Afya Limited

Good morning, ladies and gentlemen, and welcome to AFIA's first quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, Renata Couto, AFIA's head of IR. You may begin.

Thank you, and good morning, everyone. Thank you for joining us for AFCA's first quarter 2020 conference call. With me on the call today is our CEO, Virgílio Gibbon, Luis Andre Blanco, our CFO, and Julio de Angeli, our VP of Innovation and Continuum Medical Education. During today's presentation, our executives will make forward-looking statements. Forward-looking statements generally relate to future events or Future Financial or Operating Performance and involves known and unknown risks, uncertainties, and other factors that may cause or actual results to differ materially from those contemplated by these forward-looking statements. Forward-looking statements in this presentation include but are not limited to statements related to our business and financial performance. Expectations and Guidance for future periods or expectations regarding our strategic product initiatives and the related benefits and our expectations regarding the market as well as the potential impact from COVID-19. This week includes those more fully described on our filing with the Curious and Exchange Commission. The forward-looking statement in this presentation are based on the information available to us as of the date hereof. You should not rely on them as predictions of future events and we disclaim any obligation to update any forward-looking statements except as required by law. In addition, management may refer non-IFRS financial measures on this call. The non-IFRS financial measures are not intended to be considered in the isolation or as a substitute for the bills prepared in accordance with IFRS. We have provided a reconciliation of these non-IFRS financial measures to the most directly compared IFRS financial measures in this presentation. Let me now turn the call over to Virgílio Gibbon. After you.

