Guidance on Track Strong Cash
Conversion
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$822.0 million.
- Over 285 thousand monthly active physicians and medical
students using Afya’s Digital Service.
Table 1: Financial Highlights For the three months period
ended September 30, For the nine months period ended
September 30, (in thousand of R$)
2023
2023 Ex Acquisitions*
2022
% Chg
% Chg Ex Acquisitions
2023
2023 Ex Acquisitions*
2022
% Chg
% Chg Ex Acquisitions
(a) Net Revenue
723,479
659,477
580,575
24.6%
13.6%
2,146,047
1,958,652
1,745,055
23.0%
12.2%
(b) Adjusted Net Revenue (1)
722,986
658,984
580,198
24.6%
13.6%
2,144,606
1,957,211
1,723,993
24.4%
13.5%
(c) Adjusted EBITDA (2)
278,393
249,005
228,730
21.7%
8.9%
876,766
795,100
719,717
21.8%
10.5%
(d) = (c)/(b) Adjusted EBITDA Margin
38.5%
37.8%
39.4%
-90 bps -160 bps
40.9%
40.6%
41.7%
-80 bps -110 bps *For the three months period ended September 30,
2023, "2023 Ex Acquisitions" excludes: UNIT Alagoas and FITS
Jaboatão dos Guararapes (July to September, 2023; Closing of UNIT
and FITS was in January 2023). *For the nine months period ended
September 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 September, 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
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 4th, 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$21.0 million paid 100% in cash on the closing
date.
3. Full Year 2023 Guidance Reaffirmed
The Company is reaffirming its previously issued guidance for
FY23, which already considered the impact of the increase of the
FG-FIES, as Afya successfully concluded acceptances of new medical
students for the second semester, ensuring 100% occupancy in all
its medical schools.
The guidance for FY2023 is defined in the following table:
Guidance for 2023 Adjusted Net Revenue* R$ 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. 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
Table 2: Key Revenue Drivers Nine months period ended
September 30,
2023
2022
% Chg Undergrad Programs MEDICAL SCHOOL
Approved Seats
3,163
2,759
14.6%
Operating Seats (1)
3,113
2,709
14.9%
Total Students (end of period)
21,556
17,997
19.8%
Average Total Students
21,056
17,692
19.0%
Average Total Students (ex-Acquisitions)*
18,978
17,692
7.3%
Tuition Fees (Total - R$ '000)
1,922,472
1,522,393
26.3%
Tuition Fees (ex- Acquisitions* - R$ '000)
1,744,263
1,522,393
14.6%
Medical School Gross Avg. Ticket (ex- Acquisitions* -
R$/month)
10,212
9,561
6.8%
Medical School Net Avg. Ticket (ex- Acquisitions* -
R$/month)
8,556
7,859
8.9%
UNDERGRADUATE HEALTH SCIENCE Total Students (end of period)
21,564
18,114
19.0%
Average Total Students
21,447
19,932
7.6%
Average Total Students (ex-Acquisitions)*
19,738
19,932
-1.0%
Tuition Fees (Total - R$ '000)
293,367
254,613
15.2%
Tuition Fees (ex- Acquisitions* - R$ '000)
271,194
254,613
6.5%
OTHER UNDERGRADUATE Total Students (end of period)
24,286
23,085
5.2%
Average Total Students
24,625
23,746
3.7%
Average Total Students (ex-Acquisitions)*
21,432
23,746
-9.7%
Tuition Fees (Total - R$ '000)
230,149
201,116
14.4%
Tuition Fees (ex- Acquisitions* - R$ '000)
199,410
201,116
-0.8%
TOTAL TUITION FEES Tuition Fees (Total - R$ '000)
2,445,988
1,978,122
23.7%
Tuition Fees (ex- Acquisitions* - R$ '000)
2,214,867
1,978,122
12.0%
*For the nine months period ended September 30, 2023, "2023 Ex
Acquisitions" excludes: UNIT Alagoas and FITS Jaboatão dos
Guararapes (January to September, 2023; Closing of UNIT and FITS
was in January 2023). (1) The difference between approved and
operating seats is 'Cametá'. A campus for which we already have the
license but haven't started operations.
