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spk06: Good night, everyone. Thank you for joining us for ASE's first quarter 2024 conference call. I'm here today with ASE's CEO, Vigilio Gibon, and Luiz André Blanc, 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 AFI's actual results to deform 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, 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 a 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 referenced 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 these no IFRS financial measures to the most directly comparable IFRS financial measures. Now, let me turn the call over to Vigilio Gibon, ASCO, starting with slide number three.
spk02: Thank you, Renata, and thanks to everyone for joining us today for our inaugural conference call of 2024. To start off, we would like to outline our operational instruction efforts in continuing education and medical practice solution segments to enhance synergies between access content and technology for medical education and its specialization course for physicians. ASEAN has its corporate structure so that all programs and services related to medical education, excluding medical undergrad courses, are now managed in the same structure. Moving to the next page, we can now observe our new business structure taking shape, comprised of our three segments, undergrad programs, continuing education, and medical practice solutions. In the undergrad segment, we have maintained the existing structure. However, notable changes have occurred in the continuing education, and it is previously accounted for as content and technology for medical education. MedCell, Alenda Medicina, CardioPapers, and Medical Harbor, within medical practice solutions, are now accounted for in the continuing education segment. Simultaneously, the segment formerly known as digital services has been renamed to medical practices solutions. These structural adjustments have already been implemented for the results presented in the first quarter of 2024 onwards. Additionally, the comparative base from the previous year has been recalculated to account for these instruction efforts. So, moving now to page number five, Let's start with our performance highlights. Once again, after recording another strong beginning of the year. First, net revenue increased 13%, reaching 804 million reais, followed by an adjusted EBITDA growth of almost 21% year over year, reaching 398 million reais, with a margin of 49.5%. 300 BPs over the same period last year. Once again, AFIS recording another strong quarter showing a solid organic growth with high profitability boosted by all three segments. The adjusted net income is stood at 251 million Nets, representing an increase of 51% when compared to the same period of 2023. And our adjusted EPS scaled to 2.74 reais a jump of 55% over last year. We also reported a strong cash flow from operating activities of R$429 million, an increase of 22% year-over-year, leveraged by the solid operational results of the company, with an operating cash conversion of 110% and a solid cash position of R$611 million at the end of the quarter. Moving to our operational updates of the quarter, we expanded our operational medical school capacity to 3,152 seats. Additionally, our number of medical school students has reached over 22,000, representing an 8.6% growth compared to the first quarter of the previous year. Lastly, our physician and medical student ecosystem reached 334,000 accounting for around 41% of all medical students and physicians in Brazil. In the next slide, we'll talk about our solid business execution within our three business units. Starting with the undergrad segment, we saw important movements throughout the quarter, such as the higher tickets in medicine courses with more than 6% increase in tickets of medicine schools. The 40-seat expansion in Guadalimbi campus authorized in January of 2024 and gross margin expansion. Constituted education was marked by an operational structure that comes with growth and margin expansion. Considering this new segmentation, we saw an increase in B2P students, while both net revenue from B2P and B2B increased by 11 and 30% respectively. achieving a net revenue of 65 million reais in the first quarter. In our medical practice solution segment, we ended the quarter with a 15% increase in active payers' alignment for our gross margin extension. In slide number seven, we are also excited to expand our offering in the undergrad business with the signing of the acquisition of Uni Dom Pedro and Faculdade Dom Luiz. This acquisition will contribute to 300 operating medical seats to ASEAN in Salvador, capital of Bahia, and the fifth largest city in Brazil in population size. Unidão Pedro will be ASEA's fourth medical school in Bahia and will serve as a strategic hub for all other medical campuses in the state, besides all the synergies that we can extract from all continuing education campuses in Salvador. Reaffirming