Afya Limited

Good morning, everyone. Thank you for joining us for AFES fourth quarter and full year 2020 conference call. With me on the call today is AFES 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 risk, 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. 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 no IFRS financial results on this call. The no 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 no IFRS financial measures to the most directly comparable IFRS financial measures in this presentation. Let me now turn the call over to Virgílio Gibbon AFIA CEO is starting with slide 4.

Thank you, Renata, and thanks everyone for joining us today. I'm extremely proud that AFIA has over-delivered outstanding results since the IPO. Our performance reflects our superior strategy, great execution, commitment of our team members, and the resilience of our business model, especially during a year of a worldwide pandemic. Since 2017, our net revenue has grown almost six times and our guidance for first half 2021 is higher than 2019's full year's net revenue. We are not only growing fast, our adjusted EBITDA have grown almost eight times and increased 13 percentage points in March in the same period. And there is more. After generating operating cash of 391 million reais in 2020, Nine times higher than 2017 and reaffirming our tripod of strong growth with high profitability and cash generation and reinforcing once again our firepower to continue consolidating medical seats even after achieving the 1,000 seats guided in IPO. Besides all this incredible growth in profitability figures, we have been creating the largest medical ecosystem in Brazil. with more than 200,000 physicians and medical students using one of our products. We also have more than 430 partnerships with hospitals and clinics in Brazil. AFIA's focus continues to provide a lifelong learning experience for physicians and to help doctors to transform Brazil's healthcare. Now let's take a deeper look into 2020 achievements on page number five. During the year, we successfully executed our strategy to continue to be the market leader of medical school seats in Brazil, as we have completed nine acquisitions since we became public, adding 851 medical seats in less than two years, for approximately 85% of our three-year target share during our IPO. Importantly, we have a solid track record of integrating acquired companies and delivering cost efficiency and synergies, that can be seen in the margin expansion we are delivering. This acquisition set us up to deliver continuous strong results in the months and years to come. Our medical education business remains and will continue to be the cornerstone of our business in the short and middle term. We have become extremely efficient at operating medical schools and we continue to see opportunities in this area. In the beginning of the year, we had to adapt with the agility needed to stay focused on providing the high quality education experience that our students had come to expect from us while at the same time executing our long-term strategic plan with the pandemic outbreak. We are fortunate that as a business, we are able to help using our campuses as vaccination locations and by providing free course at this time to assist hospitals, medical schools, physicians, and nurse to face these difficult times. The COVID-19 pandemic intensified some behavioral shifts. It has caused the acceleration of our long-term plan and started to unfold our digital services strategy. As evidenced by the pandemic, the medical community and patients have embraced a digital component to healthcare. We discussed in the past that digital assets were appealing to us so that we can add more services to medical students and professionals and maximize our product offer. So, we further our digital strategy with the acquisition of PetMed, iClinic, Medphone, and Medical Harbor. These acquisitions enable us to deepen our relationship with our students, as well as put our brand in front of many new doctors, nurses, and other medical personnel and students, enhancing our competitive position and our capability. We remain having a peer-leading capital structure, providing agility to adapt to the dynamic environment we are operating in and we maintain our focus on generating value. Given our strong free cash flow and liquidity, we remain committed to our long-term capital priorities, a balanced approach to invest in the business and return strong cash to our investors. All while keeping our students, faculty members and employees safe and managing through this volatile environment. Our quality and execution was also rewarded this year. AFIO was ranked as the winner in the education sector in the Epoca Negócios 360 survey and also have won the Golden Tombstone in the Equity category. This award is evaluated by IBEF São Paulo and recognizes equity operation aspects such as complexity of the transaction, innovation, price, and others. To close this first part, we will start to report ESG metrics in this earnings release. Afe's engagement on this team is generating an incredible impact on society, what makes our team very proud and even more committed to our values and strategy. On the next page, I will present the recent acquisition that we just concluded this week. Medical Harbor developed solutions for medical imaging, radiology, teleradiology, and medical education for the health community. Their solution is divided into two segments, medical imaging and health education. On the medical image business, the