Thank you, Renata, and thanks, everyone, for joining us today for Access for Squadron 2020 Learning Conference Call. First, let me say that I hope everyone is in good health and safe during this global crisis. Before we start, I would like to acknowledge and thank all frontline workers who are facing this global crisis. We are fortunate that, as a business, we have been able to help by providing free costs at this time to assist hospitals, I also want to thank our employees and professors who made it possible within one week to move 100% of our on-site classes to our online platform. The feedback from students, professors, and physicians could not be better. They are all very satisfied with the effectiveness of our online operations. While the environment continues to evolve quickly, our teams are managing our priorities and business very well. Moving now to page number five. I'm very pleased to report a strong first quarter 2020 results, continuing the positive trend of 2019, and also reflecting the successful execution of our strategic initiatives. We are seeing the benefits from the synergies captured from the integration of the acquisitions completed over the past two years. and continue to deliver the combination of our strong and predictable world with high profitability and health cash generation. Our balance sheet position is very strong with more than 1.3 billion reais in cash. On the student front, the intake process for second half 2020 has already captured candidates to fulfill all seats available, ensuring 100% of occupancy for the following semester. A 22% growth in our medical student base Over the first quarter of 2020, we reached 9.7 thousand students, already including the Unison Lucas acquisition concluded this month. In addition, we have seen a better collection when compared to the same period last year, showing an excellent approach for the second half renewal rate and cash generation. All in all, and considering the external scenario, a very positive dynamic for the rest of the year. I also would like to highlight that considering all acquisitions we have completed, our total medical seats per year reached 1,866 seats, what means 13.5 thousand students at maturation, an 11% CAGR in the medical student base until 2026. Moving to slide number six, we can see our unique positioning In the medical community, our social responsibility, and therefore we have played an important role in sharing knowledge with all institutions, physicians, students, and patients through the initiatives below. Allow free temporary access of our digital platform, MedCell, being already accessed by more than 9,000 medical students at 32 public and private medical schools, which will be a great opportunity to expand our market share and potential growth. Provide free content through online courses and webinar weeks, which has been a success attracting a large number of participants to our platform. Donation of masks, clothes, and other personal protection equipment to help departments and hospitals in 13 cities where we operate medical schools. Now, with respect to actions we have undertaken for students, employees, and professors, we are currently operating our theoretical classes online for all students and reorganize the schedule of practical activities in order to avoid any significant impact on the academic calendar for the first semester of 2020. It's important to highlight that the in-hospital internships for fifth and sixth year students have already resumed and will not impact the calendar. Most of our CAP corporate staff started to work from home and are keeping all activities up and running well. We are also providing a full package of social and health assistance to our employees and families to help them during the pandemic, including HR initiatives such as online psychological care, yoga classes, corporate training platforms, free lectures, and support for family professions replacement, and many others. Moving on to slide seven, we will discuss our revenue and intake process. Fortunately, our first quarter of 2020 We have already completed the enrollment process with 100% of frequency as expected. And as we look ahead, we are currently seeing a strong demand for new applications for following semesters that will allow us to fulfill 100% of our medical fees. We have kept our commitment to our professors, maintaining all salaries during the pandemic, maintaining our supply contracts, and also offering a high-quality education to our students, our platform, and practical activities for the fifth and sixth year. We are seeing a positive impact on the cash collection during this period, The delink simulation by April 2020 is 400 bits below the same period last year, reflecting our process improvements implemented last semester. Lastly, regarding revenue recognition, taking into consideration the interruption of home campus activities and that a significant portion of non-practical educational activities being temporarily offered through companies' online platforms, we expect that some practical classes will have to be replaced during the second half. postponing the Ragnar recognition proportionally. Those effects were already considered in our first half 2020 guidance, indicated by the Natural Agro Guidance Range, which already contemplated that certain amount of practical class would be delivered in the second half. Next, turning to page number eight. After solid balance sheet and strong cash position put us in a health position with a competitive advantage to navigate these uncertain times. As you can see, we ended the quarter with 1.3 billion in cash position, raised essentially from the IPO and follow-on transactions. And with a limited debt, our cash flow is robust with an 81% conversion rate and a lower delinquency rate when compared to the same period last year. Last but not least, Our cash flow keeps being strengthened by the synergy raised from M&A integration. We have been efficient in all integrations, leveraged our operational margins considerably. Given the high predictability of our business model, I'm confident in our ability to generate meaningful cash flow, which, combined with the strength of our balance sheet, will sustain financial stability regardless of the economic trend and enable us to continue to keep our growth strike. Moving next to our discussion of M&A and our integration process on slide 9, we achieved our position as the leading medical education company in Brazil partially through acquisitions. We have completed acquisitions over the past two years and added over 400 teeth in less than one year, or approximately 40% of our three-year target of 1,000 teeth. We currently have more than 500 seats covered under MOU contracts. M&A remains a key pillar of our growth strategy and we continue to evaluate opportunities to deploy capital into strategic acquisitions across medical school seats as well as digital platforms that can add services and value to our students. Our financial strength and Cashflow Generation Capability afford us flexibility and we intend to remain opportunistic. Stepping back for a moment, we have outlined the stages that acquired companies go through before we start to see the synergies and margin contributions. Immediately, we guarantee 100% of the occupancy of all seats available. Then, we begin to streamline discounts and to increase tuition after the implementation of our new curriculum. After, we migrate all transactions and administrative activities to ATIA's shared services to extract G&A efficiencies. Lastly, we implement ATIA's careers plan to fully integrate and reap the benefits from the acquired company. Importantly, the current operating environment has not slowed our integration process with recent acquisitions. We just finished integrating EPMED and we are moving with UniNovaSat and MedCell even during the pandemic. Now on page 10, you can see our successful acquisition track record and how we have been able to extract synergy faster. The regular expansion of margin gains has been significant across all acquired companies. As we integrated and gained further scale, we have been able to see value creation margin improvements higher and faster than we expected in all acquired institutions. Even considering the more recent acquisitions, Concluded in 2019, such as IPEC and FASA, we can see a strong growth in operational leverage in less than one year. This solid track record shows our capacity to deploy capital into strategic acquisitions to create great return to our shareholders. Now, I will turn the call over to Julio that will show how the digital transformation accelerated by the COVID-19 crisis is changing the application process and opening many opportunities for us. Thank you, Virgílio.