our strategy, Unidão Pedro is focused on medicine. Its projected net revenue for 2024 is R$ 110.5 million, with 88% coming from medicine costs. By 2027, when the medical school reaches full maturity, the projected net revenue is R$ 267 million, with over 95% coming from medicine, highlighting the excellence Unidol Pedro received a score of 4 out of 5 in both institution concept and course concept metrics, affirming the high quality of their medical course at the campus in question. The aggregate purchase price amounts to $660 million. We also anticipate achieving an EV EBITDA of 4.2 times as material post-signature. We expect the closing of transaction to be on July 1st of 2021. Now, I will turn the call over to Luis Blanco, AFIA CFO, to give him a follow on the financial and operational metrics. Thank you all. Thank you, Vigilio, and good evening, everyone. Starting with slide number nine for discussions of key operational metrics by business units. Our number of medical students grew 9% over first quarter 2023, reaching 22.6 thousand students due to the maturations of our medical seats and the seat increase in Guanabe authorized in January 2024. Therefore, we've reached 3,203 seats and expected to achieve over 23,000 undergrad medical students at maturity. Our medical school net average tickets increasing by 6.4%, reaching more than R$90,000 in the first quarter of 2024. In addition, net revenues for the undergrad program saw over 13% increase, achieving R$705 million, 87 related to medicine. All this effort means one thing. Our medical educational business remains and will continue to be the cornerstone of our business in the short and 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 Eugenio mentioned, we have proudly presented the new structure for the continuing education and medical practice solutions. Strategically, we look into our continuing educational in three different journeys. Starting from left to right with the residency journey, which encompass the products of Alenda Medicina, Focus Towards Mentoring, and MedCell B2P. we saw an increase of 62% in active payers, obtaining around 15,000 students at the end of the period. Following the graduate journey, which includes the students from AFE Educação Médica and AFE Papers, it grew 12%, reaching more than 30,000 students. In other courses and B2B offerings, AFIA reached 21,000 students, which represented an increase of 44%. Summarizing, our efforts made possible for continual education of net revenue to reach 65 million reais in the first quarter of 2024, compared to 58 million reais in the first quarter of 2023, a growth of over 12%. Moving to slide number 11, I will discuss the medical practice solutions 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, we've reached 191,000 paying users, a 12% growth compared to the last years. As you can see in the second graph, in line with the previous years, we achieved 263,000 monthly active users. Lastly, in our final graph, we present the net revenue of our medical practice solution, which has expanded 9% compared to the same quarter of last year, reaching 37 million reais. breaking down the revenue within the B2P and B2B segments. We observed that 32 million reais originated from B2P, while five millions come from B2B. It's important to mention that during the first quarter of 2024, some B2B invoices were postponed and are expected to occur in the next quarters. In the next slide, We are proud to present the impact of AFSIA on the medical community in Brazil. We ended in the first quarter of 2024 with more than 334,000 medical students and physicians in our ecosystem. Experience our service and products representing 41% of market penetration. Moving forward, I would like to discuss our financial overview for the first quarter of 2024. Starting with the next slide, with great satisfaction, I'm pleased to present another robust quarterly results for AFIA. Net revenue for the first quarter of 2024 reached 804 million reais, marking a significant 13% increase over the same period of the prior year. This growth can primarily attribute it to higher tickets in medicine courses at 6.4%, the maturations of the medical seats, the 40 seats expansions in the Guanabe campus, the continuing educational intake performance, and the medical practice solutions execution. In first quarter 2024, adjusted EBITDA increased more than 20% to 398 million reais, with an adjusted EBITDA margin of 49.5%, marking an increase of 300 base points compared to the first quarter 2023. The adjusted EBITDA margin expansion is mainly due to gross margin expansion within the three segments. The end of UNIMA integration process in November 2023. The ramp up of the four MICE Medical campuses that started operations in third quarter 2022. And operation restricting efforts in continuing education and medical practice solution segments. Moving to the next slide. The cash flow from operation activities for the year increased 23%, reaching a total of R$429 million, driven