Afya Limited

for Afya's first quarter 2021 conference call. With me on the call today is Afya's 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, 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. These risks include those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as 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 known IFRS financial measures on this call. The known 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 known IFRS financial measures to the most directly comparable IFRS financial measures in this presentation. Let me now turn the call over to Virgílio Gibbon, FSEO, starting with slide four.

Thank you, Renata, and thanks everyone for joining us today. I'm very pleased to report a strong first quarter 2021 results continue the positive trend of 2020. and also reflecting the successful execution of our strategic initiatives. We continue to deliver the combination of our strong and predictable growth with high profitability and health cash generation. But before we go through our financial highlights in detail of our first quarter, I would like to present our last acquisition. We are very excited and honored to announce Unigran Rio acquisition and to enter definitely in Rio de Janeiro state. This acquisition is a milestone for Afya. Considering the 308 seats from Unigran Rio, we will reach 1,159 seats acquired in less than two years, over delivering our guidance released during the IPO, after concluding 14 deals since then. These 308 authorized seats, translating 2,218 students at maturity, represented an embedded growth of 25% considering the current medical student base of 1.8 thousand today. Including Unigran Rio, our total medical students at Maturi is expected to reach 18.8 thousand students, representing a CAGR of 9% from 2020 to 2026. Health science related courses are an important share of their business as well, with more than 5.7 thousand students. And to enhance Avis Continuum education offerings, 860 health-related graduate students will be integrated to our student base. I would also like to highlight the prestigious brand and the great academic quality of the institution. Unigran Rio has the highest quality score among all for-profit universities and university centers in the state of Rio de Janeiro, with a solid IGC continuous of 3.16. Moving to the next slide to talk about synergies in this transaction. Today, Unigran-Hill has 1.8 thousand medical students, what represents an embedded growth of 25% and 2.2 thousand medical students at maturity. And we will assure 100% of occupancy. This large health ecosystem is a fertile opportunity to offer AFA's digital medical services and cross-sell continual medical education programs leveraging the lifetime value of each student. Back-office activities will be migrated to our shared services center and our career plan and medical curriculum will also be implemented generating synergies already proved in past acquisitions. Unigran Rio has also a distance learning expertise with 79 distance learning centers in maximum quality score evaluation. All of these footprints and capabilities will be applied to improve margins of Afya's ex-health undergrad courses migrated on-campus traditional students to a more hybrid learning process. In terms of net revenues, Unigran Rio reported R$ 263 million in 2020, of which 49% comes from medical courses and 68% are also considered health-related programs. At maturity in 2023, Net revenue is expected to reach R$ 343 million, with 71% in medical costs and 85% in health-related products. For seniors and maturation, this transaction is very accretive, with an expected EV EBITDA of 4.1 times. The aggregate purchase price is R$ 700 million, with payment structure as follows. 60% paid in cash upon closing of the transaction. The remaining 40% is payable in cash for e-consolidance through 2024, adjust for CDI rate. There are 82 additional seats still pending approval. If approved, it will result in a potential earn-out structured as follows. R$ 1.1 million per seat if the approval is granted in the first year after acquisition. 1 million per seat if the approval is granted in the second year after acquisition and 900,000 reais if approval is granted in the third year after acquisition. To get more information about this acquisition, I invite you all to see the presentation in our investment relations website. Now moving to the next page, we will discuss the highlights for this quarter. First, I would like to reinforce that we will start in this quarter to segregate Our results in three business units. Undergrad, what we used to call BU1, comprised of undergraduate medical courses, health science, and other programs. Second, continued education, comprised of specialization and graduate courses. Third, digital services, which includes all services and products that compose the six pillars that our strategy is based on. Content and Technology for Medical Education, Clinical Decision Software, Practice Management Tool and Electronic Medical Records, Physician-Patient Relationship, Telemedicine and Digital Prescription. I'm pleased that we have concluded another two acquisitions to enhance our digital offer. At the end of January, we closed the acquisition of iClinic, a practice management software. This acquisition consolidates our position in the practice management tool, telemedicine and Digital Prescription Pillar. At the end of the quarter, we also announced the acquisition of Medicinai, a healthcare technology company that specializes in healthcare payments and financial services. Moving on the chart, we will highlight our results. Starting with our top line, adjusted net revenue grew 48% year over year, reaching R$403 million in the first quarter due to the consolidation of acquired companies Maturation of Medical School Seats and Expansion of Digital Services Active Paying Users. Adjusted EBITDA also increased 48% the same period, reflecting the synergies extracted from these acquisitions. Adjusted net income was up 22% year-over-year, reaching R$ 160 million. Total growth was partially offset by lower financial results due to three reasons. The increase in loans and financing and the exchange rate depreciation between Brazilian Reais and US dollars of 11% from December 2020 and March 2021 combined with 29% exchange depreciation rate between Brazilian Reais and US dollars from December 2019 and March 2020. That increased the financial results at the time due to our position in US dollars. And lastly, Lower income from financial investments due to the increase of Brazilian interest rate, CDI, and lower cash position. Cash conversion reached 103% in the first quarter of 2021, with a solid cash position of R$ 966 million, slightly lower than 2020 due to the payments to selling shareholders. It's worth to recognize our collection process debt. Even considering the more flexible renegotiation policy adopted in 2020 because of COVID, our cash conversion ratio was 22 percentage points above last year's same-year. The number of medical students was up 62% due to the consolidation of acquisitions and maturation of medical seats. Without considering acquisitions, the number of medical students was up 22%, reflecting only the maturation of current seats. Moving to the next page, we will discuss the guidance issued for the first half of 2021. During our last earnings results for the full year 2020, we issued guidance on net revenue and EBITDA margin for the first semester of 2021. Net revenue is expected to be between 740 million and 780 million reais, and EBITDA margin is expected to be between 46 and 48%. Excluding any acquisition that may be concluded after issuance of this guidance. For instance, UNIFIP-MOC is not being considered. We expect to conclude this operation on June 2021. We are on track to achieve our guidance with the first quarter results. Report on net revenue for the quarter was R$ 403 million, achieving 53% of the middle guidance. In terms of adjusted EBITDA, we achieved 60% of the middle guidance, with an adjusted EBITDA margin of 52% for the part. These strong results stem from a combination of medical school seats and average ticket maturation, distribution of digital services to our ecosystem, and successful concluded acquisitions. I will now turn the call over to Luis, who will detail our financial results.

