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Afya Limited Announces Second-Quarter and First-Half 2023 Financial Results

High and Predictable Growth

Strong Cash Generation

Afya Limited (Nasdaq: AFYA; B3: A2FY34) (“Afya” or the “Company”), the leading medical education group and digital health services provider in Brazil, reported today financial and operating results for the three and six-month period ended June 30, 2023. Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

Second Quarter 2023 Highlights

  • 2Q23 Adjusted Net Revenue increased 23.6% YoY to R$712.2 million. Adjusted Net Revenue excluding acquisitions grew 13.5%, reaching R$654.0 million.
  • 2Q23 Adjusted EBITDA increased 21.8% YoY, reaching R$268.2 million, with an Adjusted EBITDA Margin of 37.7%. Adjusted EBITDA excluding acquisitions grew 9.9%, reaching R$241.9 million, with an Adjusted EBITDA Margin of 37.0%.

First Half 2023 Highlights

  • 1H23 Adjusted Net Revenue increased 24.3% YoY to R$1,421.6 million. Adjusted Net Revenue excluding acquisitions grew 13.5%, reaching R$1,298.2 million.
  • 1H23 Adjusted EBITDA increased 21.9% YoY reaching R$598.4 million, with an Adjusted EBITDA Margin of 42.1%. Adjusted EBITDA excluding acquisitions grew 11.2%, reaching R$546.1 million, with an Adjusted EBITDA Margin of 42.1%.
  • Cash conversion of 98.9% generating R$566.5 million of cash flow from operating activities that resulted a solid cash position of R$741.2 million.
  • Almost 282 thousand monthly active physicians and medical students using Afya’s Digital Services.
 
Table 1: Financial Highlights
For the three months period ended June 30, For the six months period ended June 30,
(in thousand of R$)

2023

2023 Ex

Acquisitions*

2022

% Chg % Chg Ex

Acquisitions

2023

2023 Ex

Acquisitions*

2022

% Chg % Chg Ex

Acquisitions
(a) Net Revenue

712,607

654,325

598,156

19.1%

9.4%

1,422,568

1,299,175

1,164,480

22.2%

11.6%

(b) Adjusted Net Revenue (1)

712,237

653,955

576,079

23.6%

13.5%

1,421,620

1,298,227

1,143,795

24.3%

13.5%

(c) Adjusted EBITDA (2)

268,174

241,876

220,186

21.8%

9.9%

598,373

546,095

490,987

21.9%

11.2%

(d) = (c)/(b) Adjusted EBITDA Margin

37.7%

37.0%

38.2%

-50 bps

-120 bps

42.1%

42.1%

42.9%

-80 bps

-80 bps

*For the three months period ended June 30, 2023, "2023 Ex Acquisitions" excludes: Glic (April to May, 2023; Closing of Glic was in May, 2022), and UNIT Alagoas and FITS Jaboatão dos Guararapes (April to June, 2023; Closing of UNIT and FITS was in January 2023).
*For the six months period ended June 30, 2023, "2023 Ex Acquisitions" excludes: Alem da Medicina (January & February 2023; Closing of Alem da Medicina was in March, 2022), Cardiopapers (January to March 2023; Closing of Cardiopapers was in April, 2022), Glic (January to May, 2023; Closing of Glic was in May, 2022), and UNIT Alagoas and FITS Jaboatão dos Guararapes (January to June, 2023; Closing of UNIT and FITS was in January 2023).
(1) Includes mandatory discounts in tuition fees granted by state decrees and individual/collective legal proceedings and public civil proceedings due to COVID 19 on site classes restriction and excludes any recovery of these discounts that were invoiced based on the Supreme Court decision.
(2) See more information on "Non-GAAP Financial Measures" (Item 07).

Message from Management

In Afya, these results reinforce the success of our strategy, as evidenced by consistent growth in both operational and financial results. Notably, our Net Revenue and Adjusted EBITDA have increased significantly year-over-year, providing us with the confidence to reaffirm our 2023 guidance.

This quarter was marked by significant increases in Net Revenue within our three segments and we are delighted to see that the most significant growth came from our Continuing Education segment with a robust intake process, and course maturation reflecting a 50% quarter-over-quarter expansion.

In Digital Health Services, we observed an increase of 28% in Net Revenue compared to the same quarter of 2022. This result reinforces the opportunity ahead in Digital Services, and it is explained by the ramp-up in B2B engagements, with new contracts with the pharmaceutical industry companies, and the continuous ramp-up in B2P subscribers, as we will discuss further on.

Afya's core business also delivered outstanding results again, as we saw higher tickets in Medicine courses, maturation of medical seats, and the consolidation of UNIT Alagoas and FITS Jaboatão dos Guararapes acquisition in January 2023.

Building on these achievements, our Afya Day event held this July marked another significant milestone as we unveiled the initiation of our rebranding efforts. This strategic move aims to ensure that our strong results are maximized and connected by an equally strong brand strategy. Propelling Afya to a high level of relevance, credibility and growth potential. Additionally, we took the opportunity to reiterate our strategic direction and articulate our vision for the forthcoming years.

Underlining these achievements, Afya's remarkable performance garnered three major awards within the 2nd quarter: "Executivo de Valor” recognizing Virgilio Gibbon as the top CEO in the Education Sector, “Valor Econômico's Best Education Company in Innovation", and another prestigious recognition for being the best Company in the Education Sector in the "Valor 1000" award.

We are very proud of our business and of what we have achieved so far, as well as of what we are planning for the future.