by our strong operational performance. The operational cash flow conversions ratio stood at 110% for the first quarter of 2024, slightly decreasing from the 112% in the first quarter of 2023. Adjusted net income for the first quarter of 2024 amounted to R251 million, an increase of 51% over the same period of 2023, mainly due to the enhancement of operational results, the reductions in the financial expenses due to the decrease in net debt and lower interest rates, and lower effective tax rates. In terms of adjusted EPS, we achieved $2.74 for the quarter, a remarkable 54% increase compared to the previous year. Our EPS was mainly positively influenced by the increase in our net income with an impact from the previous year's shares repurchase. And now, moving to my two last slides. I will discuss our cash and net debt position. I'll also give you more color on our cost of debt. On the next slide, you see a table with the breakdown of our gross debt and the total cost of debt, considering our main debts, the soft bank transactions, the ventures, account payables to selling shareholders, and other financial obligations. On the next page, we can look closely to the net debt variation. In the first quarter of 2024, our net debt reached R$1,577,000,000. When compared to December 2023, after reducing its net debt by R$237,000,000. Even considering that it's going to be earned out over R$49,000,000, we reduced our net debt per adjusted EBITDA from 1.6 times in 2023 to 1.2 times in the first quarter of 2024, considering the midpoint of the guidance for 2024. Considering the additional debts regarding only Dom Pedro acquisitions, we expect an update net debt per adjusted EBITDA of 1.6 times. 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 medical practice 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 the Q&A session. Thank you.
spk06: Hi, everyone. If you want to ask a question, please raise your hand. The first question comes from Luca Marchesini from Italy. Luca, you may now go.
spk03: Hey, good evening, everyone. Thank you for taking our questions. We have two questions from our side. The first one, the release mentions that there was a gross margin expansion in all three segments. Can you please give more color on which of the segments most contributed to this expansion and the drivers behind this enhancement? And then the second question would be, after the acquisition, you already surpassed the guidance of acquiring 200 seats per year. Should we expect another acquisition in an undergrad in my courses this year, or M&A should now be focused in other verticals? Thank you.
spk02: Hi, Luca. It's Luis speaking. I'll start with your second question. Regarding M&A, we have these guidance from 200 seats per year that we give in 2022. So from these moments, we've made two business combinations, one that was Unichi, and this is the second one. So in three years, we made 640 seats. So right now, after the approval of the cash, we all have achieved these guidance for 2024. Of course, we are always open to discuss the asset that has our profile with the right price. So, we know that we have various laser points, specific targets, and we'll try to keep this rhythm, but it's always hard to match the size of the transactions with the time that we have, okay?
spk06: Yeah, regarding the growth margins, Luca, we are going to disclose it to you guys, our consolidated spreadsheet, as soon as we finish the call. But all the segments, as we already said, had margin expansion. The undergrad was around 1.5 points, continuing education a little less than 4 points, and the digital service a little bit higher than 5 points.
spk02: And the rationale behind that, Luca, I think the contribution from the undergrad comes from first the maturation of our MySmartCourse2 campuses. Remember that we started this operation around second half of 2022, 2023. So, now we are in the third year of maturation. So, the margins going up and contributing to improve our margins. Also, the integration of UNIT that was faster than expected originally on our business plan. So, helped a lot to improve our margins. And all the contribution coming from the other business units that, not only in terms of growth, but also improving margin, the undergrad segment operating close, sorry, the graduate segment operating close to what we are operating now on the undergrad, and also the digital service now flowing not only growth on the top line, but flowing positive results from the top to the bottom line. So that was the duration of all of this. Margin improvement comes from the three segments.
spk06: Yeah, if I could add a point, not only in terms of cost, but also in terms of expenses. The reorganization that we did between the segments of the content technology for medical education going to the continuing education, we could save a lot of money. So it was something that we made that made sense in terms of operation and also improved our results. And we are expecting to boost our growth.
