Afya Limited Announces Third Quarter and Nine Months 2023 Financial Results

Guidance on Track
Strong Cash Conversion

NOVA LIMA, Brazil--(BUSINESS WIRE)--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 nine-month period ended September 30, 2023. Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

Third Quarter 2023 Highlights

• 3Q23 Adjusted Net Revenue increased 24.6% YoY to R$723.0 million. Adjusted Net Revenue excluding acquisitions grew 13.6%, reaching R$659.0 million.
• 3Q23 Adjusted EBITDA increased 21.7% YoY, reaching R$278.4 million, with an Adjusted EBITDA Margin of 38.5%. Adjusted EBITDA excluding acquisitions grew 8.9%, reaching R$249.0 million, with an Adjusted EBITDA Margin of 37.8%.

Nine Months 2023 Highlights

• 9M23 Adjusted Net Revenue increased 24.4% YoY to R$2,144.6 million. Adjusted Net Revenue excluding acquisitions grew 13.5%, reaching R$1,957.2 million.
• 9M23 Adjusted EBITDA increased 21.8% YoY reaching R$876.8 million, with an Adjusted EBITDA Margin of 40.9%. Adjusted EBITDA excluding acquisitions grew 10.5%, reaching R$795.1 million, with an Adjusted EBITDA Margin of 40.6%.
• Cash conversion of 109.3% generating R$933.8 million of cash flow from operating activities that resulted in a solid cash position of R$822.0 million.
• Over 285 thousand monthly active physicians and medical students using Afya’s Digital Service.

Message from Management

We are pleased to announce our third quarter results, a quarter was marked by significant increases in Net Revenue in our three segments, high Adjusted EBITDA margins, cash generation, and a consistent business expansion. All these factors combined enable us to reassure our 2023 guidance, reinforcing our business strategy execution.

Our Continuing Education segment stands out with remarkable expansion for the nine months, showing a Net Revenue growth of 43% when compared to the same period of the prior year. This accomplishment is the result of a robust intake process and the maturation of our courses, aligned with our growth and expansion plan.

In our Digital Health Services segment, we have seen a robust 22% increase in Net Revenue compared to the nine months of the prior year. This reaffirms the immense potential of digital services. This surge can be attributed to the success of our B2B engagements, where we've secured new contracts with pharmaceutical industry leaders. Furthermore, the continuous growth in B2P subscribers reflects our unwavering dedication to expanding our reach.

On the Undergrad side of the education segment, we grew Adjusted Net Revenue by 24% when compared to the same period last year. Our core business remains as robust as ever, with Medicine courses increasing tickets higher than inflation, maturation of medical seats, and an ongoing integration of the UNIT Alagoas and FITS Jaboatão dos Guararapes, acquired in January 2023.

We are enthusiastic about our current initiatives and the promising opportunities that lie ahead. A new avenue for growth unfolds with the launch of Mais Médicos 3, presenting a significant opportunity to expand Afya's medical courses in Brazil and address the pressing need for more healthcare professionals in underserved areas. Afya is committed to engaging in the program, with high-quality proposals and enhancing the standards of medicine courses throughout the country.

High and predictable growth, strong cash generation, guidance on track for the year, and segments ramp-up: this proves how we are evolving and empowering our vision to transform health with those who have medicine as a vocation.

1. Key Events in the Quarter:

• Afya (Nasdaq: AFYA, B3: A2FY34) announced, in 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, in 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/
• On August 10, 2023, Unigranrio entered into a tax amnesty program on interest and penalties to settle a tax proceeding in respect to ISS (city tax on services) with the municipality of Rio de Janeiro, which result in a payment of R$14,819 to settle the claim. The selling shareholders of Unigranrio agreed to pay R$5,438 regarding this matter. The Company had a provision of R$53,302 and an indemnification asset from the selling shareholders of R$20,000 (in light of the indemnification clauses as defined at acquisition of Unigranrio), in respect to such tax proceeding. The difference between the provision, indemnification asset and the actual paid amount was recorded as Other income (expenses), net on the consolidated statement of income and comprehensive income.

2. Subsequent Events in the quarter

• On October 4^th, The Ministry of Education (MEC) announced the rules for the new Mais Médicos program, which define the criteria for opening new undergraduate medical school seats. The new program will allow the opening of nearly 10,000 new undergraduate seats, of which 5,700 will be distributed through the new program, approximately 2,000 will be allocated to existing private institutions and approximately 2,000 will be allocated to the public system. The Mais Medicos seats (5,700) will be distributed across 95 cities, considering 60 seats per institution.
• On October 31st, Afya announced, through its wholly owned subsidiary Afya Participações S.A. (“Afya Brazil”), the acquisition of an additional 15% in Centro de Ciências em Saúde de Itajubá S.A. ("CCSI”;” FMIT”), consolidating our position of ownership to 75% of the total share capital. The aggregate purchase price for the additional 15% was R$21.0 million paid 100% in cash on the closing date.

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 its medical schools.

The guidance for FY2023 is defined in the following table:

4. 9M23 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

Key Revenue Drivers – Continuing Education and Digital Services

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 over 285 thousand.

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.

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 third quarter of 2023 was R$723.0 million, an increase of 24.6% over the same period of the prior year. Excluding acquisitions, Adjusted Net Revenue in the third quarter increased 13.6% YoY to R$659.0 million, mainly due to: higher net tickets in Medicine courses, maturation of medical seats and the growth of Continuing Education and Digital Services segments.

Net Revenue of Continuing Education for the third quarter of 2023 was R$37.7 million, an increase of 35.0% YoY, boosted by the growth in the number of students.

Digital services increased 19.2% YoY, totaling R$53.1 million for this quarter. The organic growth is a combination of (a) an increase in the B2B engagements, increasing B2B Net Revenue by 61.7%, and (b) the expansion of the active payers in the B2P, mainly in Whitebook, IClinic, Cardiopapers, Além da Medicina, Medical Harbour and Shosp.

For the nine-month period ended September 30, 2023, Adjusted Net Revenue was R$2,144.6 million, an increase of 24.4% over the same period of last year. Excluding acquisitions, Adjusted Net Revenue in the nine-month period increased 13.5% YoY to R$1,957.2 million.

Adjusted EBITDA

Adjusted EBITDA for the three-month period ended September 30, 2023, increased 21.7% to R$278.4 million, up from R$228.7 million in the same period of the prior year, while the Adjusted EBITDA Margin decreased 90 basis points to 38.5%. For the nine-month period ended September 30, 2023, Adjusted EBITDA was R$876.8 million, an increase of 21.8% 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 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.

Adjusted Net Income

Net Income for the third quarter of 2023 was R$98.2 million, an increase of 22.1% over the same period of the prior year, mainly due to the increase in operational results and Unigranrio’s tax amnesty program (more details in “Key Events in the Quarter”)

Adjusted Net Income for the third quarter of 2023 was R$128.4 million, an increase of 6.9% over the same period of the prior year, mainly due to the increase in operational results, which was partially offset by higher financial expenses primarily related to the increase in leverage due to UNIT Alagoas and FITS Jaboatao business combination and higher interest rates, when compared to the same period of the prior year. Adjusted Net Income for the nine months of 2023 was R$ 426.7 million, an increase of 5.0% year over year.

Adjusted EPS reached R$4.58 per share for the nine months ended September 30, 2023, an increase of 5.7% year over year.

Investor Contact: ir@afya.com.br
IR Website: ir.afya.com.br

Media Contact:
Cíntia Moraes Marin
cintia.marin@afya.com.br