Afya Limited

Good night, everyone. Thank you for joining us for AFIA's first quarter 2023 conference call. I'm here today with AFIA's CEO, Vigílio Gibon, and Luís André Blanco, our CFO. During today's 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 any remaining 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 of future events and we disclaim any obligation to update and 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 an isolation or a substitute of the results prepared in accordance with IFRS. This presentation has reconciled these non-IFRS financial measures to the most directly comparable IFRS financial measures. Now let me turn the call over to Virgílio Gibon, FSEO, starting with slide number three.

Thank you, Renata, and thanks everyone for joining us today on our first conference call related to 2023 results. We proudly present our first quarter of 2023, showing another great start for the year ahead. Since our IPO, AFE's top line has grown more than three times, improving the resilience and differentials of our businesses. In this quarter, once again, our net revenue has jumped 25% over last year. During this presentation, I will first run through some main strategic topics, such as our performance highlights, the successful business execution within our three segments, this year's guidance, some recent awards recognition, and at the end, Luis Blanco will explore our financial and operational overview. So moving now to page number four. Let's start with our performance highlights. First, adjusted net revenue increased 25%, reaching R$709.4 million, followed by an adjusted bidai growth of almost 22% year-over-year, reaching R$330.2 million, with a margin of 46.5%. We also reported a strong cash flow generation again of R$349.4 million, an increase of 19% year-over-year, boosted by the solid operational results of the company with a cash conversion of 112% and a solid cash position of R$723 million at the end of the quarter. Adjusted net income was R$166.4 million, in line with the same period last year, mainly due to the higher financial expense related to the new debenture issued in December 2022 and higher interest rate in the market. Moving to our operational updates of the quarter, we have reached 3,113 operating seats, an increase of over 25.5% over the first quarter of 2022. with the beginning of four Mais Médicos campuses, along with new seats in Jiparaná and Itabona, and also the acquisition of Unite Alagoas and FITS. In addition, our number of undergrad medical students has reached almost 21,000, representing 18.8% growth compared to the first quarter of the previous year. We also saw great results in net revenues, For our continued education business, the segment grew more than 46.6% year-over-year, representing a net revenue of R$34.9 million in the first quarter. The digital health services reported great results as well, with revenue increase of almost 20% in the comparison of first quarter 2022 and in the quarter with net revenue of R$56.8 million. The result reinforced the opportunity I had in the digital services and it explained by the ramp up on B2B engagements with new contracts with the pharmaceutical industry companies and the continuous ramp up in B2B contracts, as we will discuss further on. Lastly, our ecosystem has 295,000 active users, representing a great penetration among physicians and medical students in Brazil. In the next slide, we'll talk about our solid business execution within our three business units. Starting with the undergrad segment, we saw important movements throughout the quarter, such as higher tickets in medicine course with more than 8% increase of medicine tuition, the maturation of medical seats, the beginning of four new Mais Médicos campuses in 2022, the consolidation of unit and fee acquisitions, and the consolidation of 92 new medical seats, 28 in Uni São Lucas de Paraná, located in Rondônia, and 64 additional seats in Faculdade Santo Agostinho in the city of Itabuna. This movement is part of our strategy to add 600 new medical seats on our current operation by 2028. We are delighted to see of revenue came from our continued education segment, with a robust intake process, six new campuses, and course maturation. On our digital services segment, we ended the quarter with a revenue increase of 20% when compared to last year. This results in reinforcing the opportunity I had in digital services, and it is explained by the ramp-up in the B2B engagements, with new contracts with pharmaceutical industry companies and the continuous ramp-up in B2B contracts. And now I will turn the call over to Luiz Blanco, AFIA's CFO, to give more call on the financial operation metrics. Thank you.

