Afya Limited

a little bit about Bertelsmann's transaction and AFIA's change of control. And last but not least, on our fourth topic, I will present our financial highlights of the quarter, demonstrate our solid performance. So moving now to page number four. On our last Investor and ESG Day, presented to you on April 7, we discussed what makes AFIA unique. where are we heading to, how we are building the future, what sustains our strategy, both on the education and digital services segments, and our ESG accomplishments and expectations for the future. Inside these topics, we can highlight, first, our digital services ramp up with the expansion of our ecosystem and implementation of our B2P and B2B strategies. doubling our addressable market with AFTA Digital Health. Second, our business resilience, which is guarded by high medical education demands, pricing power, and industry barriers to entry. And third, our ESG evolution, bringing up relevant points successfully performed, such as the adoption of clean energy, social impact in vulnerable areas, and embedded governance and ESG culture in the company. In case you have missed the event, please feel free to check it out on our IR website page. In there, you'll find all this information and much more. Also, our 2021 Annual Sustainability Report is now available for all of you to check it out. This is our third edition of the report, and we are very proud of our achievement so far. We have consolidated our leadership position in medicine and continue our inroads into the digital medical service segment, which is consistent with our proposal to be the physician partner in all stages of the academic training and professional journey. This strategy, which guides our business as well as its unfolding, is detailed in the report, along with the results achieved from our operations. In it, we have also gathered information on our management structure and ESG practices, in addition to the social environment impacts we produce through our operation. We encourage you to join in the reading. Moving to slide number five, as presented on our last results conference call, the resilience and high predictability of our business model enable us to introduce our new guidance for the entire year of 2022, taking into account the successfully concluded acceptance of new medical students, insurance, once again, 100% of occupancy for the year of 2022 in all of its medical schools, and also the recovery of continued education sector. Net revenue is expected to be between R$2,280,000,000 and R$2,360,000,000. And adjusted EBITDA is expected to be between R$935,000,000 and R$1,050,000,000 for 2022, excluding any acquisition that may be concluded after the issuance of these guidance. This figure is showing another strong year ahead and represents an incredible operational growth of more than three times when compared to AFIA's results in 2019, when we became a public comment almost three years ago. In the next slide, we will talk about this important equity operation, even though it happened after the quarter. This month, we announced the closing of the transaction where Bertelsmann, which has been a relevant partner since 2016, acquired 6 million Class B shares of AFIA from the state's family. As a result of the closing of this transaction, Bertelsmann and Steves family will beneficially own approximately 57.5% and 33.1% of the voting interest and 31% and 17.9% of the total shares, respectively, in AFIA. As previously said, we are delighted that Bertelsmann, one of the world's leading media companies with a significant footprint in the education sector, has evidenced its commitments to Africa's long-term strategy through its evaluation of increasing its stake. Also, we reinforce that we will continue to benefit from the vision and commitment of Estev's family with their significant shareholding and active participation in our company. And now, moving to my last two slides on this presentation, I will show our financial highlights for the first quarter, along with the first session takeaways. As I said at the beginning of this call, we have started 2022 with above-the-expectation results. Adjusted net revenue increased 41% year-over-year, reaching R$567.7 million, followed by an adjusted EBITDA growth of more than 30% year-over-year, reaching R$270.8 million, with a margin of 47.7%. One of the highlights of this quarter is the growth in earnings per share, reaching R$1.42 per share, more than 22% above last year. Even consider a higher net debt level and market interest rate. This result reaffirms our great operational results, capital allocation discipline on buybacks and M&A, and efficient capital structure. We also reported another great adjust operating cash flow generation, ending the quarter with 293.6 million reais, 51% higher than last year. We confirm our tripod of strong growth, profitability, and cash generation. Moving now to the operational updates of the quarter, our undergrad medical students reached more than 70.5 thousand students, representing a 36% growth compared to the same period last year. Approved seats grew 29%, also in the same period. This result confirms our growth strategy that combines organic expansion to our capacity to acquire, consolidate and integrate new seats to our operation. In this quarter, we can gladly see continued educational recovery after the pandemic impacts on practical classes, present a strong revenue growth of 24% year-over-year. On the digital service highlight, we ended the quarter with 47.5 million reais and our ecosystem reached 260,000 active users, a growth of 17% year over year. This represents more than 33% of the Brazilian market of physicians. To summarize all I said so far on the next slide, after predictable strong growth, high profitability, and cash generation are related to high and resilient demand, continuous pricing power, margin expansion, and M&A expertise. After first quarter 2022, even considering the adverse macro scenario, we are already targeting the top of 2022 guidance and expecting another round of solid results with continued education taking off and a huge upside on our Blue Ocean Digital Health Services opportunity. I will now turn the call over to Luis Blanco, our CFO, to give more call on the financial and operational metrics.

