speaker 3

No, Susan. That's I think that's complete.

Speaker 2

Okay. Great.

Operator

Thank you. There are no more questions from the phone lines. So I will now turn the call over to Anna Maria Mora from Aona, who will proceed with the questions from the webcast platform.

Speaker 1

Thank you, operator. The first question comes from Alex Steffensen from Mann Group. What gives you confidence that utilization in Mexico will increase given market softness?

Speaker 2

Great. So we believe that our model in Mexico is gaining traction. And we can also see how the volumes, for example, in Occiono Corloia, our recently acquired doctor group, the the leading oncology group Monterrey produces higher volumes in their network. So high complexity again, you know, capitated models, which we take risk sharing like like we've discussed in Colombia. You'll see growth of that in Mexico in the future.

Speaker 2

That will sustain what we what we believe will be volume unit volume capacity utilizations in our hospitals in Monterrey. I I maybe just to find out, I think that market softness is here to to stay, but our model, you know, is one that is is promising. And given that health care is many many times does not correlate, you know, so so closely with them with the with the economic growth. I think we'll see some recovery of that. I think the the shock in Northern Mexico or the tariff uncertainty and its relation to formal employment.

Speaker 2

You know? Of course, formal employment with the highest penetration of insurance, you know, has produced a delay, you know, in medical treatment, surgeries, and things of that nature, But it has not eliminated that demand. That will come back. Thank you.

Speaker 1

Thank you, Souza. The next question comes from Saicat Majumder from HSBC. What is your market share in Monte

Speaker 2

Okay. DJ, maybe you can help me with this one. Maybe I would just direct the answer. In in when one counts beds in served by the private sector in Monterrey, no we represent over 30% of the number of beds in the private sector in Monterrey. When we when we look at oncology services, you know, which is for us or high complexity services, our market share is lower, I would say.

Speaker 2

And and these are informal numbers. Please don't hold anything against me on the numbers. Just want to indicate the trend. What we want to measure more is high complexity market shares. And we're below, I would say, 10% in Monterrey.

Speaker 2

And we are very focused on increasing that in in the next five years to more than double digit. To more to more than two times what what we currently have. So this is a key a clear and key strategy in Monterrey. That we will be measuring and maybe reporting in the future for investors to see. That is what we focus on in Monterrey.

Speaker 2

More than the beds, what is the market share we have in chemotherapies, in radiation therapies, in oncological surgeries, in obstetric procedures, in orthopedic procedures. You know? So we'll be very focused very much on on that in the future and you'll see how we move those figures as well.

Speaker 1

Thank you, Suso. The next question comes from Gerard Forbes from Sura. Looking at your historical results, your effective tax rate has shown significant volatility with a tax benefit in 2Q twenty twenty four and a more normalized expense of around 36% in 2Q twenty twenty five. Could you provide some more color on what drove this normalization? And what should investors expect as a sustainable effective tax rate going forward in the short and medium term?

Speaker 2

Yes,

Speaker 3

great, Suso. Thank you so much for the question. What we've seen in the past and any volatility in the effective tax rate on the P and L has been more related to the stabilization of profit before tax and net profit as we've seen. Once we've started to stabilize profit before tax and net profit and recognize deferred tax benefits from the past given tax credits that we've built from basically 2022 when we had the impacts of the acquisition and 2023 when we had the impacts of the refinancing, which basically resulted in tax credits, which then translated into the P and L as deferred tax benefits. And that's why this year in 2025, what we're seeing is a much more stabilized and normalized effective tax rate in the P and L, which should be around the levels that we're seeing this quarter of around 35% to 38%.

Speaker 1

Thank you, Jita. The next question comes from Alexis Stephenson from Mann. What is I'm sorry, what's your view on the negative free cash flow after interest costs and liquidity?

Speaker 3

Thank you, Alex, the question. So what we've seen year to date, as we mentioned previously, basically that organic free cash flow has been impacted both by collections in the first quarter, specifically in Colombia, which we've stabilized into the second quarter, as Suso mentioned, And also the million in payments to the Oceon Oncology doctors, which is not a recurring payment. Historically, what we've seen is that cash flow improves in the second half of the year. And that is why we do see in what's to come of the year organic free cash flow more than covering interest costs.

Speaker 1

Thank you, Tiselle. At this time, I'm showing no further questions. So I'd like to turn the call back over to Suso for his closing remarks.

Speaker 2

Well, you very much, everybody. We remain excited about the future of Aona in the three d geography we have. We're growing as we expect with, as I said before, some minor headwinds that we resolved in Colombia, I believe, and that we resolved in New Mexico. Thank you again for your interest in Owner, and we'll continue to report as we make progress in the Owner Way model and its implementation in the three countries. Thank you again.

Operator

Concludes today's conference call. You may now disconnect.

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