Solid Organic Growth
Impressive Adjusted EBITDA Margin Expansion
Robust EPS Expansion
NOVA LIMA, Brazil–(BUSINESS WIRE)–Afya Limited (Nasdaq: AFYA; B3: A2FY34) (“Afya” or the “Company”), the leading medical education group and medical practice solutions provider in Brazil, reported today financial and operating results for the three-month period ended March 31, 2024 (first quarter 2024). Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).
First Quarter 2024 Highlights
- 1Q24 Net Revenue increased 13.3% YoY to R$804.2 million.
- 1Q24 Adjusted EBITDA increased 20.5% YoY reaching R$397.9 million, with an Adjusted EBITDA Margin of 49.5%. Adjusted EBITDA Margin increased 300 bps YoY.
- 1Q24 Net Income increased 76.9% YoY, reaching R$208.3 million, and Adjusted Net Income increased 50.8% YoY, reaching R$251.0 million. With an adjusted EPS growth of 54.4% in the same period.
- Operating Cash Conversion ratio of 110.1%, with a solid cash position of R$ 611.1 million.
- ~334 thousand physicians and medical students in Afya’s ecosystem.
| Table 1: Financial Highlights 1 | |||
|
For the three months period ended March 31, |
|||
| (in thousand of R$) |
2024 |
2023 |
% Chg |
| (a) Net Revenue |
804,239 |
709,961 |
13.3% |
| (b) Adjusted EBITDA 2 |
397,853 |
330,211 |
20.5% |
| (c) = (b)/(a) Adjusted EBITDA Margin |
49.5% |
46.5% |
300 bps |
| Net income |
208,299 |
117,772 |
76.9% |
| Adjusted Net income |
250,966 |
166,377 |
50.8% |
| (1) No acquisitions were made during the period under review, therefore not affecting the comparable period. | |||
| (2) See more information on “Non-GAAP Financial Measures” (Item 08). | |||
Message from Management
It is with much satisfaction that I can proudly present another quarter of great operational and financial performance for Afya. Once again, we have proven the resilience of our business, the successful execution of our strategy, the commitment of our team members, and the consistency of our business model. This quarter was marked by Gross margin expansion within our three segments and Adjusted EBITDA margin in our consolidated figures, combined with solid cash generation, and robust EPS growth, showing our consistent business expansion.
Great part of our margin expansion came from the complete integration of UNIMA and Afya Jaboatão, alongside the ramp up of the four Mais Médicos campuses that started operation in 3Q22 and the operational restructuring efforts in Continuing Education and Medical Practice Solutions segments. Our idea was to integrate all the services related to the physician continuing education into one structure, so we could extract more synergies and boost our growth.
We are also excited to expand our offering in the Undergrad business with the signing of the acquisition of Unidompedro and Faculdade Dom Luiz, this acquisition will contribute with 300 operating medical seats to Afya, in Salvador capital of Bahia and the fifth-largest city in Brazil in population size. Unidompedro will be Afya´s 4th medical school in Bahia and will serve as an strategic hub for all other medical campuses in the State, besides all the synergies that we can extract from our Continuing Education campus in Salvador.
With another round of high and sustainable growth, our mission remains solid as ever: to provide an ecosystem that integrates education and digital solutions for the entire medical journey, enhancing the development, updating, assertiveness, and productivity of health professionals. We are very proud of our business and of what we have achieved so far, as well as excited about what we are planning.
1. Key Events in the Quarter:
- On January 24, 2024 the Secretary of Regulation and Supervision of Higher Education of the Ministry of Education (“MEC”) authorized the increase of 40 medical seats of Faculdades Integradas Padrão (FIP Guanambi), in the city of Guanambi, located in the state of Bahia, which will result in an additional payment of R$49.6 million. With the authorization, Afya reaches 100 medical seats on this campus, and 3,203 total approved seats.