Key Revenue Drivers – Continuing Education and Digital
Services
Table 3: Key Revenue Drivers Nine months period ended
September 30,
2023
2022
% Chg Continuing Education Medical Specialization
& Others Total Students (end of period)
4,954
4,036
22.7%
Average Total Students
4,791
3,686
30.0%
Average Total Students (ex-Acquisitions)
4,791
3,686
30.0%
Net Revenue from courses (Total - R$ '000)
108,263
75,568
43.3%
Net Revenue from courses (ex- Acquisitions¹)
108,263
75,568
43.3%
Digital Services Content & Technology for Medical
Education Medcel Active Payers Prep Courses & CME - B2P
6,026
12,886
-53.2%
Prep Courses & CME - B2B
5,420
5,704
-5.0%
Além da Medicina Active Payers
6,700
5,696
17.6%
Cardiopapers Active Payers
8,327
5,090
63.6%
Medical Harbour Active Payers
10,346
5,080
103.7%
Clinical Decision Software Whitebook Active Payers
150,796
133,926
12.6%
Clinical Management Tools² iClinic Active Payers
25,702
22,596
13.7%
Shosp Active Payers
3,579
2,348
52.4%
Digital Services Total Active Payers (end of period)
216,896
193,326
12.2%
Net Revenue from Services (Total - R$ '000)
164,036
134,243
22.2%
Net Revenue - B2P
134,225
117,256
14.5%
Net Revenue - B2B
29,843
16,987
75.7%
Net Revenue From Services (ex-Acquisitions¹)
156,947
134,243
16.9%
*For the nine months period ended September 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 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.
Table 4: Key Operational Drivers for Digital Services - Monthly
Active Users (MaU)
3Q23
3Q22
% Chg YoY
2Q23
1Q23
Content & Technology for Medical Education
26,012
21,811
19.3%
24,973
31,549
Clinical Decision Software
230,732
239,640
-3.7%
230,338
237,003
Clinical Management Tools¹
26,944
23,036
17.0%
24,880
24,568
Physician-Patient Relationship
1,583
1,397
13.3%
1,782
1,773
Total Monthly Active Users (MaU) - Digital Services
285,271
285,884
-0.2%
281,973
294,893
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)
3Q23
3Q22
% Chg QoQ
2Q23
1Q23
Total Monthly Unique Active Users (MuaU) - Digital
Services
254,894
263,587
-3.3%
251,487
262,137
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 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$1,957.2
million.
Table 6: Revenue & Revenue Mix (in thousands of R$)
For the three months period September 30, For the nine
months period ended September 30,
2023
2023 ExAcquisitions*
2022
% Chg % Chg ExAcquisitions
2023
2023 ExAcquisitions*
2022
% Chg % Chg ExAcquisitions Net Revenue Mix Undergrad
636,849
572,847
509,097
25.1%
12.5%
1,883,089
1,702,782
1,538,037
22.4%
10.7%
Adjusted Undergrad¹
636,356
572,354
508,720
25.1%
12.5%
1,881,648
1,701,341
1,516,975
24.0%
12.2%
Continuing Education
37,679
37,679
27,906
35.0%
35.0%
108,263
108,263
75,568
43.3%
43.3%
Digital Services
53,106
53,106
44,548
19.2%
19.2%
164,036
156,947
134,243
22.2%
16.9%
Inter-segment transactions
-4,155
-4,155
-976
325.7%
325.7%
-9,341
-9,341
-2,793
234.4%
234.4%
Total Reported Net Revenue
723,479
659,477
580,575
24.6%
13.6%
2,146,047
1,958,652
1,745,055
23.0%
12.2%
Total Adjusted Net Revenue ¹
722,986
658,984
580,198
24.6%
13.6%
2,144,606
1,957,211
1,723,993
24.4%
13.5%
*For the three months period ended September 30, 2023, "2023 Ex
Acquisitions" excludes: UNIT Alagoas and FITS Jaboatão dos
Guararapes (July to September, 2023; Closing of UNIT and FITS was
in January 2023). *For the nine months period ended September 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 September, 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 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$876.8
million, an increase of 21.8% over the same period of the prior
year, with an Adjusted EBITDA Margin decrease of 80 basis points in
the same period.
