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Afya Limited Announces First-Quarter 2023 Financial Results

High and Predictable Growth

Full Year 2023 Guidance Reaffirmed

Afya Limited (Nasdaq: AFYA) (“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-month period ended March 31, 2023 (first quarter 2023). Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

First Quarter 2023 Highlights

  • 1Q23 Adjusted Net Revenue increased 25.0% YoY to R$709.4 million. Adjusted Net Revenue excluding acquisitions grew 13.5%, reaching R$644.3 million.
  • 1Q23 Adjusted EBITDA increased 21.9% YoY reaching R$330.2 million, with an Adjusted EBITDA Margin of 46.5%. Adjusted EBITDA excluding acquisitions grew 12.3%, reaching R$304.2 million, with an Adjusted EBITDA Margin of 47.2%.
  • Cash conversion of 111.9%, with a solid cash position of R$ 722.7 million.
  • ~295 thousand monthly active physicians and medical students using Afya’s Digital Services.
Table 1: Financial Highlights
For the three months period ended March 31,
(in thousand of R$)

2023

2023 Ex Acquisitions*

2022

% Chg

% Chg Ex Acquisitions

(a) Net Revenue

709,961

644,849

566,324

25.4%

13.9%

(b) Adjusted Net Revenue (1)

709,383

644,271

567,716

25.0%

13.5%

(c) Adjusted EBITDA (2)

330,211

304,231

270,801

21.9%

12.3%

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

46.5%

47.2%

47.7%

-120 bps -50 bps
 
*For the three months period ended March 31, 2023, "2023 Ex Acquisitions" excludes: Alem da Medicina (January & February 2023; Closing of Alem da Medicina was in March, 2022), Glic, Cardiopapers and UNIT Alagoas and FITS Jaboatão dos Guararapes (all from January to March, 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

For us in Afya, these results indicate another great start for the year ahead. We are proud to present, once again, strong results, reaffirming the success and resilience of Afya, along with high and predictable growth, and a solid cash generation.

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 Continue Education segment with a robust intake process, six new campuses, and course maturation.

Our second most significant growth came from our core business, as we saw higher tickets in Medicine courses, maturation of medical seats, the beginning of 4 Mais Médicos campuses, consolidation of UNIT Alagoas and FITS Jaboatão dos Guararapes acquisition, and the consolidation of 92 new medical seats, 28 in the UniSL Ji-Paraná campus, located in Rondônia, and 64 in Faculdade Santo Agostinho, in the city of Itabuna, situated in the state of Bahia.

And, once again, Afya reported great results on the Digital Health Services revenue, which ended the quarter with an increase of 20% when compared to last year. 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 contracts, as we will discuss further on.

High and predictable growth, strong guidance for the year, and segments ramp-up: this proves how we are evolving and empowering our vision to transform health together with those who have medicine as a vocation. We are proud of our business and also excited for what comes next during this year.

1. Key Events in the Quarter:

  • Afya announced on January 2nd, 2023, the closing of its acquisition of 100% of the total share capital of Sociedade Educacional e Cultural Sergipe DelRey Ltda. (“DelRey”), that encompasses the operations of Centro Universitário Tiradentes Alagoas (“UNIT Alagoas”) and Faculdade Tiradentes Jaboatão dos Guararapes (“FITS Jaboatão dos Guararapes”), on the terms previously disclosed.
  • Afya announced on January 31st, 2023, that 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. 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.
  • Fourth share repurchase program, on March 2023 - the Board of Directors approved a new share repurchase program. Under this share repurchase program, Afya may repurchase up to 2,000,000 of its outstanding Class A common shares which represents approximately 5.8% of its free float in accordance with the conditions established by the Board of Directors on March 24, 2023. Accordingly, in connection with repurchases under the new program, Afya also announced that entered into a written trading plan with BofA Securities, Inc., as the independent broker-dealer, which is intended to comply with the requirements of Rule 10b5-1 and Rule 10b-18 each under the Securities and Exchange Act of 1934, as amended.

2. 2023 Guidance

The Company is reaffirming its previously issued guidance for 2023 which considers the successfully concluded acceptances of new students, ensuring 100% occupancy in all of its medical schools.

Considering the above factors, the guidance for 2023 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.