- To enhance synergies between Afya’s Content and Technology for Medical Education and Specialization Courses for Physicians, Afya has restructured its structure so that all products and services related to medical education, excluding medical undergraduate courses, are now managed in the same segment. Effective from the first quarter of 2024, entities previously accounted for as Content and Technology for Medical Education (Medcel, Além da Medicina, CardioPapers, and Medical Harbour) within Digital Services are now accounted for in the Continuing Education Segment. Simultaneously, the segment formerly known as Digital Services has been renamed Medical Practice Solutions. Due to changes in operating segments, the segment information as of December 31, 2023 and for the three-month period ended March 31, 2023 have been retroactively adjusted for comparison purposes.
2. Subsequent Event
- On, May 2nd 2024, Afya announced that it has entered in a share purchase agreement for the acquisition of 100% of the total share capital of Unidom Participações S.A. (“Unidom”) which encompasses Unidompedro and Faculdade Dom Luiz, both located in the State of Bahia with operations in the cities of Salvador, Luis Eduardo Magalhães, Barreiras and Ribeira do Pombal. The acquisition will add 300 operational medical school seats to Afya in Salvador, one of Brazil’s largest cities. The aggregate purchase price (enterprise value) is R$ 660.0 million, the Net Debt will be deducted at the closing date and it will be paid as follows: R$ 347.8 million will be paid in cash at the closing date and R$ 312.2 million will be paid in up to 10 annual installments of R$31.2 million, adjusted by the CDI (Interbank Certificate of Deposit) rate. Afya expects an EV/EBITDA 4.2x at maturity and post synergies (2027). With the acquisition, Afya will achieve 3,503 total approved seats.
3. 2024 Guidance
The Company is reaffirming its guidance for 2024, which considers the successfully concluded acceptances of new students for the first semester of 2024. The guidance for 2024 is defined in the following table:
|
Guidance for 2024 |
||
| Net Revenue 1 |
R$ 3,150 mn ≤ ∆ ≤ R$ 3,250 mn |
|
| Adjusted EBITDA |
R$ 1,300 mn ≤ ∆ ≤ R$ 1,400 mn |
|
| CAPEX 2 |
R$ 220 mn ≤ ∆ ≤ R$ 260 mn |
|
| (1) Excludes any acquisition that may be concluded after the issuance of the guidance, notably, the Unidompedro acquisition was not included in the guidance provided | ||
| (2) The 2024 Capex guidance does not encompass the earn-out payment in the amount of R$49.6 million related to the 40-seat increase at Faculdades Integradas Padrão (FIPGuanambi). | ||
4. 1Q24 Overview
Segment Information
The Company has three reportable segments as follows:
Undergrad, which provides educational services through undergraduate courses related to medical school, undergraduate health science and other ex-health undergraduate programs;
Continuing education, which provides medical education (including residency preparation programs, specialization test preparation and other medical capabilities), specialization and graduate courses in medicine, delivered through digital and in-person content, and
Medical Practice solutions which provides clinical decision, clinical management and doctor-patient relationships for physicians and provide access, demand and efficiency for the healthcare players.