The Adjusted EBITDA Margin reduction is due to: (a) Mix of Net
Revenue, with higher participation of Continuing Education
segments, and (b) the consolidation of 4 new Mais Médicos campuses
(operation started on 3Q22) and UNIT Alagoas and FITS Jaboatão dos
Guararapes which are performing better than expected but still
present lower margins when compared to the integrated
companies.
Table 7: Adjusted EBITDA (in thousands of R$)
For the
three months period ended September 30, For the nine 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
278,393
249,005
228,730
21.7%
8.9%
876,766
795,100
719,717
21.8%
10.5%
% Margin
38.5%
37.8%
39.4%
-90 bps -160 bps
40.9%
40.6%
41.7%
-80 bps -110 bps *For the three months period ended September 30,
2023, "2023 Ex Acquisitions" excludes: UNIT Alagoas and FITS
Jaboatão dos Guararapes (July to September, 2023; Closing of UNIT
and FITS was in January 2023). *For the nine months period ended
September 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 September, 2023; Closing of
UNIT and FITS was in January 2023).
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$4.58 per share for the nine months ended
September 30, 2023, an increase of 5.7% year over year.
Table 8: Adjusted Net Income (in thousands of R$)
For the
three months period ended September 30, For the nine months
period ended September 30,
2023
2022
% Chg
2023
2022
% Chg
Net income
98,220
80,410
22.1%
303,530
321,425
-5.6%
Amortization of customer relationships and trademark (1)
26,593
18,952
40.3%
80,779
55,959
44.4%
Share-based compensation
6,684
8,833
-24.3%
20,082
20,414
-1.6%
Non-recurring (income) expenses:
- 3,104
11,861
n.a.
22,284
8,586
159.5%
- Integration of new companies (2)
7,769
7,063
10.0%
19,951
17,015
17.3%
- M&A advisory and due diligence (3)
703
1,388
-49.4%
12,377
3,194
287.5%
- Gain on tax amnesty (4)
- 16,812
-
n.a.
- 16,812
-
n.a. - Expansion projects (5)
2,007
1,079
86.0%
2,536
2,358
7.5%
- Restructuring expenses (6)
3,722
2,708
37.4%
5,673
7,081
-19.9%
- Mandatory Discounts in Tuition Fees (7)
- 493
- 377
30.8%
- 1,441
-21,062
-93.2%
Adjusted Net Income
128,393
120,056
6.9%
426,675
406,384
5.0%
Basic earnings per share - in R$ (8)
1.04
0.84
23.2%
3.21
3.39
-5.4%
Adjusted earnings per share - in R$ (9)
1.38
1.28
7.3%
4.58
4.33
5.7%
(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) 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. (5) Consists of expenses related
to professional and consultant fees in connection with the opening
of new campuses. (6) Consists of expenses related to the employee
redundancies in connection with the organizational restructuring of
our acquired companies. (7) 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. (8) Basic
earnings per share: Net Income/Weighted average number of
outstanding shares. (9) 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 September 30, 2023, Cash and Cash Equivalents were R$822.0
million, a decrease of 24.8% over December 31, 2022, due to UNIT
Alagoas and FITS Jaboatão dos Guararapes business combination.
For the nine-month period ended September 30, 2023, Afya
reported cash flow from operating activities of R$933.8 million, up
from R$743.8 million in the same period of the previous year, an
increase of 25.5% YoY, boosted by the solid operational results.
Operating Cash Conversion Ratio was strong once again, achieving
109.3% for the nine-month period ended September 30, 2023, compared
to 104.6% in the same period of the previous year.