3. 1Q23 Overview

Operational Review

Afya is the only Company offering educational and technological solutions to support physicians across every stage of their 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 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 and 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 Three months period ended March 31,

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)

20,822

17,523

18.8%

Average Total Students

20,822

17,523

18.8%

Average Total Students (ex-Acquisitions)*

18,819

17,523

7.4%

Tuition Fees (Total - R$ '000)

630,960

501,523

25.8%

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

573,747

501,523

14.4%

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

10,163

9,540

6.5%

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

8,517

7,861

8.3%

UNDERGRADUATE HEALTH SCIENCE
Total Students (end of period)

21,660

20,902

3.6%

Average Total Students

21,660

20,902

3.6%

Average Total Students (ex-Acquisitions)*

19,788

20,902

-5.3%

Tuition Fees (Total - R$ '000)

97,968

78,310

25.1%

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

90,296

78,310

15.3%

OTHER UNDERGRADUATE
Total Students (end of period)

25,043

24,209

3.4%

Average Total Students

25,043

24,209

3.4%

Average Total Students (ex-Acquisitions)*

21,882

24,209

-9.6%

Tuition Fees (Total - R$ '000)

77,174

69,182

11.6%

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

66,889

69,182

-3.3%

TOTAL TUITION FEES
Tuition Fees (Total - R$ '000)

806,101

649,015

24.2%

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

730,932

649,015

12.6%

*For the three months period ended March 31, 2023, "2023 Ex Acquisitions" excludes: Alem da Medicina (January & February 2023; Closing of Alem da Medicina was in March, 2022), Glic, Cardiopapers and UNIT Alagoas and FITS Jaboatão dos Guararapes (all from January to March, 2023).

Key Revenue Drivers – Continuing Education and Digital Services

Table 3: Key Revenue Drivers Three months period ended March 31,

2023

2022

% Chg

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

4,774

3,479

37.2%

Average Total Students

4,774

3,479

37.2%

Average Total Students (ex-Acquisitions)

4,774

3,479

37.2%

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

34,960

23,851

46.6%

Net Revenue from courses (ex- Acquisitions¹)

34,960

23,851

46.6%

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

6,147

11,673

-47.3%

Prep Courses & CME - B2B

5,988

4,574

30.9%

Além da Medicina Active Payers

6,222

6,345

-1.9%

Cardiopapers Active Payers

7,083

-

-

Medical Harbour Active Payers

21,686

-

-

Clinical Decision Software
Whitebook Active Payers

143,832

131,193

9.6%

Clinical Management Tools²
iClinic Active Payers

23,740

19,622

21.0%

Shosp Active Payers

2,881

2,278

26.5%

 
Digital Services Total Active Payers (end of period)

217,579

175,685

23.8%

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

56,792

47,477

19.6%

Net Revenue - B2P

46,603

41,197

13.1%

Net Revenue - B2B

10,187

6,280

62.2%

Net Revenue From Services (ex-Acquisitions¹)

49,834

47,477

5.0%

*For the three months period ended March 31, 2023, "2023 Ex Acquisitions" excludes: Alem da Medicina (January & February 2023; Closing of Alem da Medicina was in March, 2022), Glic, Cardiopapers and UNIT Alagoas and FITS Jaboatão dos Guararapes (all from January to March, 2023).
(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 295 thousand, 13.6% higher than the same period of last year.

Monthly Unique Active 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)

1Q23

1Q22

% Chg YoY

4Q22

Content & Technology for Medical Education

31,549

21,464

47.0%

16,539

Clinical Decision Software

237,003

218,313

8.6%

221,762

Clinical Management Tools¹

24,568

19,762

24.3%

20,936

Physician-Patiet Relationship

1,773

-

1,473

Total Monthly Active Users (MaU) - Digital Services

294,893

259,539

13.6%

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)

1Q23

1Q22

% Chg QoQ

4Q22

 
Total Monthly Unique Active Users (MuaU) - Digital Services

262,137

242,374

8.2%

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 first quarter of 2023 was R$709.4 million, an increase of 25.0% over the same period of the prior year, mainly due to higher tickets in Medicine courses in 8.3%, maturation of medical seats, the beginning of 4 Mais Médicos campuses, consolidation of UNIT Alagoas and FITS Jaboatão dos Guararapes acquisition, the Continuing Education high performance and Digital Services execution.

The Digital Services segment increased 19.6% year over year, a combination of (a) B2B engagements, and (b) expansion of the active payers in the B2P, mainly in Whitebook, iClinic, and Shosp, partially offset by the lower performance of Medcel, due to a higher competition scenario in the Residency Preparatory market; and (c) consolidation of Alem da Medicina, Glic, and Cardiopapers.