Thank you Virgílio and good morning everyone. Turning to the next slide to discuss the financial highlights of the first quarter 2021. I'm pleased to present the high growth track record that we were able to achieve in the last three years. Since 2019, we saw a strong trend in all key metrics. Adjusted net revenues for the year was up 48% year over year to 403 million reais, reflecting acquisitions and organic growth. Excluding the acquisitions, net revenue grew by 11% year-over-year, reaching 301 million reais. Such increase was primarily driven by maturations of medical school seats and an increase in the average ticket. In terms of adjusted EBITDA, we almost tripled our result in just two years. Reaching 208 million reais, representing a 48% growth year-over-year. EBITDA margin remained flat comparing to the first quarter of last year, reflecting higher EBITDA margins of integrated companies that were offset by lower margins of recently acquired companies. Adjusted net income was up 22% year-over-year, reaching 160 million reais, partially offset by the reasons mentioned by Virgílio. Our EPS had an increase of 6%, reaching 1 real in 16 cents per share. Cash flow generation remained strong in the three-month period, increasing 81% to 194 million reais, which resulted in a cash conversions ratio of 103%. compared to 81% in the same period of 2020. Moving on to next page for discussions of key metrics by business unit. Starting with undergrad. Operating medical seats increased 25% year-over-year to 1.9 thousand operating seats. Medical students were up 62%, reaching a base of almost 13,000 students, reflecting medical seats maturations and acquisitions. Our average monthly medical tuition fees were up 6% compared to the first quarter 2020, reaching 8.7 thousand excluding acquisitions. This reflects a combination of new students enrolling with a higher tuition rate, combined with students graduating with a lower tuition rate. Talking about revenue mix, 80% of our combined tuition fees are derived from medical school, up from 77% in the same period of the prior year. In terms of total tuition fees, we reached R$ 414 million, up from R$ 252 million, an increase of 64% year-over-year. On the next page, I will present continual education metrics. We saw A 30% decrease in net revenue due to a reduction in paying students primarily driven by practical programs that are not being offered since August 2020 and represents an impact of 7.9 million reais in net revenues and physician decision to postpone the intake in specialization courses due to the COVID-19 pandemic. Although with the combination of opening of six new campuses in 2021 and expanding that specialization portfolio, we have a strong intake process that started in the second quarter. IPAMED reached 1.8 thousand students in April 2021. Going to the next slide, I will discuss digital service metrics. On the first graphic, you can see our achieved paying users per pillar. Those are the active subscribers that generates revenues. MedCell active paying students grew 50% year over year. Clinical management tools reported a subscriber base of more than 13,000 users and clinical decision software of more than 110,000 active users. We have a great opportunity here to distribute all products in this ecosystem. These results reflected in a 48% increase in digital service net revenue. The last graph on the page shows that the monthly active users that reach 221,000 students and physicians all over Brazil. This accounts for approximately 30% of the market of medical students and doctors in Brazil. Moving to the next page, I will discuss in more details the net revenue and EBITDA growth. We saw a 48% increase in net revenue year-over-year, of which 78% are coming from the consolidations of acquired companies. On the right side of the page, we show the breach of adjusted EBITDA for the first quarter 2021. During this period, adjusted EBITDA also increased 48% year-over-year to R$ 208 million, with high margin as we presented in the past years. 75% of the increase is coming from acquisitions, and the other 25% is coming from the synergies extracted from acquired companies that we have integrated into our shared self-centers and increased the occupations of medical in-seats to 100%, and the implementations of our career plan and integrated curriculum. Moving next to discuss cash and net debt position. Cash and cash equivalents of R$ 966 million at the quarter end were 8% lower than 2020, reflecting the payment of acquired companies. This cash position does not consider the closing of SoftBank Corporation, which was closed in this quarter. The total net debt was 230 million reais in first quarter 2021, up from 167 million reais in 2020. Considering digital acquisitions that were closed subsequent to the quarter end and Unifipimoc and UnigranRio acquisitions, that were already signed but not closed, our performance net debt would reach 1.3 billion reais. I will now open the conference for the Q&A session. Thank you.