On September 30, 2023, Net Debt, excluding the effect of IFRS
16, totaled R$1,787.8 million. When compared to December 31, 2022,
Net Debt added to R$825 million related to UNIT Alagoas and FITS
Jaboatão dos Guararapes business combination closed on January 2,
2023, the Net Debt reduced R$ 418 million due to the strong Cash
flow from operating activities in the nine months.
Table 9: Operating Cash Conversion Ratio Reconciliation
For the nine months period ended September 30, (in thousands
of R$)
Considering the adoption of IFRS 16
2023
2022
% Chg
(a) Net cash flows from operating activities
896,202
715,881
25.2%
(b) Income taxes paid
37,599
27,940
34.6%
(c) = (a) + (b) Cash flow from operating activities
933,801
743,821
25.5%
(d) Adjusted EBITDA
876,766
719,717
21.8%
(e) Non-recurring (income) expenses:
22,284
8,586
159.5%
- Integration of new companies (1)
19,951
17,015
17.3%
- M&A advisory and due diligence (2)
12,377
3,194
287.5%
- Gain on tax amnesty (3)
-16,812
-
n.a. - Expansion projects (4)
2,536
2,358
7.5%
- Restructuring Expenses (5)
5,673
7,081
-19.9%
- Mandatory Discounts in Tuition Fees (6)
-1,441
-21,062
-93.2%
(f) = (d) - (e) Adjusted EBITDA ex- non-recurring expenses
854,482
711,131
20.2%
(g) = (c) / (f) Operating cash conversion ratio
109.3%
104.6%
470 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) 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$20,000 (in light of the
indemnification clauses as defined at acquisition of Unigranrio),
in respect to such tax proceeding. The difference between the
provision, indemnification asset and the actual paid amount was
recorded as Other income (expenses), net on the consolidated
statement of income and comprehensive income. (4) Consists of
expenses related to professional and consultant fees in connection
with the opening of new campuses. (5) Consists of expenses related
to the employee redundancies in connection with the organizational
restructuring of acquired companies. (6) Consists of mandatory
discounts in tuition fees granted by state decrees,
individual/collective legal proceedings and public civil
proceedings due to COVID 19 on site classes restriction and
excludes any recovery of these discounts that were invoiced based
on the Supreme Court decision.
The following table shows more information regarding the cost of
debt for 9M23, considering loans and financing, capital market and
accounts payable to selling shareholders. Afya’s capital structure
remains solid with a conservative leveraging position and a low
cost of debt, Afya’s Net Debt (excluding the effect of IFRS16)
divided by Adjusted EBITDA mid guidance for 2023 would be 1.6x.
Table 10: Gross Debt and Average Cost of Debt (in millions
of R$)
For the closing of the nine months period ended in
September 30, Cost of Debt Gross Debt Duration
(Years) Per year %CDI*
3Q23
2022
3Q23
2022
3Q23
2022
3Q23
2022
Loans and financing: Softbank
826
824
2.6
3.4
6.5%
6.5%
50%
53%
Loans and financing: Debentures
512
500
3.9
4.6
15.5%
15.7%
114%
114%
Loans and financing: Others
620
621
1.3
2.1
14.5%
14.1%
107%
113%
Accounts payable to selling shareholders
651
529
0.9
1.2
12.3%
11.6%
92%
94%
Average
2,610
2,474
2.2
2.9
11.5%
10.2%
86%
83%
*Based on the annualized Interbank Certificates of Deposit ("CDI")
rate for the period as a reference: 9M23: ~12.65% p.y. and for 2022
full year: ~12,39% p.y.