1. Key Events in the Quarter:

  • Afya announced, on June 2023, that the resolutions set out in its Notice of Annual General Meeting 2023 were duly passed at its Annual General Meeting held: (1) the approval and ratification of Afya’s financial statements as of and for the fiscal year ended December 31, 2022; (2) the approval of João Paulo Seibel de Faria as a director of the Company with immediate effect to hold office for a two year term; (3) the approval of Vanessa Claro Lopes as a director of the Company with immediate effect to hold office for a two year term; (4) the approval of Miguel Filisbino Pereira de Paula as a director of the Company with immediate effect to hold office for a two year term; and (5) the approval of Marcelo Ken Suhara as a director of the Company with immediate effect to hold office for a two year term;

2. Subsequent Events in the quarter

  • Afya (Nasdaq: AFYA, B3: A2FY34) announced, on July 2023 the start of negotiation of its non-sponsored Brazilian Depositary Receipts (BDRs), with a 1-for-2 stock split, aimed to provide investment opportunities on Afya for Brazilian investors;
  • Afya hosted, on July 2023 its Investor and ESG Day. Attendees heard from Afya’s business executives the Company's evolution, business strategy, ESG initiatives, present and future perspectives. More details on: https://ir.afya.com.br/afya-day/
  • Changes in the share-based compensation plan: On July 31, 2023, the People and ESG Committee approved a change in the share-based compensation plan to retain talents and reinforce the compensation plan. All the holders of stock options granted before July 11, 2022 were offered the possibility to exchange the stock options for a number of Restricted Stock Units (RSUs). The conversion ratios were measured by the Company considering the fair value for the original plans remeasured at the modification date with no significant increase in fair value as a result of such modification since the beneficiaries will have the benefit of settling its award for no cash consideration. Further, the People and ESG Committee also approved a modification in the index rate to the strike prices of its granted stock options. The result is that strike prices are now adjusted by the Brazilian inflation rate (IPCA) instead of the CDI rate. These changes will be accounted as modifications in accordance with IFRS 2 and the Company do not expect to have significant impacts on the consolidated financial statements.
  • Municipality taxes amnesty program: In August 2023, the Company and the selling shareholders of Unigranrio agreed to settle a tax proceeding with the municipality of Rio de Janeiro for ISS (municipality tax on services) and Unigranrio entered into a tax amnesty program on interest and penalties and paid R$14,819 on August 10, 2023. As of June 30, 2023, the Company had an indemnification asset of R$20,000 and a provision for legal proceedings of R$53,302 for this matter. The Company is still measuring the impacts on the consolidated financial statements.

3. Full Year 2023 Guidance Reaffirmed

The Company is reaffirming its previously issued guidance for FY23, which already considered the impact of the increase of the FG-FIES, as Afya successfully concluded acceptances of new medical students for the second semester, ensuring 100% occupancy in all of its medical schools.

Under the new FIES Program (Higher Education Financing Fund) introduced in 2018, retention is applied to the amount paid by the Program to cover the delinquency of the financed students. This retention is allocated to the FG-FIES Fund and the fund cannot be redeemed or utilized for other purposes without the approval of the National Fund for the Development of Education (FNDE). There was a transition rule that capped the retention at certain levels until 2022. From 2023, the limit was lifted, and the retention was updated according to the delinquency per educational entity for those FIES students that entered on the amortization phase. For Afya, the expected impact on the increase of the FG-FIES in 2023 is R$24 million which was already considered in the 2023 Guidance.

The guidance for FY2023 is defined in the following table:

 
Guidance for 2023
Adjusted Net Revenue* R$ 2,750 mn ≤ ∆ ≤ R$ 2,850 mn
Adjusted EBITDA R$ 1,100 mn ≤ ∆ ≤ R$ 1,200 mn
 
*Includes UNIT Alagoas and FITS Jaboatão dos Guararapes' acquisitions;

Includes the increase of 64 medical seats of Faculdade Santo Agostinho, in the city of Itabuna;

Excludes any acquisition that may be concluded after the issuance of the guidance.

4. 1H23 Overview

Operational Review

Afya is the only company offering educational and technological solutions to support physicians across every stage of the medical career, from undergraduate students in their medical school years through medical residency preparatory courses, medical specialization programs and continuing medical education. The Company also offers solutions to empower the physicians in their daily routine including supporting clinic decisions through mobile app subscription, delivering practice management tools through a Software as a Service (SaaS) model, and assisting physicians in their relationship with their patients.

The Company reports results for three distinct business units. The first, Undergrad – medical schools, other healthcare programs and ex-health degrees. Revenue is generated from the monthly tuition fees the Company charges students enrolled in the undergraduate programs. The second, Continuing Education – specialization programs and graduate courses for physicians. Revenue is also generated from the monthly tuition fees the Company charges students enrolled in the specialization and graduate courses. The third is Digital Services – digital services offered by the Company at every stage of the medical career. This business unit is divided into Business to Physician (which encompasses Content & Technology for Medical Education, Clinical Decision Software, Practice Management Tools & Electronic Medical Records, Physician-Patient Relationship, Telemedicine, and Digital Prescription) and Business to Business (which provides access and demand for the healthcare players). Revenue is generated from printed books and e-books, which is recognized at the point in time when control is transferred to the customer, and subscription fees, which are recognized as the services are transferred over time.

Key Revenue Drivers – Undergraduate Courses

Table 2: Key Revenue Drivers For the six months period ended June 30,

2023

2022

% Chg

Undergrad Programs
MEDICAL SCHOOL
Approved Seats

3,163

2,759

14.6%

Operating Seats

3,113

2,481

25.5%

Total Students (end of period)

20,790

17,555

18.4%

Average Total Students

20,806

17,539

18.6%

Average Total Students (ex-Acquisitions)*

18,811

17,539

7.3%

Tuition Fees (Total - R$ '000)

1,262,673

1,001,808

26.0%

Tuition Fees (ex- Acquisitions* - R$ '000)

1,148,822

1,001,808

14.7%

Medical School Gross Avg. Ticket (ex- Acquisitions* - R$/month)

10,179

9,520

6.9%

Medical School Net Avg. Ticket (ex- Acquisitions* - R$/month)

8,549

7,853

8.9%

UNDERGRADUATE HEALTH SCIENCE
Total Students (end of period)

21,117

20,779

1.6%

Average Total Students

21,389

20,841

2.6%

Average Total Students (ex-Acquisitions)*

19,633

20,841

-5.8%

Tuition Fees (Total - R$ '000)

197,177

170,666

15.5%

Tuition Fees (ex- Acquisitions* - R$ '000)

182,211

170,666

6.8%

OTHER UNDERGRADUATE
Total Students (end of period)

24,545

23,945

2.5%

Average Total Students

24,794

24,077

3.0%

Average Total Students (ex-Acquisitions)*

21,569

24,077

-10.4%

Tuition Fees (Total - R$ '000)

155,709

137,464

13.3%

Tuition Fees (ex- Acquisitions* - R$ '000)

134,772

137,464

-2.0%

TOTAL TUITION FEES

 

 

 

Tuition Fees (Total - R$ '000)

1,615,560

1,309,937

23.3%

Tuition Fees (ex- Acquisitions* - R$ '000)

1,465,805

1,309,937

11.9%

*For the six months period ended June 30, 2023, "2023 Ex Acquisitions" excludes: UNIT Alagoas and FITS Jaboatão dos Guararapes (January to June, 2023; Closing of UNIT and FITS was in January 2023).

