Afya Limited

Good night, everyone, and thank you for joining us for AFIA's fourth quarter and full year 2023 conference call. Today, I'm here with AFIA's CEO, Virgílio 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 AFIS 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 the business and financial performance, expectations and guidance for future periods, our expectations regarding the company's strategic product initiatives, its related benefits, and our expectations regarding the market. These risks include those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in these presentations 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 no 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 IFRS. This presentation has reconciled those no IFRS financial measures to the most directly comparable IFRS financial measures. Let me now turn the call over to Virgílio Vigibon, AFSCIO.

Thank you, Renata, and welcome to our final conference call of 2022. We are excited to present another year of exceptional operational and financial performance for AFIA. Once again, we have demonstrated the resilience of our business, the successful implementation of our strategy, and the reliability of our business model. In this presentation, I will cover key strategic topics, including our performance highlights, the successful business execution across our three segments, guidance for 2023, and the new goals for 2024. And finally, Luis Blanco will provide an in-depth look at our financial and operational performance. Now turning to page number three, Let's begin by highlighting our performance achievements. Initially, our adjusted net revenue increased by 24%, reaching R$2,874,000,000, accompanied by a growth of an adjusted EBITDA of over 21% year-over-year, reaching R$1,166,000,000, with a margin of 40.6%. Furthermore, we are pleased to report a record on cash flow generation from operating activities, concluding the year with R$1,089,000,000, reflecting a 24% increase compared to the previous year, with a cash conversion rate of 97%, which is 270 bps better than the previous year. With consistent momentum throughout the year, our Just Net Income reached R$591 million in 2023, marking over 10% growth year-over-year with an EPS of R$6.37, a remarkable 12% increase compared to the previous year. This underscores our disciplined capital allocation on buyback programs, M&A, and an efficient capital structure. Transition to our operational updates for the year, we have expanded to 3,113 operating seats, witnessing an year-over-year increase of over 12%, facilitated by the acquisition of Uniman and Faculdade de Ciências Médicas Jaboatão in January of 2022. In addition, our number of undergrad medical students has reached more than 21,000, representing a 19% growth compared to 2022. Additionally, we are delighted to report significant growth in net revenue for our continued education segment, which expanded by more than 35% year-on-year, organically reaching a net revenue of R$ 147 million. Our digital health services revenue marked another great result with a 21% increase compared to 2022, pure organically, reaching a net revenue of R$ 229 million. This outcome underscores the vast opportunity in digital services, driven by the ramp-up in B2B engagements, securing new contracts with pharmaceutical industry companies, and the continuous expansion in B2B contracts. Lastly, our ecosystem has 268,000 active users, exemplifying substantial penetration among physicians and medical students in Brazil. In the next slide, we will discuss our robust business performance across our three business segments. Beginning with our core business, the undergrad segment, we observed significant growth in the net average tickets of medicine, represented a growth of 8.2% over last year. The completeness of UNIMA and Faculdade de Ciências Médicas de Jaboatão integration process in November, less than one year after its acquisition, proving our commitment to extract synergies within the operation. We are pleased to note that the most substantial revenue growth of the year came from our continued education segment. With a robust intake process, three new campuses, and cross-maturation, we can see once more our students, employees, and partners benefit from our constantly developed ecosystem. On our digital service segment, we take pride in our two assistant physicians throughout their medical journey. Concurrently, we are expanding our ecosystem to facilitate new interactions and revenue streams beyond