Table 11: Cash and Debt Position (in
thousands of R$)
3Q23
FY2022
% Chg
3Q22
% Chg
(+) Cash and Cash Equivalents
822,008
1,093,082
-24.8%
715,644
14.9%
Cash and Bank Deposits
11,107
57,509
-80.7%
27,161
-59.1%
Cash Equivalents
810,901
1,035,573
-21.7%
688,483
17.8%
(-) Loans and Financing
1,908,299
1,882,901
1.3%
1,399,724
36.3%
Current
186,903
145,202
28.7%
259,638
-28.0%
Non-Current
1,721,396
1,737,699
-0.9%
1,140,086
51.0%
(-) Accounts Payable to Selling Shareholders
651,068
528,678
23.2%
598,367
8.8%
Current
382,500
261,711
46.2%
241,560
58.3%
Non-Current
268,568
266,967
0.6%
356,807
-24.7%
(-) Other Short and Long Term Obligations
50,469
62,176
-18.8%
65,748
-23.2%
(=) Net Debt (Cash) excluding IFRS 16
1,787,828
1,380,673
29.5%
1,348,195
32.6%
(-) Lease Liabilities
869,729
769,525
13.0%
782,224
11.2%
Current
36,705
32,459
13.1%
28,685
28.0%
Non-Current
833,024
737,066
13.0%
753,539
10.5%
Net Debt (Cash) with IFRS 16
2,657,557
2,150,198
23.6%
2,130,419
24.7%
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 nine-month period ending September 30, 2023, CAPEX went
from R$238.4 million to R$155.1 million, a decrease of 34.9% over
the same period of the prior year. As of September 30, 2023, the
Capex to Revenue, excluding licenses acquisition and goodwill
remeasurement, was 7.2% a decrease from 10.1% in the same period of
the previous year, reflecting the discipline on capital
allocation.
Table 12: CAPEX (in thousands of R$)
For the nine months
period ended September 30,
2023
2022
% Chg CAPEX
155,127
238,363
-34.9%
Property and equipment
88,014
116,641
-24.5%
Intangible assets
67,113
121,722
-44.9%
- Licenses
0
24,408
n.a. - Goodwill
0
39,100
n.a. - Others
67,113
58,214
15.3%
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.
The 2022 Sustainability Report can be found at:
https://ir.afya.com.br/corporate-governance/sustainability/
Table 13: ESG Metrics
3Q23
3Q22
2022
2021
2020
2019
#
GRI Governance and Employee Management
1
405-1
Number of employees
9,868
9,039
8,708
8,079
6,100
3,369
2
405-1
Percentage of female employees
58%
57%
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)
6,078,952
4,355,340
17,011,842
12,176,966
8,035,845
5,928,450
4.1
302-1
Consumption per campus
132,151
98,985
412,747
385,573
321,434
395,230
5
302-1
% supplied by distribution companies
56.7%
71.6%
72.4%
91.3%
83.4%
96.2%
6
302-1
% supplied by other sources
43.3%
28.4%
27.6%
8.7%
16.6%
3.8%
Social
8
413-1
Number of free clinical consultations offered by Afya
146,294
128,686
494,635
341,286
427,184
270,000
9
Number of physicians graduated in Afya's campuses
18,965
17,176
18,104
16,772
12,691
8,306
10
201-4
Number of students with financing and scholarship programs (FIES
and PROUNI)
10,628
10,329
10,965
7,881
4,999
2,808
11
% students with scholarships over total undergraduate students
15.8%
17.4%
18.8%
12.9%
13.7%
11.7%
12
413-1
Hospital, clinics and city halls partnerships
664
481
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: November 13, 2023, at 5:00 p.m. EST.
Who:
Mr. Virgilio Gibbon, Chief Executive
Officer
Mr. Luis André Blanco, Chief Financial
Officer
Ms. Renata Costa Couto, IR Director
Dial-in: Brazil: +55 11 4632 2236 or +55 11 4632 2237 or
+55 11 4680 6788 or +55 11 4700 9668 or +55 21 3958 7888.
United States: +1 929 205 6099 or +1 301 715 8592 or +1 305 224
1968 or +1 309 205 3325 or +1 312 626 6799 or +1 646 931 3860 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 +1 669 444 9171 or +1 669 900 6833 or +1
689 278 1000 or +1 719 359 4580 or +1 253 205 0468 or +1 253 215
8782.