product Athena Dicom Viewer is a powerful diagnostic tool designed to attend physicians, health professionals, clinics, and hospitals. It's certified by Aviza, a Brazilian health agency, and it has over 24,000 downloads across 180 countries. The other medical image product is MH-PAX Cloud. A high-performance teleradiology cloud infrastructure that allows remote diagnosis and sharing medical events to any location in the world, anywhere, anytime. Both products operate as a SaaS model. In the education health solutions, they have a Tenahub platform for health education with a real virtual cadaver, human and animal anatomy models, and analysis of real exams using photorealistic rendering. Athena Hub is a complete solution allowing teachers and students to access content remotely without losing the quality of teaching the health field. Today, Athena Hub is used by more than 50 universities in multiple health programs, also in a SaaS model business. With this product, Medical Harbor will enhance our content technology for medical education pillar, allowing us to strengthen our presence and to integrate this solution to our platform providing better service to our physicians and students. I invite you all to get more details of those acquisitions and the presentations available in our IR website. Moving to the next page, we will discuss our main highlights of 2020. Starting with our top line, 2020 adjusted net revenue increased 61% year-over-year. We managed to combine high top line growth with profitability, mainly due to the operational leverage and successful integration of acquired companies. On average, we gained more than 10 percentage points EBITDA margin of integrated acquisitions year over year. Adjusted EBITDA was up 69%, with 220 basis point margin expansion during this year. Adjusted net income was up 72%. At the end of the fourth quarter, we had approximately R$1 billion in cash on our balance sheet, and the cash conversion for 2020 reached 76%. In the fourth quarter, we also announced the acquisition of Unifipimoc, increasing our medical seats base in 166 and the authorization to operate two mais médicos campuses, adding 100 seats to our operating base. We expect to have the final approval of Antitrust and close this deal in the second quarter. Moving to the next slide, we will detail how Africa's continuing medical education and digital offering is serving the entire medical journey. Our long-term objective is to be the one-stop shop for physicians in Brazil, and we have already managed to achieve physicians in all stages of their career. Starting with Africa Medical's campuses, we impact medical students since their first glance with medicine, offering first-class technology-based education. After they graduate and become a generalist physician, they have two alternatives to continue their career. First is the medical residency, a competitive path due to the lack of residence program supply in Brazil. MedSEL's platform helps these students to prepare for residency tests with a totally individualized study plan to maximize their approval rates and individual goals. The second path is the specialization programs. in which they have theoretical and practical class of more than 60 different specialties offered by IPMA. On the digital health services, we are building a tremendous offering based on our six strategic pillars. Medical education content technology, clinical decision tool, clinical management tool, telemedicine, electronic prescription, and doctor-patient relationship. With medical hardware acquisition, we enhanced the medical education content and technology pillar Pai offered their solution to students, physicians, and universities to help imaging studies and diagnostics through Atena Hub and Atena Dicom product. In terms of clinical decision tool, we brought together PadMed and MedFoam, the two leading players on this segment, helping more than 200,000 medical and health professionals to take daily accurate decisions, minimizing medical errors and medical inflation. For clinical management tools and telemeds that aim more experienced physicians, we have iClinic and Medicine Eye, ready to help physicians to manage their clinics and all financial processes between patients and health insurance companies. Last, we are not only serving more than 200,000 doctors with products to enhance their pregnancy. But we are also offering tools that can connect them to patients with a Gendar Consulta, allowing us to create a huge ecosystem for healthcare in Brazil. We still have many opportunities to grow the digital services, as we are still integrating and extracting seniors between these health tech acquisitions, cross-selling their products and locking in their clients. Our M&A pipeline remains very strong. and will help us to strengthen even more our ecosystem and improve our penetration on each strategic pillar. Moving to the next page, we'll discuss our guidance achievements and the guidance for the first half of 2020. I'm extremely proud to announce that we achieved the guidance for the second half of 2020, besides all the uncertainties in the pandemic environment. In terms of adjusted net revenue, we delivered 642 million reais, To meet above the top of the guidance, a great achievement for the semester and for closing 2020. Our adjusted bid down margin was also achieved 45.9% on a guidance of 45.5 to 47%. We are also issuing the guidance for the first half of 2021. The expected net revenue is between 740 to 780 million reais, representing a growth Thank you, Virgílio.