Table 6: Revenue & Revenue Mix
(in thousands of R$) For the three months period ended March 31,

2023

2023 Ex Acquisitions*

2022

% Chg

% Chg Ex Acquisitions

Net Revenue Mix
Undergrad

620,976

562,822

495,395

25.3%

13.6%

Adjusted Undergrad¹

620,398

562,244

496,787

24.9%

13.2%

Continuing Education

34,960

34,960

23,851

46.6%

46.6%

Digital Services

56,792

49,834

47,477

19.6%

5.0%

Inter-segment transactions

- 2,767

- 2,767

- 399

n.a

593.5%

Total Reported Net Revenue

709,961

644,849

566,324

25.4%

13.9%

Total Adjusted Net Revenue ¹

709,383

644,271

567,716

25.0%

13.5%

*For the three months period ended March 31, 2023, "2023 Ex Acquisitions" excludes: Alem da Medicina (January & February 2023; Closing of Alem da Medicina was in March, 2022), Glic, Cardiopapers and UNIT Alagoas and FITS Jaboatão dos Guararapes (all from January to March, 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 March 31, 2023, increased 21.9% to R$330.2 million, up from R$270.8 million in the same period of the prior year, and the Adjusted EBITDA Margin decreased 120 basis points to 46.5%. The Adjusted EBITDA Margin reduction is mainly due to the following: (a) Digital segment, primarily due to Medcel’s performance; and (b) 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 March 31,

2023

2023 Ex Acquisitions*

2022

% Chg

% Chg Ex Acquisitions

Adjusted EBITDA

330,211

304,231

270,801

21.9%

12.3%

% Margin

46.5%

47.2%

47.7%

-120 bps -50 bps
*For the three months period ended March 31, 2023, "2023 Ex Acquisitions" excludes: Alem da Medicina (January & February 2023; Closing of Alem da Medicina was in March, 2022), Glic, Cardiopapers and UNIT Alagoas and FITS Jaboatão dos Guararapes (all from January to March, 2023).

Adjusted Net Income

Net Income for the first quarter of 2023 was R$117.8 million, a decrease of 12.7% over the same period of the prior year. Adjusted Net Income for the first quarter of 2023 was R$166.4 million, in line with the same period from the previous 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.

Table 8: Adjusted Net Income
(in thousands of R$) For the three months period ended March 31,

2023

2022

% Chg

Net income

117,772

134,942

-12.7%

Amortization of customer relationships and trademark (1)

24,203

18,283

32.4%

Share-based compensation

6,495

2,929

121.7%

Non-recurring expenses:

17,907

11,027

62.4%

- Integration of new companies (2)

5,900

4,171

41.5%

- M&A advisory and due diligence (3)

11,039

1,212

810.8%

- Expansion projects (4)

151

602

-74.9%

- Restructuring expenses (5)

1,395

3,650

-61.8%

- Mandatory Discounts in Tuition Fees (6)

- 578

1,392

n.a.
Adjusted Net Income

166,377

167,181

-0.5%

Basic earnings per share - in R$ (7)

1.25

1.42

-12.0%

Adjusted earnings per share - in R$ (8)

1.77

1.77

0.0%

(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 March 31, 2023, Cash and Cash Equivalents were R$722.7 million, a decrease of 33.9% over December 31, 2022, due to UNIT Alagoas and FITS Jaboatão dos Guararapes business combination.

For the three-month period ended March 31, 2023, Afya reported Adjusted Cash Flow from Operations of R$349.4 million, up from R$293.6 million in the same period of the previous year, an increase of 19.0% YoY, boosted by the solid operational results. Operating Cash Conversion Ratio was 111.9% for the three-month period that ended on March 31, 2023.

On March 31, 2023, Net Debt, excluding the effect of IFRS 16, totaled R$2,029 million. When compared to December 31, 2022 Net Debt added to R$825 million related to UNIT Alagoas and FITS Jaboatão dos Guararapes business combination closed on January 2, 2023, the Net Debt reduced R$ 177 million due to the strong cash flow generation in the quarter.

The following table shows more information regarding the cost of debt of 1Q23, 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.

