Afya Limited

Thank you for joining us for AFIA's third quarter 2022 conference call. Today I'm here with AFIA's CEO, Virgílio de Bom, and Luiz André Blanco, our CFO. During this presentation, our executives will make four 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. Part-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 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 these results prepared in accordance with 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 Virgílio Ribon, AFIA CEO, starting with slide number three.

Thank you, Ana, and thanks everyone for joining us today. As we approach the end of the year, we can see AFE delivering strong results at GWEN. as I will show you throughout this presentation. So moving now to page number four, let's start with our quarter highlights. Adjusted net revenue increased 25% year-over-year, reaching R$580.2 million, followed by an adjusted BIDAC growth of more than 19% year-over-year, reaching R$228.7 million, with a margin of 39.4%. This lower EBITDA margin, about 190 BIPs below last year, reflects our effort to develop our new growth avenues in continuing education and digital health services. It's worth mentioning that both segments are accelerating the growth pace quarter by quarter and reached 72% and 59% of top-line growth in Q3 over the same period last year. Net income followed the same positive trend of last quarter and reached R$ 321.4 million, a growth of 66.3% year-over-year, with an EPS of R$ 3.39, more than 77% higher than last year, even considering a higher net debt level and the market interest rate level. These results reflect AFIA's great capital allocation discipline on buybacks and M&A in an efficient capital structure. We also reported another great cash flow generation, ended the nine-month period with R$743.8 million, 34% higher than last year, with a cash conversion of 104.6%. Moving to the second row, to our operational updates of the quarter, we have now reached 2.7 thousand medical seats, with the beginning of the four mais médicos operations along with Giparaná campus, an increase of almost 15% year-over-year. Our number of undergrad medical students has reached almost 18 thousand, representing a 13% growth compared to the same period last year. In the continued education segment, we can gladly see another great recover after the pandemic impacts on practical classes, as the business unit has presented a strong organic revenue growth of more than 72% over last year. Once again, AFIA reported great results on the digital health services revenue, which ended the quarter with an increase of more than 59% year-over-year and more than 30% excluding acquisitions, reaching almost R$45 million in the three-month period. The result reinforced the great opportunity ahead in digital services, and it expanded by the strong ramp-up on B2B engagements with new contracts with the pharmaceutical industry companies and the continuous ramp-up on business-to-physician contracts. Last but not least, our ecosystem reached 286,000 active users, a growth of almost 16% over last year. This represents almost 40% of the Brazilian physicians and medical students market. Moving now to slide number five, The successfully concluded acceptance of new medical students for the second half, ensuring 100% occupancy normal of its medical schools, added to the positive trend on the continued education recovery and the growth in digital services, enabled us to reaffirm our previous issue of guidance for the entire year of 2022. In the next slide, we'll talk about how our business execution remains solid, presenting relevant updates within AFIA's three segments. As previously said, beginning this quarter, we have four News Mais Médicos operations, Abaitetuba, Bragança, Itacoatiara, and Manacapuru, along with Uni São Lucas de Paraná campus, all of them combining totally 228 new medical seats to our portfolio. We have reached an impressive number of 2.7 thousand medical operating seats, strengthening our consolidation as the medical undergrad leader in Brazil. Back in the third quarter of 2021, we were hoping to see the pandemic lose its strength. Now, in 2022, we can finally see our students, employees and partners extracting the best from our ecosystem again. After the opening of six new continued education campuses, we can see for the third time this year an incredible recovery compared to last year, with strong intake processes, new courses being launched, and our practical classes boosting again. On our digital services segment, we are proud to see our tools being able to assist physicians during their medical journey, as, at the same time, we continue to further explore the development of our ecosystem, unlocking new interactions and revenue streams to go beyond the physicians, achieving pharma players, hospitals, labs, and drugstore chains. Proof of that is the engagement on the B2B strategy growth, once we have reached, so far, 61 contracts with 40 different pharmaceutical industry companies. 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 for the third time in a row, we have won the Anuário Época Negócios 360 award as the best company in the education segment. And along with that, we are also ranked as the top 50 company engaged with an open innovation in the country. We are very proud of these achievements as they are the recognition of the work and passion of our more than 9,000 employees around a unique vision to transform health together with those who have medicine as a vocation. We can find more information regarding these awards on the QR codes at the bottom of the slide. And now I'll turn the call over to Luis Blanco, AFIA's CFO, to give more color on the financial and operational metrics. Thank you.