Key Revenue Drivers – Continuing Education and Digital Services

Table 3: Key Revenue Drivers For the six months period ended June 30,

2023

2022

% Chg

Continuing Education
Medical Specialization & Others
Total Students (end of period)

4,646

3,543

31.1%

Average Total Students

4,710

3,511

34.1%

Average Total Students (ex-Acquisitions)

4,710

3,511

34.1%

Net Revenue from courses (Total - R$ '000)

70,584

47,662

48.1%

Net Revenue from courses (ex- Acquisitions¹)

70,584

47,662

48.1%

Digital Services
Content & Technology for Medical Education
Medcel Active Payers
Prep Courses & CME - B2P

6,440

12,741

-49.5%

Prep Courses & CME - B2B

6,029

4,909

22.8%

Além da Medicina Active Payers

6,657

7,792

-14.6%

Cardiopapers Active Payers

6,880

4,765

44.4%

Medical Harbour Active Payers

7,002

4,425

58.2%

Clinical Decision Software
Whitebook Active Payers

145,744

133,238

9.4%

Clinical Management Tools²
iClinic Active Payers

24,957

21,088

18.3%

Shosp Active Payers

3,001

2,264

32.6%

 
Digital Services Total Active Payers (end of period)

206,710

191,222

8.1%

Net Revenue from Services (Total - R$ '000)

110,930

89,695

23.7%

Net Revenue - B2P

91,284

79,013

15.5%

Net Revenue - B2B

19,646

10,682

83.9%

Net Revenue From Services (ex-Acquisitions¹)

103,841

89,695

15.8%

*For the six months period ended June 30, 2023, "2023 Ex Acquisitions" excludes: Alem da Medicina (January & February 2023; Closing of Alem da Medicina was in March, 2022), Cardiopapers (January to March 2023; Closing of Cardiopapers was in April, 2022), Glic (January to May, 2023; Closing of Glic was in May, 2022).
(2) Clinical management tools includes Telemedicine and Digital Prescription features.

Key Operational Drivers – Digital Services

Monthly Active Users (MaU) represents the number of unique individuals that consumed Digital Services content in each one of our products in the last 30 days of a specific period.

Total monthly active users reached almost 282 thousand, 6.5% higher over the same period in the last year.

Monthly Active Unique Users (MUAU) represents the number of unique individuals, without overlap of users among products, in the last 30 days of a specific period.

Table 4: Key Operational Drivers for Digital Services - Monthly Active Users (MaU)

2Q23

2Q22

% Chg YoY

1Q23

4Q22

Content & Technology for Medical Education

24,973

20,739

20.4%

31,549

16,539

Clinical Decision Software

230,338

221,862

3.8%

237,003

221,762

Clinical Management Tools¹

24,880

21,151

17.6%

24,568

20,936

Physician-Patient Relationship

1,782

1,101

61.9%

1,773

1,473

Total Monthly Active Users (MaU) - Digital Services

281,973

264,853

6.5%

294,893

260,710

1) Clinical management tools includes Telemedicine and Digital Prescription features
Includes Shosp, Medicinae and Além da Medicina starting in 1Q22 and Cardiopapers and Glic starting in 2Q22
 
Table 5: Key Operational Drivers for Digital Services - Monthly Unique Active Users (MuaU)

2Q23

2Q22

% Chg QoQ

1Q23

4Q22

 
Total Monthly Unique Active Users (MuaU) - Digital Services

251,487

245,396

2.5%

262,137

241,949

 
1) Total Monthly Unique Active Users excludes non-integrated companies: Medical Harbour, Medicinae, Shosp, Além da Medicina, Cardiopapers and Glic

Seasonality

Undergrad’s tuition revenues are related to the intake process and monthly tuition fees charged to students over the period; thus does not have significant fluctuations during the semester. Continuing Education revenues are related to monthly intakes and tuition fees and do not have a considerable concentration in any period. Digital Services is comprised mainly of Medcel, Pebmed, and iClinic revenues. While Pebmed and iClinic do not have significant fluctuation regarding seasonality, Medcel’s revenue is concentrated in the first and last quarter of the year due to the enrollments of Medcel’s clients period. In addition, the majority of Medcel’s revenues are derived from printed books and e-books, which are recognized at the point in time when control is transferred to the customer. Consequently, the Digital Services segment generally has higher revenues and results of operations in the first and last quarters of the year than in the second and third quarters.

Revenue

Adjusted Net Revenue for the second quarter of 2023 was R$712.2 million, an increase of 23.6% over the same period of the prior year. Excluding acquisitions, Adjusted Net Revenue in the second quarter increased 13.5% YoY to R$654.0 million, mainly due to higher tickets in Medicine courses in 8.9% in the semester and the maturation of medical seats, the Continuing Education performance and the digital services expansion.

Net Revenue of Continuing Education for the second quarter of 2023 was R$35.6 million, an increase of 49.6%, boosted by student growth.

Digital services increased 28.2% quarter over quarter, totaling R$54.1 million. The organic growth is a combination of (a) an increase in the B2B engagements, increasing B2B Net Revenue by 83.9%, and (b) the expansion of the active payers in the B2P, mainly in Whitebook, IClinic, Medical Harbour and Cardiopapers.

