Afya Limited

Good morning, ladies and gentlemen, and welcome to AFIA's second quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct the 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 now begin.

Thank you and good morning everyone. Thank you for joining us for AFIA's second quarter 2020 conference call. With me on the call today is AFIA CEO Virgílio Gibbon and Luis Andre Blanco, our CFO. 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 involve 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 regarding our strategic product initiatives and the related benefits and our expectations regarding the market as well as the potential impact from COVID-19. These risks include those more fully described in our filings with Securities and Exchange Commission. The forward-looking statements 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 reference 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 results prepared in accordance with IFRS. We have provided a reconciliation of these non-IFRS measures to the most directly comparable IFRS financial measures in this presentation. Let me now turn the call over to Virgílio Gibbon.

Thank you, Renata, and thanks everyone for joining us today. As the COVID-19 crisis continues to have effects all over the world, we remain committed to the health and safety of our employees, students, teachers, and the communities we operate. Before I get into a discussion of our second quarter and first half results, I want to take this opportunity to reflect on our first year as a public company. We were able to build and deliver some impressive results. While we are currently dealing with the pandemic and resulting economic challenges, we are confident in the strength of our company as we continue to enhance and grow our business. We have achieved our position as the leading medical education company in Brazil Partially through acquisitions. Over the past year, we have completed six acquisitions and created a successful track record of integration of acquired companies, delivering cost efficiency and synergies. Last month, we acquired our first digital health tech company, Babymedge, adding digital assets to our service offering. With respect to medical seats, we have added more than 700 in less than one year. 70% of our goal for adding 1,000 medical seats over a three-year period post IPO. Taking into account the two most recent acquisitions, our medical seats now stand at 2,143 seats. On top of that, we still have more than 800 seats being analyzed under MOU contracts. As you can see, over the past year and also during the COVID-19 crisis, Our financial results have been great, consistently exceeding our guidance, delivering strong top-line growth, improving profitability, generating free cash flow, and maintaining a health financial position that creates a virtual cycle of capital allocation opportunities and cash generation. Now on page 5, I will show our financial highlights. We delivered another solid quarter with broad-based organic revenue growth. Contributions from acquisitions, margin expansions, and cash flow improvements reflect our excellent execution even during COVID-19. The execution of excellence has enabled us to exceed our financial expectations for the second quarter and surpass our first half 2020 guidance. Position us for another great semester. During the first half, Occupancy was at 100% during the quarter and given this strong demand for medical seats, allowed us to maintain the same price strategy. As a result, revenue increased 54% year over year. It's important to note that as we moved all classes to our online platform in March, we were not able to offer some of the practical classes during the semester. This deferral has impacted our first half net revenues in 14 million reais. but will be fully recognized in the second half. Our team executed well in key areas of our business, particularly with integrating acquisitions, extracting synergies, and scaling AFIA's operation. In turn, we generated significant top-line growth and margin expansion in the quarter and six-month period. We still have synergies to capture as we move ahead with the integration of UniNovaFAP, MediCell, Uni Redentor and Uni San Lucas. We completed the first two integration immediately after the second quarter. And for the last two is expected by the first Q of 2021. Lastly, our balance sheet is strong with over 1 billion reais in cash and cash flow generation with an 83% EBITDA to cash rate. Our financial strength and cash flow generation capabilities afford us flexibility to execute our expansion strategy and remain opportunistic nurturing our M&A pipeline. Moving now to page number six, we will discuss about PEPMED. Although PEPMED was a 3Q event and we held a conference call to discuss the acquisition, I want to take some time today to reinforce the importance of this acquisition. As a reminder, PebMed provides tools and content for healthcare professionals through the Whitebook and Nursebook apps and through the PebMed News Portal. It's also the market leader in clinical decision software and has an extremely popular app ranking the top 10 Brazilian apps by consumer spend. The business model consists of both paid subscription and free content. This was an important acquisition for us as it progresses our digital effort to improve the user experiences and efficiency of both healthcare students and other healthcare professionals. Our strategy is to combine quality