Afya Limited

Good evening, everyone. Thank you for joining us for AFI's 30th Quarter 2021 Conference Call. With me on the call today is AFI's CEO, Vigilio Gibon, and Luiz André 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 events. and involve known and unknown risks, uncertainties, and other factors that may cause or actual results to differ materially from those contemplated by those 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 findings with the 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 isolation or as a substitute of the results prepared in accordance with IFRS. We have provided a reconciliation of these non-IFRS financial measures to the most directly comparable IFRS financial measures in this presentation. Let me now turn the call over to Virgilio Gibon, FCO, starting with slide three.

Thank you, Renata, and thanks, everyone, for joining us. It's a great pleasure to report once again a strong quarter for Africa. During this call, my presentation will run through four main topics. First, the highlights across financial and operating results with upgrades in both medical undergrad students and digital services. Second, the last results on our successful execution of acquiring and integrating medical school and digital platforms, showing how far AFIA has come on our products and services. Third, our deliveries and exciting opportunities ahead on the undergrad program and on digital service, growth driven by our main goal, a unique ecosystem for physicians in Brazil. And last but not least, the fourth topic, how our commitment to all we do is being well reflected through all awards and public recognition. Moving to slide number four, I will show our financial highlights. Our adjusted net revenue increased 48% year-over-year, reaching R191 million, with a margin of 41%. We also reported a cash position of R1 billion, and a record adjusted operating cash flow generation of R557 million for the nine-month period, 72% higher than last year. Moving now to the operational updates of the quarter. Our undergrad medical student reached R16,000, representing 67 growth compared to the same period last year. Operating seats grew by 56%, also in the same period. On the digital services highlight, our net revenue almost doubled year-over-year, and our ecosystem reached 247,000 monthly active users, which represents more than 30% of the Brazilian market of physicians. Digital services net revenue grew more than 96% year-over-year. Now moving to the next page, we'll talk about our business strategy. M&A continues to be a strong growth driver in our strategy. On the left side of this slide, we can see our whole integration roadmap since the IPO. Everything that is in progress in every project that is planning. For every one of them, we make a short and long-term balance including inputs that can impact both profitability and engagement. On the appendix of this presentation, slide number 16, you can check the margin expansion of each acquisition separately, reflecting our great track record of evolution and synergy extraction in the integration process. On the right side of slide 5, you can then check how integration and cost-selling strategies of our platforms, like MedSigni, iClinic, Mediphony, Whitebook, and MedSell, are being developed. so we can consolidate our database into a single data lake in order to provide the unique ecosystem we have talked before, surrounded by our six-pillar strategy in the digital business. Moving to slide number six, we can see how AFIA has great opportunities ahead with the number of seats getting higher each quarter. Our pipeline for acquisition is fertile, and we plan to acquire at least 200 seats per year starting 2022. The expansion of our offering in the undergrad business continues to grow strong, with the closing of the acquisition of Unigran Rio in August 2021 and the acquisition of Guanayuns Medical School this month in the state of Pernambuco. Both acquisitions provided 428 new authorized undergrad medical seats to Africa, with 2,731 seats so far. This represents almost 20,000 students at maturity, with a CAGR of 10% for 2020 to 2026. Also, we expect five more MySMAGico units to start operating until the end of next year. The goals of our digital service are no lower. By the end of 2021, we expect to complete our digital ecosystem, fulfilling our portfolio with the most important services to physicians. Next year, we will boost our market penetration, consolidate our offerings to B2B clients that we will allow to leverage our physician network and unlock new revenue streams. And now, moving to my last slide of this presentation, I want to show how our commitment is being reflected and rated outside Afian. As we have been presenting in each quarter, our ESG agenda is getting more and more robust. As we have embedded, the team, in all we do, assume public positions that reveal our goals and push new ones. When enforcing this agenda, along with the commitments we have already shown in this quarter, we also announced that Sustainalytics, a leading ESG and corporate governance research firm, has rated AFIA as a low-risk ESG risk rating company, placing it in the 10th percentile in the Sustainalytics Database of over 13.5 thousand organizations as of September 2021. We were considered as a company at low risk of experiencing material financial impact from ESG factors due to our low exposure and good policies and applied practices. As a reflection of our great results and actions that are being shown to the market, I'm also glad to announce that we have won two important awards this quarter. The Valor 1000 Award as a Best Company on the Education Segment. And second, the Epoca Negócios 360 Award in two categories, as a Best Company in the Education Segment and Sustainability in the Education Segment. In the overall ranking of 418 companies in Brazil, we are in 13th place. This proves that our mission remains strong to become the reference in the medical and healthcare education services, empowering students and physicians to transform their ambition into a rewarding lifelong experience. This continues to guide our strategy, and I am proud of what we have achieved so far, as well as what we are planning to do in the future. Now I will turn the call over to Luis Blanco, our CFO, to discuss the financial metrics. Please, Blanco, go ahead.