For the six-month period ended June 30, 2023, Adjusted Net Revenue was R$1,421.6 million, an increase of 24.3% over the same period of last year. Excluding acquisitions, Adjusted Net Revenue in the six-month period increased 13.5% YoY to R$1,298.2 million.

Table 6: Revenue & Revenue Mix
(in thousands of R$) For the three months period ended June 30, For the six months period ended June 30,

2023

2023 Ex

Acquisitions*

2022

% Chg % Chg Ex

Acquisitions

2023

2023 Ex

Acquisitions*

2022

% Chg % Chg Ex

Acquisitions
Net Revenue Mix
Undergrad

625,264

567,113

533,545

17.2%

6.3%

1,246,240

1,129,935

1,028,940

21.1%

9.8%

Adjusted Undergrad¹

624,894

566,743

511,468

22.2%

10.8%

1,245,292

1,128,987

1,008,255

23.5%

12.0%

Continuing Education

35,624

35,624

23,811

49.6%

49.6%

70,584

70,584

47,662

48.1%

48.1%

Digital Services

54,138

54,007

42,218

28.2%

27.9%

110,930

103,841

89,695

23.7%

15.8%

Inter-segment transactions

-2,419

-2,419

-1,418

n.a

70.6%

-5,186

-5,186

-1,817

185.4%

185.4%

Total Reported Net Revenue

712,607

654,325

598,156

19.1%

9.4%

1,422,568

1,299,175

1,164,480

22.2%

11.6%

Total Adjusted Net Revenue ¹

712,237

653,955

576,079

23.6%

13.5%

1,421,620

1,298,227

1,143,795

24.3%

13.5%

*For the three months period ended June 30, 2023, "2023 Ex Acquisitions" excludes: Glic (April to May, 2023; Closing of Glic was in May, 2022), and UNIT Alagoas and FITS Jaboatão dos Guararapes (April to June, 2023; Closing of UNIT and FITS was in January 2023).
*For the six months period ended June 30, 2023, "2023 Ex Acquisitions" excludes: Alem da Medicina (January & February 2023; Closing of Alem da Medicina was in March, 2022), Cardiopapers (January to March 2023; Closing of Cardiopapers was in April, 2022), Glic (January to May, 2023; Closing of Glic was in May, 2022), and UNIT Alagoas and FITS Jaboatão dos Guararapes (January to June, 2023; Closing of UNIT and FITS was in January 2023).
(1) Includes mandatory discounts in tuition fees granted by state decrees and individual/collective legal proceedings and public civil proceedings due to COVID 19 on site classes restriction and excludes any recovery of these discounts that were invoiced based on the Supreme Court decision.
(2) See more information on "Non-GAAP Financial Measures" (Item 07).

Adjusted EBITDA

Adjusted EBITDA for the three-month period ended June 30, 2023 increased 21.8% to R$268.2 million, up from R$220.2 million in the same period of the prior year, while the Adjusted EBITDA Margin decreased 50 basis points to 37.7%. For the six-month period ended June 30, 2023, Adjusted EBITDA was R$598.4 million, an increase of 21.9% over the same period of the prior year, with an Adjusted EBITDA Margin decrease of 80 basis points in the same period.

The Adjusted EBITDA Margin reduction is due to: (a) Mix of Net Revenue, with higher participation of the Digital and Continuing Education segments, and (b) the consolidation of 4 new Mais Médicos campuses (operation started on 3Q22) and UNIT Alagoas and FITS Jaboatão dos Guararapes which are performing better than expected but still present lower margins when compared to the integrated companies.

Table 7: Adjusted EBITDA
(in thousands of R$) For the three months period ended June 30, For the six months period ended June 30,

2023

2023 Ex Acquisitions*

2022

% Chg % Chg Ex Acquisitions

2023

2023 Ex Acquisitions*

2022

% Chg % Chg Ex Acquisitions
Adjusted EBITDA

268,174

241,876

220,186

21.8%

9.9%

598,373

546,095

490,987

21.9%

11.2%

% Margin

37.7%

37.0%

38.2%

-50 bps

-120 bps

42.1%

42.1%

42.9%

-80 bps

-80 bps

*For the three months period ended June 30, 2023, "2023 Ex Acquisitions" excludes: Glic (April to May, 2023; Closing of Glic was in May, 2022), and UNIT Alagoas and FITS Jaboatão dos Guararapes (April to June, 2023; Closing of UNIT and FITS was in January 2023).
*For the six months period ended June 30, 2023, "2023 Ex Acquisitions" excludes: Alem da Medicina (January & February 2023; Closing of Alem da Medicina was in March, 2022), Cardiopapers (January to March 2023; Closing of Cardiopapers was in April, 2022), Glic (January to May, 2023; Closing of Glic was in May, 2022), and UNIT Alagoas and FITS Jaboatão dos Guararapes (January to June, 2023; Closing of UNIT and FITS was in January 2023).

Adjusted Net Income

Net Income for the second quarter of 2023 was R$87.5 million, a decrease of -17.5% over the same period of the prior year. Net Income results for the second quarter of 2022 was positively affected by the increase in operational results, which includes the recovery of a portion of the prior granted discounts in tuition fees related to COVID-19

Adjusted Net Income for the second quarter of 2023 was R$ 131.9 million, an increase of 10.7% over the same period of the prior year mainly due to better operational performance, which was offset by higher financial expenses, mainly related to the increase in leverage due to UNIT Alagoas and FITS Jaboatao business combination and higher interest rates, when compared to the same period of the prior year. Adjusted Net Income for the six-month period of 2023 was R$ 298.3 million, an increase of 4.2% year over year.

Adjusted EPS reached R$3.20 per share for the six-month period ended June 30, 2023, an increase of 5.2% year over year, for the reasons as presented above.

Table 8: Adjusted Net Income
(in thousands of R$) For the three months period ended June 30, For the six months period ended June 30,

2023

2022

% Chg

2023

2022

% Chg
Net income

87,537

106,073

 

-17.5%

205,310

241,015

-14.8%

Amortization of customer relationships and trademark (1)

29,983

18,724

 

60.1%

54,186

37,007

46.4%

Share-based compensation

6,902

8,652

 

-20.2%

13,398

11,581

15.7%

Non-recurring expenses:

7,481

(14,302

)

n.a.