Thank you, Virgílio, and good evening, everyone. Starting with slide number nine to discuss the financial highlights of the third quarter. It is with much satisfaction that I presented another strong quarter results for AFIA. Adjusted net revenue for the quarter was up 25% year-over-year to R$ 580 million, reflecting the maturations of medical seats and the beginning of the Formais Médicos and de Paraná operations, higher tickets in medicine courses, and the continual education recovery, mainly due to the interruption of the effects of the COVID-19 pandemic. the opening of six new campuses in important capitals of the country, and new courses launching. Once again, the digital segments has also contributed to the revenue growth this quarter, with the increasing of the B2B engagements and the active payers' expansions in the B2P. For the 9-month period, adjusted net revenue was R$ 1,724 million, an increase of 38% over the same period of last year. Adjusted EBITDA for this quarter increased almost 20% to R$ 229 million, while adjusted EBITDA margins decreased 190 base points to 39.4%. For the nine-month period, adjusted EBITDA was 720 million reais, an increase of 29% over the same period of the prior year, with an adjusted EBITDA margin decrease of 320 base points in the same period. The adjusted EBITDA margins reduction is mainly due to the digital segment, mostly in the performance of MedCell in the residency preparatory markets, 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. Important to highlight the growth in gross profit for continuing education and digital segments in this quarter. reverting the trend observed in the last year. Moving to the next slide, adjusted cash flow generations for the nine-month period was almost 34% higher year-over-year, totaling R$744 million, resulting in a strong cash conversions ratio of 105%. Adjusted net income for the third quarter of 2022 was R$120 million, an increase of 3% over the same period of the prior year. The third quarter EPS increased by 47% year-over-year and was positively affected by the increase in the operation results the decrease of the non-recurring expenses by almost 63% and the execution of the previous buyback programs. Moving to slide number 11 for discussions of key operational metrics by business unit. Starting with the undergrad programs. our number of medical students grew 13% year-over-year, reaching 18,000 students with operational medical seats increasing 15% year-over-year. Due to the encompass of 228 medical seats related to the Formais Médicos and de Paraná campuses as previously said, Considering our organic and inorganic seeds expectations, we expect to achieve more than 32,000 undergrad medical students at maturity. With our net average tickets increasing more than 9% year over year, we have reached R$ 1,978 million of combined tuition fees, up from R$ 1,406 million from the prior year, an increase of 41%. Regarding revenue mix, 77% of these derived from medical school students and 90% from health-related courses. On the next page, I will present our continual education metrics. As said before, we saw another quarterly great recovery in our continual educational segment, with an increase of more than 42% in the number of students compared to last year, reaching 4,036 students, getting closer to the 2020 figures again. In the quarter, net revenues for the segment grew 72%, when compared to the same period of the prior year. This recovery is mainly due to the interruptions of the effects of the COVID-19 pandemic, the opening of six new campuses in important capitals of the country, and new courses launching, as explained before. 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 those ones that generate revenues in B2P. With a continuous growth trend in this quarter, we have reached 190,000 paying users, a 23% growth compared to the last year. As you can see in the second graph, our ecosystem reached 286,000 monthly active users, representing almost 40% of all medical students and physicians in Brazil, as Virgílio said before. Finally, on our last graph, we can see our digital service net revenues for the quarter. which increased more than 59% year-over-year and more than 30% excluding acquisitions. This organic growth is a combination of the start of the B2B engagements, reaching 61 contracts with 40 different pharmaceutical industry companies, and the expansion of the active payers in B2P, mainly in White Book and iClinic. In addition, since the beginning of the year, we started to break down our digital service net revenue within B2P and B2B segments. So, of almost 45 million of the digital service net revenue in the third quarter, more than 38 million come from the B2P and more than 6 million come from the B2B, since the B2B strategy is still humping up. And now moving to my two last slides, I will discuss our cash and net bet position, also giving more color on our cost of debt. Cash and cash equivalents at the end of the quarter were 716 million reais. net debt excluding IFRS 16, totally R$ 1,348 million, compared to the net debt of R$ 1,109 million in the same period of 2021. The increase year-over-year was mainly due to six business combinations and license acquisitions executed during the last 12-month period, payment related to the share repurchase program, investment activities, and net financial results for the last 12 months, all partially offset by our cash flow generation. On the next slide, you can see a table with the breakdown of our gross debt and our total cost of debt, considering our main debts, the SoftBank transaction, other lowers in finance, and account payables to selling shareholders plus other financial obligations. Our capital structure remains solid with a conservative leverage positions and a low cost of debt. This ends our prepared remarks. As we approach the end of the year, even considering the challenging economic and political scenario, we can gladly see AFIA delivering strong results, with a quarter marked by significant increase in net revenues in our three segments. positive EBITDA cash generations and EPS growth, and a consistent business expansion. I will now open the conference for the Q&A session. Thank you.