Thank you. Thank you, Virgilio, and good evening, everyone. Moving to slide 10 to discuss the financial highlights of the first quarter. It is with a lot of satisfaction that I presented another strong quarter results for AFIA. Adjusted net revenue for the quarter was up 41% year over year to 568 million reais, reflecting the maturation of medical seats Increase in the average ticket of medical programs and consolidations of acquisitions of medical schools and digital service. Also important to mention, the continual education recovery, which I will give more color further on. and the adjustment of 1.4 million reais in discounts in tuition fees granted by individual, collective, legal, and public proceedings related to COVID-19 mostly ceased in December due to the Supreme Court decision. Adjusted EBITDA for the quarter was up more than 30% year over year to 271 million reais. while adjusted EBITDA margin decreased 390 base points to 47.7%, meaning to the consolidations of acquisitions with lower EBITDA margins and the decrease in MedCell, mainly due to high competition in residency preparatory markets. Adjusted cash flow generations has been shown quarter after quarter growth. And in this one, the increase was of 51% year over year to 294 million reais, which resulted in a cash conversions ratio of 113% compared to 103% in the same period of 2021. adjusted net income for the quarter was 167 million reais, 4.5% higher than the same period of the prior year. The gap improvements between net income and adjusted net income in this quarter was mainly related to the decreases of 40 and 79% in non-recurring expenses and in share-based compensation expenses. Moving to slide 11 for discussions of key operational metrics by business unit. Starting with the undergrad programs. Our number of medical students grew 36% year over year, reaching more than 17.5 thousand students. With approved medical seats increased 29% year over year to 2,759 approved seats. Considering additional organic and inorganic seeds expectations, we have an upside to achieve more than 32,000 undergrad medical students at maturity. The medical school net average ticket for the year, excluding acquisitions, was 7.9 thousand reais. and 8% growth compared to R$ 7,300 from the prior year. In terms of total tuition fees for the quarter, we've reached R$ 649 million, up from R$ 418 million from the prior year, an increase of 55%. Talking about revenue mix, 77% of these are derivative from medical school students and 89% from health-related courses. Present continuing education metrics. In this quarter, we saw a great recovery in our continuing education segments, which reported a strong intake process, increasing the number of students by 9% quarter over quarter. despite the decrease of 6% year-over-year. Net revenues increased 24% when compared to the same period of the prior year. This recovery was especially due to better performance of e-payments, mainly related to the interruption of the effects of COVID-19 pandemic. Moving to slide number 13, I will discuss the digital service operation metrics. On the first graph in the slides, you can see the total active payers, which are the ones that generate revenues in B2P. So far in this quarter, we have reached a number of 176,000 paying users, a 26% growth year over year. Our ecosystem reached 260,000 monthly active users this quarter, 17% higher than the same period of the prior year, representing more than 33% of all medical students and physicians in Brazil, as Virgilio said before. Digital service net revenue decreased 11% due to a lower performance of MedCell in this quarter. which was caused by higher competition in the residence prep markets, as I said before. Also, from now on, since we have disclosed our B2P and B2B strategy expectations, we will start to break down our digital service net revenue within these two, as you can see on the last graph. So from the 47 million reais of the digital service net revenue, 41 million reais came from the B2P and 6 million reais came from the B2B, once the B2B strategy is still in the beginning. Moving to the next slide. Speaking of our digital service strategy, we have exciting news to share with you today. In addition to Alenda Medicina and casual papers, we are proud to announce another business combination, our third of 2022. Gleek, a free diabetes care and management app solutions for physicians and patients that use technology to improve diabetes education and daily routine practice, connecting users, devices, and healthcare providers. With these acquisitions, we will add 1.1 thousand active physicians in our ecosystem and monitor more than 90,000 patients. This business combination represents AFIA's entry into physician-patient relationship pillar and further strengthens our strategy and ecosystem. All information related to Gleek's acquisitions is now available in our IR website and can be accessed through this QR code. And now, moving to my two last slides, I will discuss our cash and net debt positions, also giving more color on our cost of debt. Cash and cash equivalents at the end of the quarter were 789 million reais, a decrease of 18% compared to the same periods in the prior year. Net debt totally 1.4 billion reais compared with a net debt of 230 million reais in the first quarter of 2021. This increase was mainly due to nine business combinations and license acquisitions executed during this 12-month period. and payments related to shares repurchase programs, partially offset by free cash flow generation. On the next slide, you can see a table with breakdown of our gross debts and our average cost of debt. Consider our main debts, the soft-bank transactions, lowers in finance, and accounts payable to selling shareholders. This ends our prepared remarks. I will now open the conference for Q&A section. Thank you.

So if you want to ask a question, please raise your hand and we'll call you. The first question comes from Cepeda from Credit Suisse. Cepeda, you may now go.