25,388

-3,275

n.a.
- Integration of new companies (2)

6,282

5,781

 

8.7%

12,182

9,952

22.4%

- M&A advisory and due diligence (3)

635

594

 

6.9%

11,674

1,806

546.4%

- Expansion projects (4)

378

677

 

-44.2%

529

1,279

-58.6%

- Restructuring expenses (5)

556

723

 

-23.1%

1,951

4,373

-55.4%

- Mandatory Discounts in Tuition Fees (6)

-370

-22,077

 

-98.3%

-948

-20,685

-95.4%

Adjusted Net Income

131,903

119,147

 

10.7%

298,282

286,328

4.2%

Basic earnings per share - in R$ (7)

0.92

1.12

 

-17.8%

2.17

2.55

-14.8%

Adjusted earnings per share - in R$ (8)

1.42

1.27

 

11.8%

3.20

3.05

5.2%

(1) Consists of amortization of customer relationships and trademark recorded under business combinations.
(2) Consists of expenses related to the integration of newly acquired companies.
(3) Consists of expenses related to professional and consultant fees in connection with due diligence services for our M&A transactions.
(4) Consists of expenses related to professional and consultant fees in connection with the opening of new campuses.
(5) Consists of expenses related to the employee redundancies in connection with the organizational restructuring of our acquired companies.
(6) Consists of mandatory discounts in tuition fees granted by state decrees, individual/collective legal proceedings and public civil proceedings due to COVID 19 on site classes restriction and excludes any recovery of these discounts that were invoiced based on the Supreme Court decision.
(7) Basic earnings per share: Net Income/Weighted average number of outstanding shares.
(8) Adjusted earnings per share: Adjusted Net Income attributable to equity holders of the Parent/Weighted average number of outstanding shares.

Cash and Debt Position

On June 30, 2023, Cash and Cash Equivalents were R$741.2 million, a decrease of 32.2% over December 31, 2022, due to UNIT Alagoas and FITS Jaboatão dos Guararapes business combination.

For the six-month period ended June 30, 2023, Afya reported cash flow from operating activities of R$566.5 million, up from R$450.0 million in the same period of the previous year, an increase of 25.9% YoY, boosted by the solid operational results. Operating Cash Conversion Ratio was strong once again, achieving 98.9% for the six-month period ended June 30, 2023, compared to 91.0% in the same period of the previous year.

On June 30, 2023, Net Debt, excluding the effect of IFRS 16, totaled R$2,003.6 million. When compared to December 31, 2022 Net Debt added to R$825 million related to UNIT Alagoas and FITS Jaboatão dos Guararapes business combination closed on January 2, 2023, the Net Debt reduced R$ 202 million due to the strong Cash flow from operating activities in the semester.

Table 9: Operating Cash Conversion Ratio Reconciliation For the six months period ended June 30,
(in thousands of R$) Considering the adoption of IFRS 16

2023

2022

% Chg
(a) Net cash flows from operating activities

537,492

427,916

25.6%

(b) Income taxes paid

28,988

22,101

31.2%

(c) = (a) + (b) Cash flow from operating activities

566,480

450,017

25.9%

 
(d) Adjusted EBITDA

598,373

490,987

21.9%

(e) Non-recurring expenses:

25,388

-3,275

n.a.
- Integration of new companies (1)

12,182

9,952

22.4%

- M&A advisory and due diligence (2)

11,674

1,806

546.4%

- Expansion projects (3)

529

1,279

-58.6%

- Restructuring Expenses (4)

1,951

4,373

-55.4%

- Mandatory Discounts in Tuition Fees (5)

-948

-20,685

-95.4%

(f) = (d) - (e) Adjusted EBITDA ex- non-recurring expenses

572,985

494,262

15.9%

(g) = (c) / (f) Operating cash conversion ratio

98.9%

91.0%

790 bps
(1) Consists of expenses related to the integration of newly acquired companies.
(2) Consists of expenses related to professional and consultant fees in connection with due diligence services for M&A transactions.
(3) Consists of expenses related to professional and consultant fees in connection with the opening of new campuses.
(4) Consists of expenses related to the employee redundancies in connection with the organizational restructuring of acquired companies.
(5) Consists of mandatory discounts in tuition fees granted by state decrees, individual/collective legal proceedings and public civil proceedings due to COVID 19 on site classes restriction and excludes any recovery of these discounts that were invoiced based on the Supreme Court decision.

The following table shows more information regarding the cost of debt for 1H23, considering loans and financing, capital market and accounts payable to selling shareholders. Afya’s capital structure remains solid with a conservative leveraging position and a low cost of debt. Considering the mid guidance for 2023, Afya’s Net Debt/ Adjusted Ebitda would be 1.7x.

Table 10: Gross Debt and Average Cost of Debt
(in millions of R$) For the closing of the six months period ended in June 30,
Cost of Debt

Gross Debt

Duration (Years)

per year

%CDI*

Loans and financing: Softbank

825

2.9

6.5%

48%

Capital Market

537

4.1

15.5%

114%

Loans and financing: Others

563

1.6

15.5%

114%

Accounts payable to selling shareholders

820

1.0

13.0%

97%

Average

2,745

2.3

11.9%

89%

*Based on the annualized Interbank Certificates of Deposit ("CDI") rate for the period as a reference: 1H23: ~13.65% p.y.
Table 11: Cash and Debt Position
(in thousands of R$)