Key Revenue Drivers – Undergraduate Programs
| Table 2: Key Revenue Drivers |
Three months period ended March 31, |
||
|
2024 |
2023 |
% Chg |
|
| Undergrad Programs | |||
| MEDICAL SCHOOL | |||
| Approved Seats |
3,203 |
3,163 |
1.3% |
| Operating Seats 1 |
3,153 |
3,113 |
1.3% |
| Total Students (end of period) |
22,609 |
20,822 |
8.6% |
| Average Total Students |
22,609 |
20,822 |
8.6% |
| Net Revenue (Total – R$ ‘000) |
610,721 |
528,830 |
15.5% |
| Medical School Net Avg. Ticket (R$/month) |
9,004 |
8,466 |
6.4% |
| UNDERGRADUATE HEALTH SCIENCE | |||
| Total Students (end of period) |
24,881 |
21,660 |
14.9% |
| Average Total Students |
24,881 |
21,660 |
14.9% |
| Net Revenue (Total – R$ ‘000) |
53,470 |
52,013 |
2.8% |
| OTHER EX- HEALTH UNDERGRADUATE | |||
| Total Students (end of period) |
28,563 |
25,043 |
14.1% |
| Average Total Students |
28,563 |
25,043 |
14.1% |
| Net Revenue (Total – R$ ‘000) |
40,328 |
40,133 |
0.5% |
| Total Net Revenue | |||
| Net Revenue (Total – R$ ‘000) |
704,519 |
620,976 |
13.5% |
| (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
| Table 3: Key Revenue Drivers |
Three months period ended March 31, |
||
|
2024 |
2023 |
% Chg |
|
| Continuing Education 1 | |||
| Total Studends (end of period) | |||
| Residency Journey – Business to Physicians B2P 2 |
14,693 |
9,061 |
62.2% |
| Graduate Journey – Business to Physicians B2P |
13,275 |
11,857 |
12.0% |
| Other Courses – B2P and Business to Business Offerings |
21,074 |
14,598 |
44.4% |
| Total Students (end of period) |
49,042 |
35,516 |
38.1% |
| Net Revenue (R$ ‘000) | |||
| Business to Physicians – B2P |
60,538 |
53,192 |
13.8% |
| Business to Business – B2B |
4,877 |
5,019 |
-2.8% |
| Total Net Revenue |
65,415 |
58,212 |
12.4% |
| (1) The figure above does not contemplate intercompany transactions | |||
| (2) ‘Content & Technology for Medical Education’ which had been reported in ‘Digital Services’ table, has been reclassified to ‘Continuing Education’ | |||
Key Revenue – Medical Practice Solutions
| Table 4: Key Revenue Drivers |
Three months period ended March 31, |
||
|
2024 |
2023 |
% Chg |
|
| Medical Practice Solutions 1 | |||
| Active Payers (end of period) | |||
| Clinical Decision |
159,183 |
143,832 |
10.7% |
| Clinical Management |
31,806 |
26,621 |
19.5% |
| Total Active Payers (end of period) |
190,989 |
170,453 |
12.0% |
| Monthly Active Users (MaU) | |||
| Total Monthly Active Users (MaU) – Digital Services 2 |
262,717 |
263,344 |
-0.2% |
| Net Revenue (R$ ‘000) | |||
| Business to Physicians – B2P |
31,726 |
28,371 |
11.8% |
| Business to Business – B2B |
4,847 |
5,168 |
-6.2% |
| Total Net Revenue |
36,573 |
33,540 |
9.0% |
| (1) The figure above does not contemplate intercompany transactions | |||
| (2) ‘Content & Technology for Medical Education’ is now being reported in Continuing Education table | |||
Key Operational Drivers – Physicians and Medical Students Ecosystem
Physicians and Medical Students Ecosystem represents the total number of medical students and physicians in that are positively impacted by Afya. For the first quarter of 2024, Afya’s ecosystem reached 334,368 users, in line with the same period of the prior year, accounting for around 41% of all medical students and physicians in Brazil.
| Table 5: Key Revenue Drivers |
Three months period ended March 31, |
||
|
2024 |
2023 |
% Chg |
|
| Physicians and Medical Students positively impacted by Afya 1 | |||
| Undergrad (Total Medical School Students – End of Period) |
22,609 |
20,822 |
8.6% |
| Continuing Education (Total Students – End of Period) |
49,042 |
35,516 |
38.1% |
| Medical Practice Solutions (Monthly Active Users) |
262,717 |
263,344 |
-0.2% |
| Ecosystem Outreach |
334,368 |
319,682 |
4.6% |
| (1) Ecosystem outreach does not contemplate intercompany figures. Note that there may be overlap in student numbers within the data. | |||
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 period.