physicians, including engagements with pharmaceutical players, hospitals, labs, and drugstore chains. Evidence of this expansion is seen in the growth of our B2B strategy. fortifying our market presence and extending our reach. Consequently, we achieved a 64% year-over-year growth in our B2B revenues. Transition to slide number five, we will explore how the company's financial results reaffirm the resilience and predictability of our business model. AFES 2023 adjusted net revenue was almost four times higher than in 2019, the year of our IPO. reaching R$2,874,000,000 surpassing our mid-guidance for 2023. Furthermore, 2023 adjusted EBITDA was R$1,166,000,000, followed by an adjusted EBITDA margin of 40.6%, also surpassing our mid-guidance of R$1,150,000,000 for EBITDA. Moreover, our EPS has more than doubled since 2019. Underscore our capacity to combine organic and inorganic growth with stringent capital allocation discipline, thereby delivering significant returns to our shareholders. We are pleased to introduce our new guidance for 2024, which considers the successful acceptance of new medical students, ensuring 100% of occupancy in all of our medical schools. Given these factors, the guidance for 2024 is as follows. Net revenue is expected to range between R$3,150,000,000 and R$3,250,000,000, while adjusted EBITDA is anticipated to be between R$1,300,000,000 and R$1,400,000,000, excluding any acquisition that may be concluded after the issuance of this guidance. Once again, we are guiding another strong round ahead, improving AFA's resilience and ability to keep delivering solid results with a high predictability. Now let's move to slide number six. Furthermore, in addition to the guidance we provided earlier, we are excited to share our first CAPEX guidance. Shown in the chart, our CAPEX for 2024 expects to be between 220 million and 260 million reais. It's important to note that 2024 CAPEX guidance does not compact the earn-out payments in the amount of 49.6 million reais related to the 46 increase at Faculdades Integradas Padrão PIP Iguanambi. And the CAPEX presented disregards any additional license and goodwill. This slide number seven, we will check our ESD initiatives. Our company's dedication to sustainability and environmental care is exemplified by our remarkable achievements. Annually, our photovoltaic bands contribute to 6,341 megawatts-hour units of power generation capacity, showcasing our significant investment in renewable energy. Additionally, 16 education institutions now have installed photovoltaic plants, reflecting our commitment beyond corporate boundaries. Notably, this integration of sustainable energy source has enabled 100% of our educational operations to operate completely free from greenhouse gas emissions associated with electricity consumption. These accomplishments highlight our commitment to creating a greener, more sustainable future that impacts our stakeholders and investors. With 9,680 employees, our workforce represents diversity and inclusion at its core, highlighting our commitment to promote equality and opportunities for minority communities. Additionally, 58% of our workforce consists of male employees, reflecting our dedication to gender diversity and empowerment in the workplace. Also, 45% of leadership roles in our company are held by women, reflecting a growth of over 4 percentage points over last year. This is reinforced by our public commitment to have, by 2030, 50% of our leadership team occupied by women. In our governance structure, we prioritize transparency, accountability, and equality in the decision-making process. AFIA has 36% of our board of directors composed by women. More than 36% of our board members are independent, ensuring diverse viewpoints and fair oversight. Our dedication to health reaches far beyond our organization, extending to the communities we serve. Since 2019, we have offered 2 million free clinical consultations, striving to enhance healthcare accessibility for everyone. By 2023, our programs will have graduated over 20,000 physicians, enriching healthcare services within our communities. Furthermore, our platform provides over 32 million medical access points to help in decision-making for medical management. In conclusion, these achievements resonate profoundly with our stakeholders and investors, reflecting our comprehensive approach to responsible business practices. Now I'll turn the call over to Luis Blanco, AFIA CFO, to give more color into our financial operational metrics. Thank you.