spk02: Yeah, just for a little bit additional color on that, for digital service as an example, we were operating with different companies. So we have two commercial areas, two rural areas, two IT teams for development. So we have now fully integrated close related to the physician journey for the mission that they have. So now it's only one team focus for the entire mission that we are prioritizing for that quarter for that screen. So it's a lot of synergies after the restructuring. The same applied for the pillar one combined with continuum education that we had last year. So we have all the marketing commercial team working together and also the content creator, the critical development working together. So there was a lot of things implemented in the fourth quarter in 2023.
spk03: That's very clear, guys. Thank you.
spk06: Of course. The next question will come from Mirela from Bank of America. Mirela, you may now go.
spk05: Good evening everyone. I have a follow-up question on the gross margin ones. Could you comment a bit also on what to expect from both the continuing education and the medical specialization margins going forward? And a second question on the guidance. On last year's Investor Day, the company mentioned a long-term guidance for the continuing education revenues of around 1.2 billion in 2028. And I was just wondering how should we think this guidance and the one for digital services also considering the new structure?
spk02: Hi Mirela, Blanco speaking here. We don't have this opening of gross margins in terms of the guidance. We give the EBITDA guidance for the year, and we don't have changes in our view for the year of 2024 regarding the guidance that we provided when we release the results of 2023. So what we can expect for the year, it's adjusted EBITDA between 1.3 and 1.4 billion reais for the year. We reaffirm this guidance with these results. And Mirela, regarding the guidance of our digital service, because of the destruction. One important part of that guidance, Pillar 1, that now is combined and have a lot of synergies with continuum education. So the 1.2 now is pitted between two segments. We will have to reorganize this guidance for the long term, and we will come to the market in the right time to check how much of each segment will compound uh this 1.2 uh million that would come from the digital service but as soon as we get it that uh we'll come to the markets more detail okay okay thank you of course our next question comes from marcelo santos from jp morgan my fellow you may now go thank you uh good evening uh virgilio louise uh renata thanks for taking my questions i have two as well
spk01: The first is regarding the growth on the undergrad revenue. I think, Virgílio, last call, if I remember correctly, you indicated that within your guidance, this component, the undergrad, should grow around 10% in the year. You delivered 13.5% in this quarter. So I just wanted to understand, is there some seasonal factor that you expect growth to be more on the first half or or is this really coming ahead of your expectations? Just wanted to get a feeling here in terms of timing or how you're going according to your expectations. And the second question is the need to be revenues that you mentioned. I think Louise mentioned that there was a postponement of recognition of some, forgot the name, of some invoices, I think, from the first quarter to the second quarter. If you had recognized everything at the right quarter, what would be a better idea of how this, this revenue growth is taking place? What would be a more organic measure for this? Thank you.
spk02: Hi, Marcelo. Regarding your first question about the idea of the revenues coming around 10%, 10% was mentioned it was regarding more volume than top line. So when you take a look on our table number two on our release, you can see that medical school undergrad is moving around 15.5% and around 9% is volume and 6% coming from tuition. And the good news is that in terms of net revenue, we're also seeing organic growth coming from the health science and also for other programs that used to have always a decreasing revenues on the side. So it's not more hurting the top line growth as we've had in the past because all the restructuring, we are shutting down programs. Now we are more organic. So it's expected to be, it's not seasonal as we have a very strong intake, not only for medical, feeding all the 100% of our seats. And we have a strong intake for health programs and X health, during the first quarter, respect to keeping a very good trend, the first half of 2024, around 13, 15% coming from the undergrad segment, okay? Luis will take the second question. Yes, and just to add, Marcel, to the first ones, what we have this performance of the first quarter. Our expectations regarding the net revenues for 2024 remains the same that we provided in the guidance. That can go for $3,150,000 at the bottom to $3,250,000 at the top. part of the guidance regarding the net revenues. When we give this call about how it would perform per each segment, we just give a call on how, in the big numbers, how we would perform between our three segments. But our guidance is regarding always the consolidated figures that come from 3.150 to 3.250 reais, median reais for 2021. Having said that, coming to your second question regarding B2B, yes, we have some postponements on recognitions on the medical practice tools, and if we put that on this way, we would be around 20 to 30% growth regarding the same period of the prior year, okay? Just to add here, Marcelo, in terms of guidance, seeing the overall results from top and bottom line in the first quarter, Of course, there is a positive bias when you compare to the one-year guidance that we release less water, but still soon in the process, we have the second quarter intakes, everything, there is still uncertainty. So, it's still soon to admit that we are going to change or not our guidance for 2024, okay?