Table 9: Operating Cash Conversion Ratio Reconciliation For the three months period ended March 31,
(in thousands of R$) Considering the adoption of IFRS 16

2023

2022

% Chg

(a) Cash flow from operations

331,554

278,715

19.0%

(b) Income taxes paid

17,819

14,850

20.0%

(c) = (a) + (b) Adjusted cash flow from operations

349,373

293,565

19.0%

 
(d) Adjusted EBITDA

330,211

270,801

21.9%

(e) Non-recurring expenses:

17,907

11,027

62.4%

- Integration of new companies (1)

5,900

4,171

41.5%

- M&A advisory and due diligence (2)

11,039

1,212

810.8%

- Expansion projects (3)

151

602

-74.9%

- Restructuring Expenses (4)

1,395

3,650

-61.8%

- Mandatory Discounts in Tuition Fees (5)

-578

1,392

n.a.

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

312,304

259,774

20.2%

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

111.9%

113.0%

-110 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.
Table 10: Gross Debt and Average Cost of Debt
(in millions of R$) For the three months period ended March 31,
Cost of Debt
Gross Debt Duration (Years) per year %CDI*
Loans and financing: Softbank

825

3.1

6.5%

48%

Capital Market

519

4.4

15.7%

114%

Loans and financing: Others

580

1.9

15.7%

114%

Accounts payable to selling shareholders

828

1.2

13.3%

97%

Average

2,751

2.6

12.1%

89%

**Based on the annualized Interbank Certificates of Deposit ("CDI") rate for the period as a reference:

1Q23: ~13.65% p.y.
Table 11: Cash and Debt Position
(in thousands of R$)

1Q23

FY2022

% Chg

1Q22

% Chg

(+) Cash and Cash Equivalents

722,691

1,093,082

-33.9%

789,435

-8.5%

Cash and Bank Deposits

28,375

57,509

-50.7%

42,648

-33.5%

Cash Equivalents

694,316

1,035,573

-33.0%

746,787

-7.0%

(-) Loans and Financing

1,923,737

1,882,901

2.2%

1,388,841

38.5%

Current

193,214

145,202

33.1%

142,654

35.4%

Non-Current

1,730,523

1,737,699

-0.4%

1,246,187

38.9%

(-) Accounts Payable to Selling Shareholders

769,274

528,678

45.5%

698,413

10.1%

Current

417,398

261,711

59.5%

264,520

57.8%

Non-Current

351,876

266,967

31.8%

433,893

-18.9%

(-) Other Short and Long Term Obligations

58,702

62,176

-5.6%

70,880

-17.2%

(=) Net Debt (Cash) excluding IFRS 16

2,029,022

1,380,673

47.0%

1,368,699

48.2%

(-) Lease Liabilities

864,983

769,525

12.4%

733,420

17.9%

Current

38,026

32,459

17.2%

27,750

37.0%

Non-Current

826,957

737,066

12.2%

705,670

17.2%

Net Debt (Cash) with IFRS 16

2,894,005

2,150,198

34.6%

2,102,119

37.7%

CAPEX

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

For the three-months period ending March 31, 2023, CAPEX was R$46.4 million, representing 6.5% of Afya’s Net Revenue.

Table 12: CAPEX
(in thousands of R$) For the three months period ended March 31,

2023

2022

% Chg

CAPEX

46,429

76,759

-39.5%

Property and equipment

27,299

30,670

-11.0%

Intanglibe assets

19,130

46,088

-58.5%

- Licenses

0

24,408

n.a.
- Others

19,130

21,680

-11.8%

ESG Metrics

ESG commitment is essential to 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.

Furthermore, the 2021 Sustainability Report can be found at: https://ir.afya.com.br/ >> Corporate Governance >> Sustainability.

Table 13: ESG Metrics

1Q23

1Q22

2022

2021

2020

2019

# GRI

Governance and Employee Management

1

405-1

Number of employees

9,567

8,528

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

40%

18%

40%

18%

18%

22%

4

102-24

Percentage of independent member in the board of directors

30%

36%

30%

36%

36%

22%

 

Environmental

4

302-1

Total energy consumption (kWh)

5,468,733

3,678,812

17,011,842

12,176,966

8,035,845

5,928,450

4.1

302-1

Consumption per campus

118,855.5

96,811

412,747

385,573

321,434

395,230

5

302-1

% supplied by distribution companies

79.0%

75.0%

72.4%

91.3%

83.4%

96.2%

6

302-1

% supplied by other sources

21.0%

25.0%

27.6%

8.7%

16.6%

3.8%

 

Social

8

413-1

Number of free clinical consultations offered by Afya

116,979

80,751

494,635

341,286

427,184

270,000

9

 

Number of physicians graduated in Afya's campuses

18,126

16,824

18,104

16,772

12,691

8,306

10

201-4

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

9,619

8,223

10,965

7,881

4,999

2,808

11

 

% students with scholarships over total undergraduate students

14.2%

13.1%

18.8%

12.9%

13.7%

11.7%

12

413-1

Hospital, clinics and city halls partnerships

718

447

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.