2Q23

FY2022

% Chg

2Q22

% Chg
(+) Cash and Cash Equivalents

741,196

1,093,082

-32.2%

616,250

20.3%

Cash and Bank Deposits

17,057

57,509

-70.3%

47,583

-64.2%

Cash Equivalents

724,139

1,035,573

-30.1%

568,667

27.3%

(-) Loans and Financing

1,925,154

1,882,901

2.2%

1,380,540

39.4%

Current

193,660

145,202

33.4%

230,494

-16.0%

Non-Current

1,731,494

1,737,699

-0.4%

1,150,046

50.6%

(-) Accounts Payable to Selling Shareholders

764,595

528,678

44.6%

649,626

17.7%

Current

401,766

261,711

53.5%

203,979

97.0%

Non-Current

362,829

266,967

35.9%

445,647

-18.6%

(-) Other Short and Long Term Obligations

55,045

62,176

-11.5%

69,456

-20.7%

(=) Net Debt (Cash) excluding IFRS 16

2,003,598

1,380,673

45.1%

1,483,372

35.1%

(-) Lease Liabilities

851,845

769,525

10.7%

741,825

14.8%

Current

35,292

32,459

8.7%

28,619

23.3%

Non-Current

816,553

737,066

10.8%

713,206

14.5%

Net Debt (Cash) with IFRS 16

2,855,443

2,150,198

32.8%

2,225,197

28.3%

CAPEX

Capital expenditures consists of the purchase of property and equipment and intangible assets, including expenditures mainly related to the expansion and maintenance of our campuses and headquarters including leasehold improvements, and the development of new solutions in the digital segment, among others.

For the six-month period ending June 30, 2023, CAPEX went from R$161.2 million to R$102.2 million, a decrease of 36.6% over the same period of the prior year.

Table 12: CAPEX
(in thousands of R$) For the six months period ended June 30,

2023

2022

% Chg
CAPEX

102,157

161,218

-36.6%

Property and equipment

56,907

62,266

-8.6%

Intanglibe assets

45,250

98,952

-54.3%

- Licenses

0

24,408

n.a.
- Goodwill

0

36,481

n.a.
- Others

45,250

38,063

18.9%

ESG Metrics

ESG commitment is an important part of Afya’s strategy and permeates the Company’s core values. Afya has been advancing year after year on its core pillars and, since 2021, ESG metrics have been disclosed in the Company’s quarterly financial results.

On January 2023, Afya announced it is one of 484 companies across 45 countries and regions to join the 2023 Bloomberg Gender-Equality Index (GEI), a modified market capitalization-weighted index that aims to track the performance of public companies committed to transparency in gender-data reporting. This reference index measures gender equality across five pillars: leadership & talent pipeline, equal pay & gender pay parity, inclusive culture, anti-sexual harassment policies, and external brand. In addition, for the second time in a row, Afya was included on the index for scoring above a global threshold established by Bloomberg to reflect disclosure and the achievement or adoption of best-in-class statistics and policies, being 1 of 16 Brazilian companies included in the index this year.

The 2022 Sustainability Report can be found at: https://ir.afya.com.br/corporate-governance/sustainability/

Table 13: ESG Metrics

2Q23

2Q22

2022

2021

2020

2019

# GRI

Governance and Employee Management

1

405-1

Number of employees

9,795

8,731

8,708

8,079

6,100

3,369

2

405-1

Percentage of female employees

57%

56%

57%

55%

55%

57%

3

405-1

Percentage of female employees in the board of directors

36%

27%

40%

18%

18%

22%

4

102-24

Percentage of independent member in the board of directors

36%

36%

30%

36%

36%

22%

 

Environmental

4

302-1

Total energy consumption (kWh)

5,643,324

3,598,250

17,011,842

12,176,966

8,035,845

5,928,450

4.1

302-1

Consumption per campus

122,681

94,691

412,747

385,573

321,434

395,230

5

302-1

% supplied by distribution companies

58.0%

69.4%

72.4%

91.3%

83.4%

96.2%

6

302-1

% supplied by other sources

42.0%

30.6%

27.6%

8.7%

16.6%

3.8%

Social

8

413-1

Number of free clinical consultations offered by Afya

168,362

143,236

494,635

341,286

427,184

270,000

9

Number of physicians graduated in Afya's campuses

18,865

16,998

18,104

16,772

12,691

8,306

10

201-4

Number of students with financing and scholarship programs (FIES and PROUNI)

10,045

8,783

10,965

7,881

4,999

2,808

11

% students with scholarships over total undergraduate students

15.1%

14.1%

18.8%

12.9%

13.7%

11.7%

12

413-1

Hospital, clinics and city halls partnerships

714

449

662

447

432

60

(1) Some factors can influence in the adequate proportionality analysis of data over the years, such as: climate changes, COVID-19 pandemic effects, seasonalities, number of employees, number of students, number of active units, among others.
(2) "Other sources" refers to: (a) Derived from renewable sources, such as solar panels installed in the units; and (b) Derived from the search for alternative energy options in the market.
(3) Starting in 2Q22, previously disclosed environmental data were updated to consider: (a) GHG Protocol guidelines improvements, and (b) additional data-collection criteria refinements.
(4) Starting in 2Q22, previously disclosed social data were updated to consider: (a) the number of graduated physicians considering all units after its closing, and (b) partnerships related only to medical schools.

5. Conference Call and Webcast Information

When:

August 28, 2023 at 5:00 p.m. ET.

 

Who:

Mr. Virgilio Gibbon, Chief Executive Officer

Mr. Luis André Blanco, Chief Financial Officer

Ms. Renata Costa Couto, IR Director

 

Dial-in: Brazil: +55 21 3958 7888 or +55 11 4632 2236 or +55 11 4632 2237 or +55 11 4680 6788 or +55 11 4700 9668

 

United States: +1 305 224 1968 or +1 309 205 3325 or +1 312 626 6799 or +1 346 248 7799 or +1 360 209 5623 or +1 386 347 5053 or +1 507 473 4847 or +1 564 217 2000 or +1 646 931 3860 or +1 669 444 9171 or +1 669 900 6833 or +1 689 278 1000 or +1 719 359 4580 or +1 929 205 6099 or +1 253 205 0468 or +1 253 215 8782 or +1 301 715 8592

 

Webinar ID: 987 2513 9496

 

Other Numbers: https://afya.zoom.us/u/abiXHObhrF

 

OR

 

Webcast: https://afya.zoom.us/j/98725139496

6. About Afya Limited (Nasdaq: AFYA)

Afya is the leading medical education group in Brazil based on number of medical school seats. It delivers an end-to-end physician-centric ecosystem that serves and empowers students to be lifelong medical learners, from the moment they enroll as medical students, through their medical residency preparation, graduate program, and continuing medical education activities. Afya also offers content and clinical decision applications for healthcare professionals through its products WhiteBook, Nursebook and Portal PEBMED. For more information, please visit www.afya.com.br.