spk01: Perfect. Very, very clear. And so 20 to 30%, the minus six would become 20 to 30. That's it, Luis. Yeah. Perfect. Very clear. Thank you very much.
spk06: Thank you, Marcel. Just a reminder, if you want to ask a question, please raise your hand. The next question comes from Lucas Nagano from Morgan Stanley. Lucas, you may now go.
spk00: Thank you and good evening for the space here. We have some questions related to the Unidom acquisition. Three to be precise. The first is how you're planning to fund the acquisition. Second is what is the expected impact on margin once you consolidate Unidom? I think also you mentioned that you expect this to close on July, right? And the third is in practical terms, what is the likelihood that those incremental 175 seats are canceled? if you could comment a bit on the stage of this judicial process. Thank you.
spk02: Luca, thank you for your three questions. I will take the three questions. Regarding the funds, we ended the first quarter with more than 600 million reais in cash, so we have the funds to pay the down payments related to the acquisitions. because we have the cash and we have the cash generations of the second part. If we find an opportunity that we find attractive, we would hire additional funding for that. Regarding margins, we can expect a little bit of dilutions on that. They don't operate in margins that we can operate our undergrad segments. So we can have these dilutions that will come in this year, but we can expect increasing margins from 2025 Ahead, we're going to work to have a very quick integration zone on Unicom Pedro to have them integrated as fast as possible to our ecosystem. And regarding to the 175 seats, they are operating since the beginning, since 2021, since the first intake. So we have a very positive view regarding the continuation of these seats to be approved. And we put the payment schedule to be 10 years to protect us in a remote possibility to have these seats not being operating. our view in the base case is these seats we're going to keep operating. Just to add here, Lucas, first of all, the second question about the margin impact and how we want to leverage operationally the new campus. Remember that it's our largest medical program campus, 300 seats. concentrated in one large city with a very high level of tuition. So the capacity that we'll have to fulfill all the seats available, the vacancy that we are seeing there, in a very fast track, as soon as we get the operation closed, and improve margins, I think taking what we had as an experience in Unigran Hill and also Unima that we could leverage 30 percentage points in almost one year. I think we will do something very close to that and reach the same level of what we are operating now in the undergrad business in 2025. And 175 seats, I think it's important to mention here that not we are operating these seats since the beginning. We have the approval not only in the just, but also for the Ministry of Education that recognize it. And all the trend that we are seeing from the Supreme Court is that everything that was approved, considering the current regulation, the Ministry of Education, it's not canceled. Not only for this case here, but all the precedents that we are seeing in the market, it's quite positive on this direction. So it's very rare, it's completely remote, the chance that it will be canceled. Even in the worst-case scenario that happens, we have all the framework that we are paying the installments, protect ourselves in 10 years, and also we will cancel all the payments at the right moment. So that's the way that we construct the deal, okay?
spk06: Yeah, just two reminders. The first one is that the request for those seats was before my medical law. So it was before 2013. And the second reminder that in this worst case scenario that Vigilio told us to stop paying, we still have the positive effect of these students that are already enrolled for the next six years. So we also have the economic benefit without having to pay and increasing our IRR.