Continuing education revenues are mostly related to: (i) monthly intakes and tuition fees on medical education, which do not have a considerable concentration in any period; (ii) Medcel’s revenue, derived from e-books transferred at a point of time, which are concentrated at in the first and last quarter of the year due to the enrollments; and (iii) Além da Medicina and Cardiopapers revenues, which are sold in the last and first quarter of the year due to the timeline of exams and recognized mainly over time.
Medical Practice Solutions are comprised mainly of Pebmed and iClinic revenues, which do not have significant fluctuation regarding seasonality.
Revenue
Net Revenue for the first quarter of 2024 was R$804.2 million, an increase of 13.3% over the same period of the prior year, mainly due to higher tickets in Medicine courses by 6.4%, maturation of medical seats, the 40 seats expansion in Guanambi campus, the Continuing Education intake performance and Medical Practice Solutions execution.
| Table 6: Revenue & Revenue Mix1 | ||||
| (in thousands of R$) |
For the three months period ended March 31, |
|||
|
2024 |
2023 |
% Chg |
||
| Net Revenue Mix | ||||
| Undergrad |
704,519 |
620,976 |
13.5% |
|
| Continuing Education |
65,415 |
58,212 |
12.4% |
|
| Medical Practice Solutions |
36,573 |
33,540 |
9.0% |
|
| Inter-segment transactions |
-2,268 |
-2,767 |
-18.0% |
|
| Total Reported Net Revenue |
804,239 |
709,961 |
13.3% |
|
| (1) No acquisitions were made during the period under review, therefore not affecting the comparable period. | ||||
Adjusted EBITDA
Adjusted EBITDA for the three-month period ended March 31, 2024, increased 20.5% to R$397.9 million, up from R$330.2 million in the same period of the prior year, and the Adjusted EBITDA Margin increased 300 basis points to 49.5%. The Adjusted EBITDA Margin expansion is mainly due to the following: (a) gross margin expansion within the three segments; (b) completion of UNIMA and Afya Jaboatão integration process in November 2023; (c) the ramp up of the four Mais Médicos campuses that started operation in 3Q22; (d) operational restructuring efforts in Continuing Education and Medical Practice Solutions segments; and (e) More efficiency in Selling, General and Administrative expenses.
| Table 7: Reconciliation between Adjusted EBITDA and Net Income | |||
| (in thousands of R$) |
For the three months period ended March 31, |
||
|
2024 |
2023 |
% Chg |
|
| Net income |
208,299 |
117,772 |
76.9% |
| Net financial result |
74,366 |
96,552 |
-23.0% |
| Income taxes expense |
10,865 |
19,060 |
-43.0% |
| Depreciation and amortization |
79,269 |
65,971 |
20.2% |
| Interest received 1 |
12,415 |
10,299 |
20.5% |
| Income share associate |
(4,172) |
(3,845) |
8.5% |
| Share-based compensation |
8,630 |
6,495 |
32.9% |
| Non-recurring expenses: |
8,181 |
17,907 |
-54.3% |
| – Integration of new companies 2 |
5,870 |
5,900 |
-0.5% |
| – M&A advisory and due diligence 3 |
248 |
11,039 |
-97.8% |
| – Expansion projects 4 |
605 |
151 |
300.7% |
| – Restructuring expenses 5 |
1,458 |
1,395 |
4.5% |
| – Mandatory Discounts in Tuition Fees 6 |
0 |
(578) |
n.a. |
| Adjusted EBITDA |
397,853 |
330,211 |
20.5% |
| Adjusted EBITDA Margin |
49.5% |
46.5% |
300 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. | |||
Adjusted Net Income
Net Income for the first quarter of 2024 was R$208.3 million, an increase of 76.9% over the same period of the prior year. Adjusted Net Income for the first quarter of 2024 was R$251.0 million, an increase of 50.8% over the same period from the previous year, mainly due to: (a) enhancement of operational results (details above); (b) reduction in finance expenses due to a decrease in Net Debt (excluding IFRS 16) in R$ 237.2 million and lower interest rates; and (c) lower effective tax rates than last year.