7. Forward – Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. All statements other than statements of historical fact could be deemed forward looking, and include risks and uncertainties related to statements about our competition; our ability to attract, upsell and retain students; our ability to increase tuition prices and prep course fees; our ability to anticipate and meet the evolving needs of students and professors; our ability to source and successfully integrate acquisitions; general market, political, economic, and business conditions; and our financial targets such as revenue, share count and IFRS and non-IFRS financial measures including gross margin, operating margin, net income (loss) per diluted share, and free cash flow. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the potential impacts of the COVID-19 pandemic on our business operations, financial results and financial position and the Brazilian economy.

The Company undertakes no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law. The achievement or success of the matters covered by such forward-looking statements involves known and unknown risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. Readers should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent management’s beliefs and assumptions only as of the date such statements are made. Further information on these and other factors that could affect the Company’s financial results are included in the filings made with the United States Securities and Exchange Commission (SEC) from time to time, including the section titled “Risk Factors” in the most recent Rule 434(b) prospectus. These documents are available on the SEC Filings section of the investor relations section of our website at: https://ir.afya.com.br/.

8. Non-GAAP Financial Measures

To supplement the Company's consolidated financial statements, which are prepared and presented in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board—IASB, Afya uses Adjusted EBITDA and Operating Cash Conversion Ratio information, which are non-GAAP financial measures, for the convenience of investors. A non-GAAP financial measure is generally defined as one that intends to measure financial performance but excludes or includes amounts that would not be equally adjusted in the most comparable GAAP measure.

Afya calculates Adjusted EBITDA as net income plus/minus net financial result plus income taxes expense plus depreciation and amortization plus interest received on late payments of monthly tuition fees, plus share-based compensation plus/minus share of income of associate plus/minus non-recurring expenses. The calculation of Adjusted Net Income is net income plus amortization of customer relationships and trademark, plus share-based compensation. We calculate Operating Cash Conversion Ratio as the Cash flow from operating activities, adjusted with income taxes paid divided by Adjusted EBITDA plus/minus non-recurring expenses.

Management presents Adjusted EBITDA, because it believes these measures provide investors with a supplemental measure of financial performance of the core operations that facilitates period-to-period comparisons on a consistent basis. Afya also presents Operating Cash Conversion Ratio because it believes this measure provides investors with a measure of how efficiently the Company converts EBITDA into cash. The non-GAAP financial measures described in this prospectus are not a substitute for the IFRS measures of earnings. Additionally, calculations of Adjusted EBITDA and Operating Cash Conversion Ratio may be different from the calculations used by other companies, including competitors in the education services industry, and therefore, Afya’s measures may not be comparable to those of other companies.

9. Investor Relations Contact

E-mail: ir@afya.com.br

10. Financial Tables

 

Unaudited interim condensed consolidated statements of income and comprehensive income

For the three and six-month periods ended June 30, 2023 and 2022

(In thousands of Brazilian reais, except earnings per share)

 

 

Three-month period ended

Six-month period ended

 

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

 

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Net revenue

712,607

598,156

1,422,568

1,164,480

Cost of services

(284,295)

(219,242)

(531,902)

(405,972)

Gross profit

428,312

378,914

890,666

758,508

 

 

 

 

 

General and administrative expenses

(249,586)

(207,415)

(482,806)

(385,929)

Other expenses, net

(2,083)

(1,257)

(1,678)

(1,566)

 

 

 

 

 

Operating income

176,643

170,242

406,182

371,013

 

 

 

 

 

Finance income

23,892

22,874

51,579

47,443

Finance expenses

(114,118)

(83,676)

(238,357)

(164,967)

Finance result

(90,226)

(60,802)

(186,778)

(117,524)

 

 

 

 

 

Share of income of associate

3,210

2,201

7,056

6,441

 

 

 

 

 

Income before income taxes

89,627

111,641

226,460

259,930

 

 

 

 

 

Income taxes expenses

(2,090)

(5,568)

(21,150)

(18,915)

 

 

 

 

 

Net income

87,537

106,073

205,310

241,015

 

 

 

 

 

Other comprehensive income

-

-

-

-

Total comprehensive income

87,537

106,073

205,310

241,015

 

 

 

 

 

Income attributable to

 

 

 

 

Equity holders of the parent

82,789

101,505

194,916

231,115

Non-controlling interests

4,748

4,568

10,394

9,900

 

87,537

106,073

205,310

241,015

Basic earnings per share

 

 

 

 

Per common share

0.92

1.12

2.17

2.55

Diluted earnings per share

 

 

 

 

Per common share

0.92

1.12

2.16

2.55

 

Unaudited interim condensed consolidated statements of financial position

As of June 30, 2023, and December 31, 2022

(In thousands of Brazilian reais)

 

 

June 30, 2023

 

December 31, 2022

Assets

(unaudited)

 

 

Current assets

 

 

 

Cash and cash equivalents

741,196

 

1,093,082

Trade receivables

509,520

 

452,831

Inventories

8,088

 

12,190

Recoverable taxes

51,505

 

27,809

Other assets

63,930

 

51,745

Total current assets

1,374,239

 

1,637,657

 

 

 

Non-current assets

 

 

Trade receivables

42,893

 

42,568

Other assets

200,448

 

191,756

Investment in associate

52,669

 

53,907

Property and equipment

588,178

 

542,087

Right-of-use assets

759,512

 

690,073

Intangible assets

4,831,529

 

4,041,491

Total non-current assets

6,475,229

 

5,561,882

 

 

 

Total assets

7,849,468

 

7,199,539

 

 

 

Liabilities

 

 

Current liabilities

 

 

Trade payables

82,632

 

71,482

Loans and financing

193,660

 

