Afya Limited

Thank you for joining us for AFA's second quarter 2022 conference call. Today I'm here with AFA's CEO, Virgilio Gibon, and Luiz André Blanco, our CFO. During this presentation, our executives will make forward-looking statements. Forward-looking statements can be related to future events, future financial or operating performance, known and unknown risks, uncertainties and other factors that may cause AFIA's 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 the business and financial performance expectations and guidance for future periods or expectations regarding the company's strategic product initiatives, its 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 of the date hereof. You should not rely on them as predictions for 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. These measures are not intended to be considered in isolation or as a substitute of the results prepared in accordance with the IFRS. This presentation has reconciled these non-IFRS financial measures to the most directly comparable IFRS financial measures. Let me now turn the call over to Virgilio Gibon, AFIS CEO, starting with slide number three.

Thank you, Ana, and thanks everyone for joining us today. Before starting, I'd like to thank our IR team for the incredible work to prepare our second quarter release and to congratulate Renata Couto, our head of IR, for the birth of her first daughter, Maria, this month. For us in AFIA, this quarter results reinforce that our strategy has been successful, marked by the consistent growth of our operational and financial results. Once again, we are proud to present the strong execution of our unique business model, combining high growth, profitability, flowing in all lines and cash generation, proving its resilience. During this call, I will run through four main topics. Firstly, I'll present our financial operational highlights of the quarter, demonstrating our strong performance in all business units. Secondly, I will reinforce our 2022 disclosed guidance with expectation of another round of growth results on second half. Thirdly, I will highlight our business expansion, pointing out the opening of important new campuses and acquisitions. And last but not least, on our fourth topic, I will show how our commitment to everything we do is being well reflected through awards and public recognition. So moving now to page number four. Let's start with our quarter highlights. Adjusted net revenue increased 51% year over year, reaching 576.1 million reais. followed by an adjusted EBITDA growth of more than 37% over the year, reaching R$220.2 million, with a margin of 38.2%. One of the major highlights of the quarter is the net income growth, followed by a relevant jump on EPS. Net income reached R$106.1 million, a growth of more than 383% year-over-year, with an EPS of R$1.12, more than six times higher than last year. Even consider higher net debt level and the market interest rate level nowadays. This result reaffirms Avia's great operational results, capital allocation disciplines on buybacks and M&A, and efficient capital structure. We also reported another great cash flow generation, ending the semester with R$150 million, 31% higher than last year. Moving now to the operational updates of the quarter. Our undergrad medical students reached more than 17.5 thousand, representing a 31% growth compared to the same period last year. Approved seats grew by almost 20%, also during the same period. This result confirms our growth strategy that combines organic expansion with our capacity to acquire, consolidate, and integrate new seeds into the company's operation. In this quarter, we can gatherly see continued education taking off after the pandemic impacts on practical classes, presenting a strong revenue growth of more than 47% year-over-year. We will further explore the continued case expansion in the slides ahead. Also, we are happy to say that AFIA reported great results on digital health services revenue, which ended the quarter with an increase of almost 50% year-over-year and more than 20% excluding acquisitions, reverting the trend observed in the first quarter. This result is the first glance of the great opportunity ahead in digital service. And it explained by the strong ramp up on B2B engagements, which in more than 37 contracts with more than 20 pharmaceutical industry companies and the continuing ramp up on B2B contracts. Our ecosystem reaches almost 265,000 active users, a growth of 13.6% year over year. This represents around 35% of the Brazilian physicians and medical students market. Moving to slide number five, the conclusion of another medical students enrollment cycle, ensuring 100% of occupancy for the second half, added to the positive trend on continuing education and the recovery of digital service on this quarter, enable us to reaffirm our guidance for the entire year of 2022. This first half result shows that AFIA has achieved around 50% of adjusted net revenue and EBITDA median guidance. And it's moving fast to deliver another strong year of great operational performance. In the next slide, we'll talk about how our business expansion continues to skyrocket with relevant updates also in this quarter. After the opening of several new IPMED campuses, all of them in relevant capitals in Brazil, we can yet again highlight the successful start of four new Mais Médicos campuses, along with Jiparaná Medical School, and the opening of our brand new Unigran Rio campus, representing the new seeds for our highly unpredictable growth. Besides the significant accomplishments in undergrad and continuing education, it's important to point out another important achievement, the fulfillment of our six-pillar digital services strategy after our two last acquisitions, CardioPapers and Glee, both closed in May. These first half results added to recent investments reinforce AFIA's strategy of combining organic and inorganic expansion with a strong capital allocation discipline that will boost our long-term growth combined with profitability and cash generation. And now, moving to my last slide on this presentation, I will show how our commitment to everything we do is being well reflected throughout awards and public recognition. As a reflection of our great results and actions that are being shown to the market, We are proud to share that on the most recent Institution Investment Award, an independent survey of evaluation and market perception of investor relations programs regarding the Latin America executive team, we were very well placed and evaluated in several categories in the sector in which we operate, including best analyst day of our AFIA day, best IR program, best ESG program, among others. Another proudful announcement is AFIA's great results on 2022 Valor Inovação Brasil, on the education segment. We jumped from fifth place to second place this year, and considering all companies in the country, we are now listed in the 78th position. This result reflects AFIA's efforts to make innovation the central engine of a robust ecosystem that integrates the entire physician journey. You can find more information regarding these awards on the QR codes at the bottom of these slides. Now, I will turn the call over to Luis Blanco, AFES CFO, to give more color on the financial and operational metrics. Thank you.