Adjusted EPS reached R$2.26 per share for the first quarter of 2024, an increase of 54.4% YoY, reflecting the increase in Net Income and capital allocation discipline.
| Table 8: Adjusted Net Income | |||
| (in thousands of R$) |
For the three months period ended March 31, |
||
|
2024 |
2023 |
% Chg |
|
| Net income |
208,299 |
117,772 |
76.9% |
| Amortization of customer relationships and trademark 1 |
25,856 |
24,203 |
6.8% |
| Share-based compensation |
8,630 |
6,495 |
32.9% |
| Non-recurring expenses: |
8,181 |
17,907 |
-54.3% |
| – Integration of new companies 2 |
5,870 |
5,900 |
-0.5% |
| – M&A advisory and due diligence 3 |
248 |
11,039 |
-97.8% |
| – Expansion projects 4 |
605 |
151 |
300.7% |
| – Restructuring expenses 5 |
1,458 |
1,395 |
4.5% |
| – Mandatory Discounts in Tuition Fees 6 |
– |
-578 |
n.a. |
| Adjusted Net Income |
250,966 |
166,377 |
50.8% |
| Basic earnings per share – in R$ 7 |
2.26 |
1.24 |
83.0% |
| Adjusted earnings per share – in R$ 8 |
2.74 |
1.77 |
54.4% |
| (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, 2024, Cash and Cash Equivalents were R$611.1 million, an increase of 10.5% over December 31, 2023. The Net Debt, excluding the effect of IFRS 16, totaled R$1,577.4 million compared to December 31, 2023, Afya reduced its Net Debt by R$237.2 million due to solid Operating Cashflow generation.
For the three-month period ended March 31, 2024, Afya reported Cash Flow from Operating Activities of R$429.1 million, up from R$349.4 million in the same period of the previous year, an increase of 22.8% YoY, boosted by the solid operational results. Operating Cash Conversion Ratio achieved 110.1%, slightly down from 111.9% in the three-month period that ended on March 31, 2023.
| Table 9: Operating Cash Conversion Ratio Reconciliation |
For the three months period ended March 31, |
||
| (in thousands of R$) |
Considering the adoption of IFRS 16 |
||
|
2024 |
2023 |
% Chg |
|
| (a) Net cash flows from operating activities |
417,860 |
331,554 |
26.0% |
| (b) Income taxes paid |
11,194 |
17,819 |
-37.2% |
| (c) = (a) + (b) Cash flow from operating activities |
429,054 |
349,373 |
22.8% |
| (d) Adjusted EBITDA |
397,853 |
330,211 |
20.5% |
| (e) Non-recurring expenses: |
8,181 |
17,907 |
-54.3% |
| – Integration of new companies 1 |
5,870 |
5,900 |
-0.5% |
| – M&A advisory and due diligence 2 |
248 |
11,039 |
-97.8% |
| – Expansion projects 3 |
605 |
151 |
300.7% |
| – Restructuring Expenses 4 |
1,458 |
1,395 |
4.5% |
| – Mandatory Discounts in Tuition Fees 5 |
0 |
-578 |
-100.0% |
| (f) = (d) – (e) Adjusted EBITDA ex- non-recurring expenses |
389,672 |
312,304 |
24.8% |
| (g) = (c) / (f) Operating cash conversion ratio |
110.1% |
111.9% |
-180 bps |
| (1) Consists of expenses related to the integration of newly acquired companies. | |||
| (2) Consists of expenses related to professional and consultant fees in connection with due diligence services for M&A transactions. | |||
| (3) Consists of expenses related to professional and consultant fees in connection with the opening of new campuses. | |||
| (4) Consists of expenses related to the employee redundancies in connection with the organizational restructuring of acquired companies. | |||
| (5) Consists of mandatory discounts in tuition fees granted by state decrees, individual/collective legal proceedings and public civil proceedings due to COVID 19 on site classes restriction and excludes any recovery of these discounts that were invoiced based on the Supreme Court decision. | |||
The following table shows more information regarding the cost of debt for 1Q24, 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 2024 would be 1.2x.
