Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Auna SA (AUNA, Financial) reported a 25% increase in adjusted EBITDA on an FX-neutral basis, with a 2 percentage point margin expansion.
- The company achieved a 12.5% top-line growth, driven by strong performance in Peru and Colombia.
- OncoMexico, a new integrated cancer insurance product, was successfully launched, showing promising early results.
- Auna SA (AUNA) maintained a positive adjusted net income for the quarter, supported by increased operating profit and a deferred tax benefit.
- The company is on track to achieve its 2024 guidance for adjusted EBITDA growth of 20% on a constant currency basis.
Negative Points
- The top-line growth in Mexico decelerated, attributed to seasonality and a shift towards high-complexity services.
- Increased impairment for doubtful accounts in Colombia impacted the financial results, reflecting higher market risk.
- SG&A expenses in Mexico increased due to investments in local and regional capabilities, affecting margins.
- The medical loss ratio (MLR) in Peru's oncological segment increased due to higher intercompany fees, though this was offset at the gross margin level.
- Free cash flow remained negative, impacted by extraordinary payments related to acquisition earn-out obligations.
Q & A Highlights
Q: What drove the business deceleration in Mexico? Was it due to a total comp effect versus the second quarter of 2023?
A: Jesus Leon, Executive Chairman of the Board, President, Chief Executive Officer: The deceleration in Mexico was partly due to seasonality and the shift to high-complexity services. We are not concerned as we expect positive results in the second half of the year. The focus is on high-complexity services and physician recruitment, which is progressing as planned.
Q: Can you provide details on the impairment for PDAs in Colombia and how you are monitoring the situation?
A: Gisele Ferrero, Chief Financial Officer, Executive Vice President: The additional impairment for PDAs in the second quarter was approximately $750,000. This reflects the higher risk in the current market context in Colombia. We expect a slightly higher recognition of impairment for the rest of the year, consistent with this quarter.
Q: What are the early impressions of OncoMexico since its launch in July?
A: Jesus Leon, Executive Chairman of the Board, President, Chief Executive Officer: OncoMexico aims to lead the private oncology market in Mexico. We launched the B2C insurance product in July in a pilot mode to test product-market fit. Initial sales and leads are promising. We are also opening new sales channels and negotiating with large payers for value-based contracting models.
Q: What are the main levers for increasing margins in Peru, especially in hospitals and OncoSalud?
A: Gisele Ferrero, Chief Financial Officer, Executive Vice President: The margin increase in Peru is sustainable and reflects the successful implementation of our integrated model of care. The 20% margin levels seen this year are expected to continue. Growth investments in high-complexity services and capacity utilization are key drivers.
Q: How are you assessing the risks in Colombia's healthcare system, especially regarding cash flows from EPSs?
A: Jesus Leon, Executive Chairman of the Board, President, Chief Executive Officer: We are conservative in our approach to ensure revenue collection within policy days. Despite the challenging regulatory environment, we are prioritizing cash flow and maintaining stable accounts receivable days. We expect a positive resolution in the healthcare sector by 2025.
Q: What are your expectations for OncoSalud's price hikes and medical loss ratio (MLR) in Peru?
A: Jesus Leon, Executive Chairman of the Board, President, Chief Executive Officer: We aim to maintain the MLR in the 50-55% range, consistent with our 35-year history. Price adjustments will be made to ensure this target is met. The increase in MLR this quarter was due to higher intercompany fees, but this does not affect overall margins.
Q: Are you at a more normalized SG&A level in Mexico, or are further investments needed?
A: Gisele Ferrero, Chief Financial Officer, Executive Vice President: SG&A levels in Mexico are now more stable on an absolute level. Growth rates versus last year had some volatility due to reclassification impacts, but we expect stable levels for the rest of the year.
Q: What are your expectations for occupancy rates in Mexico hospitals for the second half of the year?
A: Jesus Leon, Executive Chairman of the Board, President, Chief Executive Officer: We expect high-complexity services to drive growth in surgery and treatment rooms. Bed utilization is also expected to increase in the second half of the year, aligning with our plans.
Q: Are you seeing any positive impact from packages and bundling services in Mexico?
A: Jesus Leon, Executive Chairman of the Board, President, Chief Executive Officer: Yes, bundling services and packages are driving growth in high-complexity services. We have also implemented counters to capture additional prescriptions and adjacent services, which is positively impacting revenue.
Q: What are your expectations for CapEx and free cash flow for the rest of the year and next year?
A: Gisele Ferrero, Chief Financial Officer, Executive Vice President: We expect annual CapEx to be around $50 million. Organic free cash flow should cover interest payments for the rest of the year. We do not plan to pay dividends until we reach our medium-term target of 3 times net debt to EBITDA.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