spk02: Yeah, and a point important regarding the performance for UNIDON, we have these expectations of the closing to occur in the first day of July. And when we have this kind of confirmations in the next release, we're going to update our guidance, including these six months in our guidance for the year. And we're going to release our numbers, consolidate the figures, and ex-acquisitions as we did before to segregate the performance of these first 12 months of union.
spk00: Thank you. And also a quick follow-up on the Supreme Court debate. When do you expect them to resume the voting process?
spk02: Is it expected to happen now in May? Actually, the due date is tomorrow, but we don't know if they will release or not the voting by tomorrow.
spk06: Yeah, just a clarification. The due date for tomorrow is Alexandre de Moraes' time frame to return with his vote.
spk01: Perfect. Thank you. Okay.
spk06: So the next question comes from Leandro Batos from Siege. Leandro, you may now go.
spk04: Thank you, guys. Two questions on our side. First one about kind of the rationalization of cost, the restructuring that you mentioned. I'm just wondering if you could comment how far advanced you think the company is in the process of rationalization. If you see additional levers for reducing duplications and unlock efficiencies. Or if we could expect basically what we saw during Q1 and basically the carry impact from these initiatives through the years. You could, I don't know, provide some color on how should we think about this margin dynamic forward. I think it would be helpful. That would be the first one. The other, if you could also talk about how you saw competition during this recent intake season in terms of candidates perceived. How was the strategy for pricing? We saw, of course, good volumes and kind of pricing ahead of inflation. So if you just kind of can comment a little bit on how you saw the competitive environment, I think it would be interesting to hear. That'll be it.
spk02: Thank you so much. Thank you for our question, Leandro. I will start with the first one, and Vigilio will jump to the second. Regarding the expectations margins, gross margins going ahead, We don't give guidance for gross margins for the year. What we can expect is to achieve the guidance of adjusted EBITDA that we gave for the year. So that's our point. We are very constructive with that. We have been not only giving annual guidance, but achieving annual guidance before in the last years. And we are confident that during 2024, we're going to do the same. So I prefer to focus on what the guidance is to provide the markets. rather than give a guidance in specific gross margins going ahead. Just adding a follow-up on that, Leandro. So we did a big restructuring process in the last quarter of 2023. We dismissed around 200 people because of the restructuring, we integrated all the companies acquired, meaning the digital area. So in terms of cost, I think we did, we already completed the work. So now it's much more related to growth and top line expansion than more cost efficiency than in the past. Another lever here was our corporate expenses that is Now we are getting some, not synergy, but we are growing top line and our structure is already mature after the IPO, five years of IPO. So we are also getting service on G&A expenses on the overall, and that is considered on our expectation on the release guidance that we gave to the market on last quarter. About the competition, this intake, close what we saw for the last two years in terms of candidates per seat. I think we don't know why we kept so stable the competition here. My true sense here is that because all the effort in terms of brands, the change that we did last semester, I think it starts taking off and helping us to attract more leads. And remember that we now have more than 300,000 positions and medical students talking about AFIA, using our solution. So it's a huge earning knowing what our company here is doing for their journey, for their career. I think this is helping us to attract more leads and to fulfill all the seats that we are doing the market with every semester, every year in a better way, attracting good students and a good level to complete our ecosystem here. So the competition for us, it's quite the same that we saw during the Actually, since 2020, 2021, the candidates per seat was around 6.4 candidates per seat, and we have something between 5 and 8 during the last four years. And when we analyze also the smaller campuses in more remote areas, we also have a very good intake, and we could attract and enroll very good cohort of students to our schools. So there's no news on the competition side on our side. Remember that we also have a very good condition to pass inflation, a little bit above inflation to our prices year over year since 2019.
spk04: Okay, that's clear. Thank you.
spk06: All right. Since we do not have any other questions, we are going to end the call. If you have any other questions, we are in the investor relations area. We are going to be happy to help you Have a good night.
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