medical education with intensive use of technology and Pebimag is a key component of it. With this acquisition, we enter into the digital health service segment and strengthen our BO2 product offerings which is also a relevant component of our growth strategy. On slide number seven, we will discuss a little bit more of our digital strategy. The pandemic proved that both individuals and healthcare professionals were willing and able to adapt to a more digital world and caused us to accelerate the expansion of our digital business. We are committed to provide innovative technology solutions that assist our students as they spend more time online to work and study. Additionally, we see the opportunity to maintain a relationship with our post-grad students and through their entire careers. Our increased product offerings is driving more users to our digital assets. During the quarter, our monthly active users increased 27.6% compared to the first quarter of this year. Stepping back and looking at the long-term opportunity, there was already a seismic shift happening in the digital healthcare world even before COVID-19. We believe that this shift has been accelerating the last several months and will continue post-pandemic. Additionally, we believe that this shift combined with our strong brand and the deep connection we have built with our students and alumni position us to capitalize on the opportunities ahead. On next slide, we'll start the discussion about our recent acquisitions. As you all know, M&A is a key pillar of our growth strategy, and we are taking a disciplined approach to grow our portfolio. During this time of significant business disruption and uncertainty, we are taking steps to strengthen our leading position. Now, where we see the opportunity, we accelerate our strategic plans. To that end, During the past week, we announced two strategic and accretive acquisitions. The first one was Faculdade de Ciências Médicas da Paraíba, a post-secondary education institution offering undergrad medical programs in the state of Paraíba. It's our first school in this state. The second was Faculdade de Ensino Superior da Amazônia Reunida, or FESAR, a post-secondary education institution for authorization to offer on campus undergrad courses in medicine in the state of Pará, our second school in this state. Ciências Médicas da Paraíba has 157 seats and is the second largest acquisition for us in terms of approved medical seats. We see the opportunity to increase our organic growth rate primarily as we increase the number of seats at maturity at Ciências Médicas da Paraíba 1,130 up from 850 currently. FESAR brings another 120 medical seats and currently has 227 medical students and a potential of 864 medical students at full maturity. Combined, these two acquisitions take our medical seats up to 2,143 seats. Now on page nine, we will see our integration track record. As I just mentioned, we have completed six acquisitions the past year. And as indicated on both charts, we have a successful track record of integrated acquisitions and capturing synergies. In January, the margin expansion has been over 1,000 basis points in slightly less than a two year period after acquisition. The current operating variable has not slowed Our integration process with recent acquisitions and we are moving ahead with the group you see listed in the box on the right hand side of this slide. As we integrate acquired companies and gain further scale, we are able to see value creation and margin improvements, reflecting cost efficiency and synergies. Now on page 10, we'll talk about our future perspectives. We are coming off of a very successful year as a public company and 2020 is also a great start. We have a successful business model with highly predictable growth. We will continue to focus on five key areas. First, strategic M&A. Second, pushing further into our digital initiative. Third, successfully integrating acquisitions. Fourth, Delivery sustainable and predictable growth. And five, maintaining a health balance sheet. Beginning with M&A, which has been and will continue to be a key component of our strategy, we have completed six acquisitions after IPO, both medical schools and digital. Importantly, we have a solid pipeline that has been growing during this challenging period. As I mentioned earlier, we are working diligently to further enhance our digital capabilities. We will continue to invest in our strategy to add more digital assets and solutions to support our medical students and other health professionals. While BU2 represents a small part of our overall sales to date, we see significant opportunity to grow this business. Our solid balance sheet coupled with strong cash flow generation create a virtual cycle providing the financial flexibility and competitive advantage to continue executing on our M&A strategy. And given the high predictability of our business model, I'm confident in our ability to generate meaningful cash flow further strengthening our financial position. Overall, our consistent momentum is continuing and we are pleased with our results in the first year as a public company. For the second half, We have already fulfilled 100% of the medical seeds and we are confident to achieve our second half guidance, confirming the resiliency and the right predictability of AFIA's business model. I will now turn this call over to Luis for more color on our financial results and the second half 2020 guidance. Thank you.