Thank you, Virgílio, and good evening, everyone. Moving to slide number nine to discuss the financial highlights of the second quarter. is with much satisfaction that I presented another strong quarter results for AFIA. Adjusted net revenue for the quarter was up 51% year over year to 576 million reais, reflecting the maturation of medical seats, higher tickets in medicine courses, the continual education recovery, the digital service rebound, and the consolidations of acquisitions. It is important to mention that this quarter, the company recovered R22.1 million of the mandatory discounts on tuition fees, privileges granted by legal proceedings related to COVID-19. As in 2020 and 2021 excluded these mandatory discounts from adjusted net revenues, the recovery of these amounts is not counted for adjusted net revenues in 2022. For the six-month period, adjusted net revenue was 1,144 million reais, an increase of 46% over the same period last year. Adjusted EBITDA for this quarter increased 37% to R$220 million, while the adjusted EBITDA margin decreased 390 base points to 38.2%. For the six-month period, adjusted EBITDA was R$491 million, an increase of 33.3% over the same period of the prior year. with an adjusted EBITDA margin decrease of 410 base points in the same period. The adjusted EBITDA margin reduction is due to the digital segment, mostly in the performance of MedCell in the residency preparatory market, the expansion of the continuing education segment, which is still maturing the new campuses, and the increase in expenses in the holding and shared service level. Adjusted cash flow generation for the semester was more than 31% higher year over year, totally R$450 million, resulting in a strong cash conversion ratio of 91%. Adjusted net income for the second quarter of 2022 was R$119 million, an increase of 83% over the same period of the prior year. Net income results were positively affected by the increase in operation results and the reductions of financial expenses, mainly due to the FX rate difference regarding the SoftBank transactions that affected us in the second quarter of 2021. Moving to slide number 11 for discussions of key operational metrics by business units. Starting with the undergrad programs. our number of medical students grew 31% year over year, reaching more than 17.5 thousand students, with approved medical seats increasing almost 20% year over year to 2,759 approved seats. Considering additional organic and inorganic seed expectations, we expect to achieve more than 2,000 undergrad medical students at maturity. With our net average tickets increasing almost 9% year-over-year, we've reached 1,000 310 million of combined tuition fees, up from 843 million from the prior year, an increase of 55%. Regarding revenue mix, 77% of these are derived from medical school students and 90% from health-related courses. On the next page, I'll present our continual education metrics. As said before, we saw another quarterly great recovery in our continual educational segment, which reported the strong intake process, increasing the number of students by 8% year over year. In the quarter, net revenues grew almost 50% when compared to the same period of the prior year. This recovery is due to the better performance of IPMEDs, mailing related to the hump up of the new campuses, and the interruption of the effects of the COVID-19 pandemic. Moving to slide number 13, I will discuss the digital service operational metrics. On the first graph, you can see our total active payers, which are the ones that generate revenues in B2P. With a continuous growth trend so far in this quarter, we have reached 191,000 paying users. As you can see in the second graph, our ecosystem reached almost 265,000 monthly active users, representing around 35% of all medical students and physicians in Brazil as Virgílio previously said. And finally, on our last graph, we can see our digital service net revenues, which increased more than 50% year over year and more than 20% excluding acquisitions. This organic growth is the combination of the start of the B2B engagements and the expansions of the active payers in the B2P mailing in Whitebook and iClinic. In addition, since last quarter, we started to break down our digital service net revenues within B2P and B2B segments. So from the 42 million reais of digital service net revenues in the second quarter, almost 38 million reais came from B2P and more than 4 million reais came from B2P since the B2B strategy is still in the beginning. And now, moving to my last two slides, I will discuss our cash and net debt positions, also giving more color on our cost of debts. Cash and cash equivalents at the end of the quarter were 616 million reais. Net debt totally 1,483 million reais compared to a net debt of 583 million reais in the same period in 2021. The increase year-over-year was mainly due to seven business combinations and life acquisitions executed during the last 12-month period. Payment related to the shares repurchase programs and investments activities, partially offset by our strong cash flow generation. On the next slide, you can see a table with a breakdown of our gross debts and our average cost of debt, considering our main sources of debts. Soft bank transactions, other loans and financings, and account payables to selling shareholders. Our capital structure remains solid with a conservative leverage positions and low cost of tax. This ends our prepared remarks. I will now open the conference for Q&A section. Thank you.