Thank you, Vigilio. Moving to slide 9 to discuss the financial highlights of the third quarter 2021. It is with a lot of satisfaction that I present another strong quarter for Hafia with consistent results. Since 2019, we've been seeing in all quarters a positive trend in our key metrics. Adjusted net revenue for the quarter was up 48% year-over-year to 463 million reais, reflecting acquisitions, expansion on digital service, and organic growth. For the nine-month period, the increase was of 45%, totaling 1.2 billion reais. It is important to mention that last week, the Brazilian Federal Court of Justice decided to consider unconstitutional any decision that apply linear discounts in monthly tuition fees from private universities with respect to the COVID-19 pandemic. Therefore, starting this December, we shall not apply discounts in any monthly tuition fees that are related to the effects of the pandemic, including those applied in FCMPB. Adjusted EBITDA for the quarter was up 28% year-over-year to R191 million. For the nine-month period, adjusted EBITDA was R560 million, an increase of 37%. For both periods, adjusted EBITDA margin was slightly below the reported margin of last year, mainly due to, one, The consolidation of PebMed, iClinic, MedFone, Medicinai, Medico Harbor, Click Pharma, Shoshpe, Unifipimoc, FIPI Guanabie, and Unigran Rio, that presented lower margins than the integrated companies. Two, lower performance from continuing educations, of which I will give more details in the next slides. Three, regarding the quarter results, 14 million reais of deferred revenue that positively impacted the third quarter 2020 results. Adjusted net income for the quarter was 117 million reais, in line with the same period of the prior year, mainly due to the decrease in net financial results that was affected by higher debt positions and the increase in the average CDI in the period, partially offset by higher income from the financial investments. For the nine-month period, net income increase was in line with 2020, totaling R$342 million. Cash flow generation was record in nine-month periods, increasing 72% year-over-year, too. 557 million reais, which has resulted in a cash conversion ratio of 114%, compared to 86% in the same period of 2020. On the right side of the screen, we can also see bullet points that summarize another financial highlight. For the nine-month period, organic growth on net revenues for undergrads was 11% compared to the last year. We maintain the announced guidance for 2021, 1,722,760 for net revenues, and 42 to 45% for adjusted EBITDA margin, which takes into account the successfully concluded acceptance of new medical students for the second half of 2021, and the consolidations of the digital companies and medical school acquisitions. Moving to slide 10 for discussions of key metrics by business unit. Starting with the undergrad programs, operating medical seats increased. 56% year-over-year to 2,361 operating seats, reaching 16,000 students, reflecting medical seat alterations and acquisitions. In terms of total tuition fees for the nine-month period, we've reached R$1.4 billion, up from R$883 million from the prior year, an increase of 58%. Talking about revenue mix, 77% of these are derived from medical school students. The medical school average ticket for the nine-month period was 8,700 reais, a 7% growth compared to 8,100 reais ticket from the prior year. On the next page, I will present the continual education metrics. We saw a 37% decrease in continual education net revenues from 82 million reais to 52 million reais. This decrease was mainly driven by a reduction in the student base that has two main reasons. Practical problems that are not being offered since the first semester of 2020 due to the pandemic and physician decision to postpone admissions to specialization courses due to the COVID-19 pandemic. We expect a better performance next quarter due to October's intake process. Moving to slide 12, I will discuss the digital service operation metrics. On the first graph in the slide, you can see our active paying students per pillar. Those are the active payers that generate revenues. Combining all active paying users in the quarter, we've reached a number of 155,000 paying users. Content and technology for medical education grew 52% year over year. Clinical management tools reported 16,000 payers and clinical decision software base has almost 118,000 payers. These results reflected a strong increase of 91% in digital service net revenue since last year. The last graph on the page shows the monthly active users also per pillar. Once again, combining all users, we've reached a number of almost 250,000 students and physicians all over Brazil. This number represents more than 30% of all medical students and physicians in Brazil, as Virgílio said before. And now, moving to my last slide, I will discuss our cash and net debt position. Cash and cash equivalents in the end of the quarter were 1 billion reais. a position in line with 2020. At quarter end, net debt, totally 1.1 billion reais, compared with a net debt of 167 million reais in the year end of 2020. This increase was mainly due to the closing of M&A transactions, partially offset by the free cash flow generation. This ends our prepared remarks. I will now open the conference for the Q&A section. Thank you.