4. Conference Call and Webcast Information

When:

March 24, 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

 

Webcast:

https://afya.zoom.us/j/96259212642
 

OR

 

Dial-in:

 

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

 

United States: +1 253 205 0468 or +1 253 215 8782 or +1 301 715 8592 or +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

 

Webinar ID: 962 5921 2642

 

Other Numbers: https://afya.zoom.us/u/aXW4bIxA

5. About Afya Limited (Nasdaq: AFYA)

Afya is a leading medical education group in Brazil based on the number of medical school seats, delivering an end-to-end physician-centric ecosystem that serves and empowers students and physicians to transform their ambitions into rewarding lifelong experiences from the moment they join us as medical students through their medical residency preparation, graduation program, continuing medical education activities and offering digital products to help doctors enhance their healthcare services through their whole career. For more information, please visit www.afya.com.br.

6. 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/.

7. 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 operations, 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.

8. Investor Relations Contact

E-mail: ir@afya.com.br

9. Financial Tables

Consolidated statements of financial position

(In thousands of Brazilian reais)

 

 

March 31, 2023

 

December 31, 2022

Assets

(unaudited)

 

 

Current assets

 

 

 

Cash and cash equivalents

722,691

 

1,093,082

Trade receivables

475,712

 

452,831

Inventories

9,925

 

12,190

Recoverable taxes

36,858

 

27,809

Other assets

50,123

 

51,745

Total current assets

1,295,309

 

1,637,657

 

 

 

Non-current assets

 

 

Trade receivables

45,966

 

42,568

Other assets

195,936

 

191,756

Investment in associate

54,152

 

53,907

Property and equipment

577,692

 

542,087

Right-of-use assets

777,086

 

690,073

Intangible assets

4,852,656

 

4,041,491

Total non-current assets

6,503,488

 

5,561,882

 

 

 

Total assets

7,798,797

 

7,199,539

 

 

 

Liabilities

 

 

Current liabilities

 

 

Trade payables

72,228

 

71,482

Loans and financing

193,214

 

145,202

Lease liabilities

38,026

 

32,459

Accounts payable to selling shareholders

417,398

 

261,711

Notes payable

58,702

 

62,176

Advances from customers

165,694

 

133,050

Labor and social obligations

188,928

 

154,518

Taxes payable

29,045

 

26,221

Income taxes payable

26,229

 

16,151

Other liabilities

4,932

 

2,719

Total current liabilities

1,194,396

 

905,689

 

 

 

Non-current liabilities

 

 

Loans and financing

1,730,523

 

1,737,699

Lease liabilities

826,957

 

737,066

Accounts payable to selling shareholders

351,876

 

266,967

Taxes payable

91,989

 

92,888

Provision for legal proceedings

199,160

 

195,854

Other liabilities

35,601

 

13,218

Total non-current liabilities

3,236,106

 

3,043,692

Total liabilities

4,430,502

 

3,949,381

 

 

 

Equity

 

 

Share capital

17

 

17

Additional paid-in capital

2,375,344

 

2,375,344

Share-based compensation reserve

130,033

 

123,538

Treasury stock

(304,947)

 

(304,947)

Retained earnings

1,117,010

 

1,004,886

Equity attributable to equity holders of the parent

3,317,457

 

3,198,838

Non-controlling interests

50,838

 

51,320

Total equity

3,368,295

 

3,250,158

 

 

 

Total liabilities and equity

7,798,797

 

7,199,539

Consolidated statements of income and comprehensive income

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

 

 

March 31, 2023

March 31, 2022

 

(unaudited)

(unaudited)

Net revenue

709,961

566,324

Cost of services

(247,607)

(186,730)

Gross profit

462,354

379,594

 

 

 

General and administrative expenses

(233,220)