Webinar ID: 974 1075 1315
Other Numbers: https://afya.zoom.us/u/ak0CTBDQC
OR
Webcast: https://afya.zoom.us/j/97410751315
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 nine-month periods
ended September 30, 2023, and 2022
(In thousands of Brazilian reais,
except earnings per share)
Three-month period
ended
Nine-month period
ended
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Net revenue
723,479
580,575
2,146,047
1,745,055
Cost of services
(288,234)
(216,691)
(820,136)
(622,663)
Gross profit
435,245
363,884
1,325,911
1,122,392
General and administrative expenses
(257,002)
(210,692)
(739,808)
(596,621)
Other revenues (expenses), net
12,043
(7,173)
10,365
(8,739)
Operating income
190,286
146,019
596,468
517,032
Finance income
34,771
29,202
86,259
76,618
Finance expenses
(115,306)
(91,933)
(353,572)
(256,873)
Finance result
(80,535)
(62,731)
(267,313)
(180,255)
Share of income of associate
615
3,819
7,671
10,260
Income before income taxes
110,366
87,107
336,826
347,037
Income taxes expenses
(12,146)
(6,697)
(33,296)
(25,612)
Net income
98,220
80,410
303,530
321,425
Other comprehensive income
-
-
-
-
Total comprehensive income
98,220
80,410
303,530
321,425
Income attributable to
Equity holders of the parent
93,347
75,760
288,263
306,875
Non-controlling interests
4,873
4,650
15,267
14,550
98,220
80,410
303,530
321,425
Basic earnings per share
Per common share
1.04
0.84
3.21
3.39
Diluted earnings per share
Per common share
1.03
0.84
3.18
3.38
Unaudited interim condensed
consolidated statements of financial position
As of September 30, 2023, and December
31, 2022
(In thousands of Brazilian
reais)
September 30, 2023
December 31, 2022
Assets
(unaudited)
Current assets
Cash and cash equivalents
822,008
1,093,082
Trade receivables
480,556
452,831
Inventories
4,501
12,190
Recoverable taxes
63,319
27,809
Other assets
51,991
51,745
Total current assets
1,422,375
1,637,657
Non-current assets
Trade receivables
43,593
42,568
Other assets
144,084
191,756
Investment in associate
53,284
53,907
Property and equipment
598,802
542,087
Right-of-use assets
770,036
690,073
Intangible assets
4,798,915
4,041,491
Total non-current assets
6,408,714
5,561,882
Total assets
7,831,089
7,199,539
Liabilities
Current liabilities
Trade payables
85,655
71,482
Loans and financing
186,903
145,202
Lease liabilities
36,705
32,459
Accounts payable to selling
shareholders
382,500
261,711
Notes payable
50,469
62,176
Advances from customers
137,664
133,050
Labor and social obligations
255,235
154,518
Taxes payable
27,400
26,221
Income taxes payable
40,582
16,151
Other liabilities
3,411
2,719
Total current liabilities
1,206,524
905,689
Non-current liabilities
Loans and financing
1,721,396
1,737,699
Lease liabilities
833,024
737,066
Accounts payable to selling
shareholders
268,568
266,967
Taxes payable
90,578
92,888
Provision for legal proceedings
134,068
195,854
Other liabilities
27,898
13,218
Total non-current liabilities
3,075,532
3,043,692
Total liabilities
4,282,056
3,949,381
Equity
Share capital
17
17
Additional paid-in capital
2,371,577
2,375,344
Share-based compensation reserve
143,620
123,538
Treasury stock
(310,003)
(304,947)
Retained earnings
1,293,149
1,004,886
Equity attributable to equity holders
of the parent
3,498,360
3,198,838
Non-controlling interests
50,673
51,320
Total equity
3,549,033
3,250,158
Total liabilities and equity
7,831,089
7,199,539
Unaudited interim condensed
consolidated statements of cash flow
For the nine-month periods ended
September 30, 2023, and 2022
(In thousands of Brazilian
reais)
September 30, 2023
September 30, 2022
Operating activities
(unaudited)
(unaudited)
Income before income taxes
336,826
347,037
Adjustments to reconcile income before
income taxes
Depreciation and amortization