And good morning everyone. Moving to next page to discuss the financial highlights of 2020. I'm very proud that we are able to continue to grow with a great profitability and cash generation this year. I will now pass through the highlights of our financial results of 2020. Both medical seats and students saw significant increase this year. Operating medical seats increased 55% year-over-year to 1,893 operating seats. Medical students was up 67%, reaching a base of 11,030 students, reflecting medical seats maturation and acquisitions. Adjusted net revenue for the year was up 61% year-on-year to 1.2 billion reais, reflecting acquisitions, medical school maturation, and ticket increase due to the maturations of readjustments. Excluding the acquisition of Unirredentor, São Lucas, PebMed, Ciências Médicas and FESAR, the net revenue grew by 20% year-over-year, reaching The increase was primarily driven by organic revenue growth, mainly due to the maturation of medical school seats and an increase in the average ticket. We also had a great profitability growth coming from the cost efficiency and synergy extracted from acquisitions. Adjusted EBITDA was up almost 70% Reaching 563 million Reais with adjusted debita margin expanding 220 Bips Excluding the acquisitions that I mentioned before, the adjusted debita was up 40%, reaching 467 million Reais Adjusted net income was up 71% year-over-year, reaching 388 million Reais EPS had a great increase of 55% reaching R$3.50 per share. Moving on to the next page for discussions of key operating metrics by business unit. Starting with BU1, our average monthly medical tuition fees increased 90% compared to 2019, reaching 7,975 reais excluding acquisitions. This reflects a combination of new students enrolling with a higher tuition rate, combined with the students that are graduating with a lower tuition. Talking about the revenue mix, 74% of our combined tuition fees are derived from medical school, up from 69% in the same period of the prior year. In terms of total tuition fees, we reached 1.2 billion reais, up from 794 million reais, an increase of 53% year over year. With respect to BU2, we had almost 125,000 active paying users at the quarter end, which includes 170,000 coming from Whitebook. Excluding Whitebook, we saw a 40% increase in active paying students. In the specialization business, we saw an increase of 163% year-over-year, leading to the consolidation of Uni Redentor. Now, turning to the next page, I'll discuss our digital student base and student engagement. In the first graph of the page, we can see the evolution of monthly active users in our platforms. We saw a decrease in MedCell monthly active users in the second semester due to the consumption of the COVID-19 free courses in the platform. There are still some students with the course active, but many of them had already finished the course. Monthly active users of Whitebook Richard, 163,000, 1.5% lower than the third quarter 2020. On the chart on the right, you can see the trend in our current consumption. Content that users are consuming included podcasts, learning assessment tools, as well instructions, medical webinars. We saw a 24% increase from the first quarter 2020, That means that our students are more engaged with the assets that we are providing to them. Moving to the next slide, I'll discuss in more details the net revenue and EBITDA growth. We saw a 61% increase in net revenues year over year, of which 55% of the increase is coming from the consolidation of 2020 acquired companies. On the right side of the page, we show the 2020 adjusted EBITDA. During the period, adjusted EBITDA increased 69% year-over-year to R$563 million, with 220 base points expansions in margin. 42% of the increase is coming from 2020 acquisitions. The other 58% is coming from synergy extracted from acquired companies that we integrated in our shared service, increased on medical seats occupation to 100%, and implementation of the career plan and integrated curriculum. Moving next to a discussion of cash flow. Cash and cash equivalents of 1 billion reais at the quarter end were 11% higher than and 2019, reflecting the strong cash flow generations that we had in the year and the proceeds that comes from our follow-on process. The majority of these funds is invested in low risk Brazilian reais denominated instruments. Total net debt was 166 million reais at quarter end 2020, up from 583 million Net Cash in 2019 Cash flow generation remained strong, increasing 27% to R$ 391 million, which resulted in a cash conversion ratio of 76%, compared to 100% in the same period of 2019. This decrease in cash conversion rate Thank you, Luis. Moving now to the last slide on this presentation.