Afya Limited

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.

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.

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.