145,202

Lease liabilities

35,292

 

32,459

Accounts payable to selling shareholders

401,766

 

261,711

Notes payable

55,045

 

62,176

Advances from customers

121,838

 

133,050

Labor and social obligations

220,019

 

154,518

Taxes payable

26,455

 

26,221

Income taxes payable

30,465

 

16,151

Other liabilities

3,509

 

2,719

Total current liabilities

1,170,681

 

905,689

 

 

 

Non-current liabilities

 

 

Loans and financing

1,731,494

 

1,737,699

Lease liabilities

816,553

 

737,066

Accounts payable to selling shareholders

362,829

 

266,967

Taxes payable

91,286

 

92,888

Provision for legal proceedings

202,940

 

195,854

Other liabilities

27,488

 

13,218

Total non-current liabilities

3,232,590

 

3,043,692

Total liabilities

4,403,271

 

3,949,381

 

 

 

Equity

 

 

Share capital

17

 

17

Additional paid-in capital

2,372,773

 

2,375,344

Share-based compensation reserve

136,936

 

123,538

Treasury stock

(314,745)

 

(304,947)

Retained earnings

1,199,802

 

1,004,886

Equity attributable to equity holders of the parent

3,394,783

 

3,198,838

Non-controlling interests

51,414

 

51,320

Total equity

3,446,197

 

3,250,158

 

 

 

Total liabilities and equity

7,849,468

 

7,199,539

Unaudited interim condensed consolidated statements of cash flow

For the six-month periods ended June 30, 2023 and 2022

(In thousands of Brazilian reais)

 

 

June 30, 2023

June 30, 2022

Operating activities

(unaudited)

(unaudited)

Income before income taxes

226,460

259,930

Adjustments to reconcile income before income taxes

 

 

Depreciation and amortization

138,264

99,089

Write-off of property and equipment

246

2,483

Write-off of intangible assets

259

2,549

Allowance for doubtful accounts

39,086

30,420

Share-based compensation expense

13,398

11,581

Net foreign exchange differences

539

320

Accrued interest

152,404

95,165

Accrued lease interest

49,033

41,392

Share of income of associate

(7,056)

(6,441)

Provision for legal proceedings

6,934

12,047

Changes in assets and liabilities

 

 

Trade receivables

(62,359)

(88,472)

Inventories

4,241

(3,314)

Recoverable taxes

(23,107)

(13,644)

Other assets

(9,121)

(7,886)

Trade payables

(1,103)

2,952

Taxes payables

18,502

5,247

Advances from customers

(43,709)

(31,668)

Labor and social obligations

59,249

44,565

Other liabilities

4,320

(6,298)

 

566,480

450,017

Income taxes paid

(28,988)

(22,101)

 

 

 

Net cash flows from operating activities

537,492

427,916

 

 

 

Investing activities

 

 

Acquisition of property and equipment

(56,907)

(62,266)

Acquisition of intangibles assets

(45,250)

(50,267)

Dividends received

5,101

2,838

Acquisition of subsidiaries, net of cash acquired

(640,858)

(177,815)

Net cash flows used in investing activities

(737,914)

(287,510)

 

 

 

Financing activities

 

 

Payments of loans and financing

(67,305)

(53,795)

Proceeds from loans and financing

5,288

-

Payments of lease liabilities

(66,239)

(55,074)

Treasury shares buy-back

(12,369)

(152,317)

Dividends paid to non-controlling shareholders

(10,300)

(11,212)

Net cash flows used in financing activities

(150,925)

(272,398)

Net foreign exchange differences

(539)

(320)

Net decrease in cash and cash equivalents

(351,886)

(132,312)

Cash and cash equivalents at the beginning of the period

1,093,082

748,562

Cash and cash equivalents at the end of the period

741,196

616,250

Reconciliation between Net Income and Adjusted EBITDA

 
Reconciliation between Adjusted EBITDA and Net Income
 
(in thousands of R$) For the three months period ended June 30, For the six months period ended June 30,

2023

2022

% Chg

2023

2022

% Chg
Net income

87,537

106,073

-17.5%

205,310

241,015

-14.8%

Net financial result

90,226

60,802

48.4%

186,778

117,524

58.9%

Income taxes expense

2,090

5,568

-62.5%

21,150

18,915

11.8%

Depreciation and amortization

72,306

50,702

42.6%

138,264

99,089

39.5%

Interest received (1)

4,842

4,892

-1.0%

15,141

12,579

20.4%

Income share associate

(3,210)

(2,201)

45.8%

(7,056)

(6,441)

9.5%

Share-based compensation

6,902

8,652

-20.2%

13,398

11,581

15.7%

Non-recurring expenses:

7,481

(14,302)

n.a.

25,388

(3,275)

n.a.
- Integration of new companies (2)

6,282

5,781

8.7%

12,182

9,952

22.4%

- M&A advisory and due diligence (3)

635

594

6.9%

11,674

1,806

546.4%

- Expansion projects (4)

378

677

-44.2%

529

1,279

-58.6%

- Restructuring expenses (5)

556

723

-23.1%

1,951

4,373

-55.4%

- Mandatory Discounts in Tuition Fees (6)

(370)

(22,077)

-98.3%

(948)

(20,685)

n.a.
Adjusted EBITDA

268,174

220,186

21.8%

598,373

490,987

21.87%

Adjusted EBITDA Margin

37.7%

38.2%

-50 bps

42.1%

42.9%

-80 bps
(1) Represents the interest received on late payments of monthly tuition fees.
(2) Consists of expenses related to the integration of newly acquired companies.
(3) Consists of expenses related to professional and consultant fees in connection with due diligence services for our M&A transactions.
(4) Consists of expenses related to professional and consultant fees in connection with the opening of new campuses.
(5) Consists of expenses related to the employee redundancies in connection with the organizational restructuring of our acquired companies.
(6) Consists of mandatory discounts in tuition fees granted by state decrees, individual/collective legal proceedings and public civil proceedings due to COVID 19 on site classes restriction and excludes any recovery of these discounts that were invoiced based on the Supreme Court decision.

 

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