Thank you, Virgílio, and good evening, everyone. Starting with slide number seven to discuss the financial highlights of the first quarter. With much satisfaction, I presented another strong quarter results for AFIA. Adjusted net revenue for the first quarter of 2023 was R$709 million, an increase of 25% over the same period of the prior year, meaning due to higher tickets in medicine courses by more than 8.3%, maturations of medical seats, the beginning of four-month medical campuses, the big business combinations with UNITA Lagoas and FIT Xabuatão, the strong continuing educational segment performance, and the great results of the digital service. First quarter 2023, adjusted EBITDA increased 21.9% to R$330 million. with an adjusted EBITDA margin of 46.5%, a decrease of 120 basis points when compared to the first quarter of 2022. The adjusted EBITDA margins reduction in this quarter is mainly due to the following. Consolidations of four new March Medicus campuses. Operations started on the third quarter of 2022. Units and features which are performing better than expected, but still present lower margins when compared to their integrated companies. And digital segments, primarily due to match cell performance. Moving to the next slide. Adjusted cash flow generations over the year was almost 20% higher quarter over quarter, totaling R$349 million, boosted by the solid operation results. Operating cash flow ratio was 112% for the first quarter of 2023, compared to 113% in the first quarter of 2022. Adjusted net income for the first quarter of 2023 was R$167 million, in line with the same period from the previous year, made into the higher financial expenses related to UNICH and FITS acquisitions and higher interest rates. Our adjusted EPS for the quarter reached R$1.77, the same when compared to the first quarter of 2022. Our EPS performance reflected the decrease in our net income that was compensated by capital allocation discipline executing buyback programs. Moving to slide number nine for discussions of key operational metrics by business unit. Our number of medical students grew 19% over the first quarter of 2023. reaching 20.8 thousand students, with operating medical seats increasing 25%, due to the encompass of 632 medical seats related to Formais Médicos and de Paraná Itabuna seats increase, UNITE Alagoas and FITS Jaboatão acquisition as previously said. Therefore, We've reached 3,163 approved seats and expect to achieve almost 23,000 undergrad medical students at maturity. Our net average ticket excluding acquisitions increased by 8.3% over the same period last year, reaching 8,570 reais in the first quarter 2023. compared to 7,861 in first quarter 2022. The last graph shows a 24% growth in combined tuition fees, reaching 806 million reais, up from 649 million reais from the first quarter 2022, 78% of which are related to medicine courses. All these efforts means one thing, our medical educational business remains and will continue to be the cornerstone of our business in the short and the middle terms, delivering high predictable growth, combined with solid profitability and cash generation. On the next page, I will present our continual educational metrics. As said before, we saw another year of great recovery in our continual educational segments. with an increase of more than 37% in the number of students compared to the same quarter last year, reaching 4,774 students. In addition, for the quarter, net revenues grew 47% when compared to the first quarter 2022. This recovery is mainly due to the robust intake process and course maturation. Moving to slide number 11, 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 business to physicians, B2P. With a continuous growth trend, we've reached 218,000 paying users, a 24% growth compared to the same period last year. As you can see in the second graph, our ecosystem grew 13.6% compared to the previous year, achieving 295,000 monthly active users, representing almost 40% of all medical students and physicians in Brazil. Finally, on our last graph, we can see our digital service net revenue. which increased more than 90% when compared to the same quarter of the last year, reaching 56.8 million reais. With the breakdown, our digital service net revenue within B2P and B2B segments, which accounted for more than 46 million reais coming from B2P and more than 10 million reais coming from B2B, since B2B strategy is still humping up, representing a growth of 62% compared to the prior year. And now, moving to my three 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 first quarter were 723 million reais, a decrease of 8% over March 2022 and 34% when compared to the fourth quarter of 2022. meaning to the new debentures issues during the fourth quarter that was used to fund the down payment of units Alagoas and FIT Xabuatão acquisitions in January. On the next page, we can look closely to the net debt variation. In the first quarter, 2023, net debts totally, 2 billion and 29 million reais, an increase of 648 million reais when compared to the fourth quarter 2022, meaning to the 825 million UNITA, Lagoas and Fitch-Chabuatão acquisitions, which was partially offset by 177 million reais of free cash flow generations in the first quarter of 2023. On the next slide, you can see a table with the breakdown of our grass debt and the total cost of our debt, considering our main source of debts, the SoftBank transactions, debentures, account payables to selling shareholders, and other financial obligations. This ends our prepared remarks. Strong performance, consistent growth, and success in all segments. We are committed to provide an ecosystem that integrates educational and digital solutions for the entire medical journey, enhancing the development, updating assertiveness and productivity of health professionals. We are very proud of our business and what we have achieved so far and excited about what we plan for the future. I will now open the conference for Q&A session. Thank you.