| Table 10: Gross Debt and Average Cost of Debt | ||||||||
| (in millions of R$) |
For the three months period ended March 31, |
|||||||
|
|
|
|
|
Cost of Debt |
||||
|
Gross Debt |
Duration (Years) |
Per year |
%CDI² |
|||||
|
2024 |
2023 |
2024 |
2023 |
2024 |
2023 |
2024 |
2023 |
|
| Loans and financing: Softbank |
826 |
825 |
2.1 |
3.1 |
6.5% |
6.5% |
57% |
48% |
| Loans and financing: Debentures |
510 |
519 |
3.3 |
4.4 |
12.7% |
15.7% |
117% |
114% |
| Loans and financing: Others |
446 |
580 |
1.3 |
1.9 |
12.7% |
15.7% |
116% |
114% |
| Accounts payable to selling shareholders |
405 |
828 |
0.9 |
1.2 |
10.8% |
13.3% |
100% |
97% |
| Total¹| Average |
2,189 |
2,751 |
2.1 |
2.6 |
9.8% |
12.1% |
91% |
89% |
| (1) Total ammount refers only to the “Gross Debt” columns | ||||||||
| (2) Based on the annualized Interbank Certificates of Deposit (“CDI”) rate for the period as a reference: 1Q24: ~10,65% p.y. and for 1Q23: ~13.65% p.y. | ||||||||
| Table 11: Cash and Debt Position | |||||
| (in thousands of R$) | |||||
|
1Q24 |
FY2023 |
% Chg |
1Q23 |
% Chg |
|
| (+) Cash and Cash Equivalents |
611,077 |
553,030 |
10.5% |
722,691 |
-15.4% |
| Cash and Bank Deposits |
5,573 |
11,746 |
-52.6% |
28,375 |
-80.4% |
| Cash Equivalents |
605,504 |
541,284 |
11.9% |
694,316 |
-12.8% |
| (-) Loans and Financing |
1,783,094 |
1,800,775 |
-1.0% |
1,923,737 |
-7.3% |
| Current |
161,675 |
179,252 |
-9.8% |
193,214 |
-16.3% |
| Non-Current |
1,621,419 |
1,621,523 |
0.0% |
1,730,523 |
-6.3% |
| (-) Accounts Payable to Selling Shareholders |
405,410 |
566,867 |
-28.5% |
769,274 |
-47.3% |
| Current |
244,865 |
353,998 |
-30.8% |
417,398 |
-41.3% |
| Non-Current |
160,545 |
212,869 |
-24.6% |
351,876 |
-54.4% |
| (-) Other Short and Long Term Obligations |
– |
– |
n.a. |
58,702 |
-100.0% |
| (=) Net Debt (Cash) excluding IFRS 16 |
1,577,427 |
1,814,612 |
-13.1% |
2,029,022 |
-22.3% |
| (-) Lease Liabilities |
902,542 |
874,569 |
3.2% |
864,983 |
4.3% |
| Current |
40,030 |
36,898 |
8.5% |
38,026 |
5.3% |
| Non-Current |
862,512 |
837,671 |
3.0% |
826,957 |
4.3% |
| Net Debt (Cash) with IFRS 16 |
2,479,969 |
2,689,181 |
-7.8% |
2,894,005 |
-14.3% |
Contacts
Investor Contact: ir@afya.com.br
IR Website: ir.afya.com.br
Media Contact:
Cíntia Moraes Marin
cintia.marin@afya.com.br