Thank you, Virgílio, and good evening, everyone. Slide number nine will now guide us through the discussions of the financial highlights of the fourth quarter. With great pleasure, I present another strong quarterly results for AFIA. Adjusted net revenue for the fourth quarter of 2023 reaches 730 million reais, marking a 23% increase compared to the same period of the prior year. Furthermore, in 2023, adjusted net revenue reached 2,874 million reais, reflecting a 24% surge over 2022. This growth trajectory can be attributed primarily to higher tickets in medicine course, maturations of medical seats, the acquisitions of Unima and FCM Jaboatão, the continual educational segment growth, and digital service performance. Adjusted EBITDA for the fourth quarter of 2023 saw a 19% increase, reaching R289 million, with an adjusted EBITDA margin of 39.6%. For the full year, adjusted EBITDA amounted to 1,166 million reais, reflecting a 21% increase with an adjusted EBITDA margin of 40.6%, representing a marginal decrease of 90 base points compared to 2022. These reductions can be attributed to factors such mix of net revenue with higher participations of continuing educational segments, and launch of four Miles Medical Campus in the third quarter of 2022 that are still in early stage of maturation. However, in each semester, until full maturation, revenues will increase, offsetting the impacts of the fixed costs of the operation. Transitioning to the next slide. adjusted cash flow generation witness a 24 year over year increase totally a thousand in 89 million for 2023 the operational cash conversion ratio stood at 97 for 2023 270 beeps above 2022 It is important to highlight that 1 of our differentiation is our cash flow from operational activities. Adjusted net income for the 4th quarter of 2023 amounted to. 164,000,000, marking a 28% increase over 2022. For the full year, adjusted net income reached 591 million reais, reflecting 11% year-over-year increase. Our adjusted EPS witnessed a robust expansion with 28% growth for the quarter, reaching 6.37 reais for the year, reflecting an 11% increase year-over-year. This performance underscores the growth in our net income and discipline capital allocation through business combination. Transactions to slide number 11 for discussions of key operational metrics by business units. Beginning with the undergrad programs. Our number of medical students witnessed a 19% year-over-year growth, reaching more than 21,000 students, with approved medical seats increasing by 12%, primarily driven by the acquisitions and maturations of 340 seats in UNIMA in the beginning of 2023. Therefore, considering the authorizations by the Ministry of Education of 40 additional medical seats of Faculdades Integradas Padrão in the city of Guanabí, located in the state of Bahia, AFIA reaches 100 medical seats on these campuses and 3,203 approved seats as of today. With our net average tickets increasing over 8% year-over-year, reaching R8,548, compared to R7,898 in 2022. The last graph illustrates a 24% growth in combined tuition fees. reaching 3,267 million reais, up from 2,635 million reais from the prior year, 79% of which are related to medicine. This demonstrates that 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 following page, I will present our continuing educational metrics. As previously mentioned, we witnessed another year of significant growth in our continuing educational segment. with more than 60% increase in the number of students compared to last year, reaching 4,976 students. Additionally, for the year, net revenues grew by 35% compared to 2022, boosted by the growth in the number of students. Moving to slide number 13 to discuss the digital service operational metrics. The first graph illustrates our active payers, which are the ones that generate revenues in business to physicians, with a continuous growth trend reaching 226,000 paying users, marking 11% growth compared to the last year. The second graph showcases our monthly active users, reaching 268,000 users, representing around 34% of all medical students and physicians in Brazil. Finally, our digital service net revenue witnessed almost 20% year-over-year increase, reaching 229 million reais. Since the beginning of 2022, we also started to break down our digital service net revenue within B2P and B2B segments. with over 191 million reais generated from B2P and more than 39 million reais from B2B, showing a 64% growth compared to the prior year. And now, transition to my final two slides to discuss our cash and net debt positions and providing more insights into our cost of debts. I presented the net debt reconciliation for 2023. The cash flow from operating activities was allocated to income tax and lease payments, CapEx activities, for the service of the financial debt, for our share buyback program, alongside the additional acquisitions of 15% of FIMIT. excluding the business combinations of unima we were able to generate 391 million reais as free cash and reduces our net debt in the 12 month period on my last night you can observe a table showing the breakdown of our gross debt and total cost of debt considering our main debts the SoftBank transactions, the debentures, other financial obligations, and accountable payables to selling shareholders. We continue to maintain a low cost of debt that remains below the CDI rates. This concludes our prepared remarks. Strong performance, consistent growth, success in all segments, and public recognitions. These are the pillars of our evolutions and our missions to provide an ecosystem that integrates educational and digital solutions for the entire medical journey. We are proud of our achievements thus far, and we are excited about our future plans. I shall now open the conference for the Q&A session. Thank you.