212,172
151,706
Write-off of property and equipment
1,209
683
Write-off of intangible assets
288
6
Provision for expected credit losses
57,160
29,441
Share-based compensation expense
20,082
20,414
Net foreign exchange differences
448
293
Accrued interest
224,349
147,839
Accrued lease interest
74,867
63,458
Share of income of associate
(7,671)
(10,260)
Provision (reversal) for legal
proceedings
(27,119)
8,531
Changes in assets and
liabilities
Trade receivables
(52,169)
(60,167)
Inventories
7,828
(661)
Recoverable taxes
(34,921)
(16,931)
Other assets
35,960
5,858
Trade payables
1,920
1,398
Taxes payables
25,321
10,709
Advances from customers
(27,883)
(16,075)
Labor and social obligations
94,465
70,608
Other liabilities
(9,331)
(10,066)
933,801
743,821
Income taxes paid
(37,599)
(27,940)
Net cash flows from operating
activities
896,202
715,881
Investing activities
Acquisition of property and equipment
(88,014)
(116,641)
Acquisition of intangibles assets
(67,113)
(70,423)
Dividends received
8,294
2,837
Acquisition of subsidiaries, net of cash
acquired
(726,530)
(225,452)
Payments of interest from acquisition of
subsidiaries
(36,674)
(17,300)
Net cash flows used in investing
activities
(910,037)
(426,979)
Financing activities
Payments of principal of loans and
financing
(12,216)
(922)
Payments of interest of loans and
financing
(124,468)
(68,053)
Proceeds from loans and financing
5,288
-
Payments of lease liabilities
(100,658)
(84,509)
Treasury shares buy-back
(12,369)
(152,317)
Proceeds from exercise of stock
options
3,546
-
Dividends paid to non-controlling
shareholders
(15,914)
(15,726)
Net cash flows used in financing
activities
(256,791)
(321,527)
Net foreign exchange differences
(448)
(293)
Net decrease in cash and cash
equivalents
(271,074)
(32,918)
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
822,008
715,644
Reconciliation between Net Income and
Adjusted EBITDA
Reconciliation between Adjusted EBITDA and Net Income
(in thousands of R$)
For the three months period
September 30, For the nine months period ended September
30,
2023
2022
% Chg
2023
2022
% Chg
Net income
98,220
80,410
22.1%
303,530
321,425
-5.6%
Net financial result
80,535
62,731
28.4%
267,313
180,255
48.3%
Income taxes expense
12,146
6,697
81.4%
33,296
25,612
30.0%
Depreciation and amortization
73,908
52,617
40.5%
212,172
151,706
39.9%
Interest received (1)
10,619
9,400
13.0%
25,760
21,979
17.2%
Income share associate
(615)
(3,819)
-83.9%
(7,671)
(10,260)
-25.2%
Share-based compensation
6,684
8,833
-24.3%
20,082
20,414
-1.6%
Non-recurring (income) expenses:
(3,104)
11,861
n.a.
22,284
8,586
159.5%
- Integration of new companies (2)
7,769
7,063
10.0%
19,951
17,015
17.3%
- M&A advisory and due diligence (3)
703
1,388
-49.4%
12,377
3,194
287.5%
- Gain on tax amnesty (4)
(16,812)
-
n.a.
(16,812)
-
n.a. - Expansion projects (5)
2,007
1,079
86.0%
2,536
2,358
7.5%
- Restructuring expenses (6)
3,722
2,708
37.4%
5,673
7,081
-19.9%
- Mandatory Discounts in Tuition Fees (7)
(493)
(377)
30.8%
(1,441)
(21,062)
-93.2%
Adjusted EBITDA
278,393
228,730
21.7%
876,766
719,717
21.8%
Adjusted EBITDA Margin
38.5%
39.4%
-90 bps
40.9%
41.7%
-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) 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. (5)
Consists of expenses related to professional and consultant fees in
connection with the opening of new campuses. (6) Consists of
expenses related to the employee redundancies in connection with
the organizational restructuring of our acquired companies. (7)
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231113725250/en/
Investor Contact: ir@afya.com.br IR
Website: ir.afya.com.br
Media Contact: Cíntia Moraes Marin
cintia.marin@afya.com.br
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