(178,514)

Other (expenses) income, net

405

(309)

 

 

 

Operating income

229,539

200,771

 

 

 

Finance income

27,688

24,569

Finance expenses

(124,240)

(81,291)

Finance result

(96,552)

(56,722)

 

 

 

Share of income of associate

3,845

4,240

 

 

 

Income before income taxes

136,832

148,289

 

 

 

Income taxes expenses

(19,060)

(13,347)

 

 

 

Net income

117,772

134,942

 

 

 

Other comprehensive income

-

-

Total comprehensive income

117,772

134,942

 

 

 

Income attributable to

 

 

Equity holders of the parent

112,124

129,610

Non-controlling interests

5,648

5,332

 

117,772

134,942

Basic earnings per share

 

 

Per common share

1.25

1.42

Diluted earnings per share

Per common share

1.24

1.42

Consolidated statements of cash flows

(In thousands of Brazilian reais)

 

 

March 31, 2023

March 31, 2022

Operating activities

(unaudited)

(unaudited)

 

Income before income taxes

136,832

148,289

 

 

Adjustments to reconcile income before income taxes

 

 

 

 

 

Depreciation and amortization

65,971

48,387

 

 

 

Write-off of property and equipment

88

319

 

 

 

Write-off of intangible assets

246

2,894

 

 

 

Allowance for doubtful accounts

17,694

14,983

 

 

 

Share-based compensation expense

6,495

2,929

 

 

 

Net foreign exchange differences

161

126

 

 

 

Accrued interest

77,530

46,106

 

 

 

Accrued lease interest

25,524

20,641

 

 

 

Share of income of associate

(3,845)

(4,240)

 

 

 

Provision for legal proceedings

3,154

3,819

Changes in assets and liabilities

 

 

 

Trade receivables

(10,232)

(576)

 

Inventories

2,404

(2,037)

 

Recoverable taxes

(8,460)

(5,965)

 

Other assets

6,005

9,263

 

Trade payables

(11,507)

(2,736)

 

Taxes payables

8,480

1,043

 

Advances from customers

147

(9,229)

 

Labor and social obligations

28,158

22,388

 

Other liabilities

4,528

(2,839)

 

 

349,373

293,565

 

Income taxes paid

(17,819)

(14,850)

 

 

 

 

 

Net cash flows from operating activities

331,554

278,715

 

 

 

 

Investing activities

 

 

 

Acquisition of property and equipment

(27,299)

(30,670)

 

Acquisition of intangibles assets

(19,130)

(21,680)

 

Dividends received

3,600

1,554

 

Acquisition of subsidiaries, net of cash acquired

(608,146)

(51,518)

 

Net cash flows used in investing activities

(650,975)

(102,314)

 

 

 

Financing activities

 

 

 

Payments of loans and financing

(15,745)

(14,494)

 

Issuance of loans and financing

3,663

-

 

Payments of lease liabilities

(32,597)

(27,476)

 

Treasury shares

-

(88,763)

 

Dividends paid to non-controlling interests

(6,130)

(4,669)

 

Net cash flows from (used in) financing activities

(50,809)

(135,402)

 

Net foreign exchange differences

(161)

(126)

 

Net increase (decrease) in cash and cash equivalents

(370,391)

40,873

 

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

722,691

789,435

Reconciliation between Net Income and Adjusted EBITDA

Reconciliation between Adjusted EBITDA and Net Income
 
(in thousands of R$) For the three months period ended March 31,

2023

2022

% Chg

Net income

117,772

134,942

-12.7%

Net financial result

96,552

56,722

70.2%

Income taxes expense

19,060

13,347

42.8%

Depreciation and amortization

65,971

48,387

36.3%

Interest received (1)

10,299

7,687

34.0%

Income share associate

(3,845)

(4,240)

-9.3%

Share-based compensation

6,495

2,929

121.7%

Non-recurring expenses:

17,907

11,027

62.4%

- Integration of new companies (2)

5,900

4,171

41.5%

- M&A advisory and due diligence (3)

11,039

1,212

810.8%

- Expansion projects (4)

151

602

-74.9%

- Restructuring expenses (5)

1,395

3,650

-61.8%

- Mandatory Discounts in Tuition Fees (6)

(578)

1,392

n.a.

Adjusted EBITDA

330,211

270,801

21.9%

Adjusted EBITDA Margin

46.5%

47.7%

-120 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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