Afya Limited Announces Fourth-Quarter and Full-Year 2022 Financial Results

Another Year of Strong Performance

Robust EPS Expansion

Guidance Achievement

NOVA LIMA, Brazil–(BUSINESS WIRE)–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 fourth quarter and full-year period ended December 31, 2022. Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

Fourth Quarter 2022 Highlights

• 4Q22 Adjusted Net Revenue increased 17.8% YoY to R$595.1 million.
• 4Q22 Adjusted EBITDA increased 24.1% YoY, reaching R$242.2 million, with an Adjusted EBITDA Margin of 40.7%.
• 4Q22 Adjusted Net Income increased 30.8% YoY, reaching R$128.8 million, with an EPS growth of 53.3% in the same period.

Full-Year 2022 Highlights

• FY22 Adjusted Net Revenue increased 32.3% YoY to R$2,319.1 million.
• FY22 Adjusted EBITDA increased 27.4% YoY, reaching R$961.9 million, with an Adjusted EBITDA Margin of 41.5%.
• FY22 Adjusted Net Income increased 21.5% YoY, reaching R$535.1 million, with an EPS growth of 73.2% in the same period.
• Cash conversion of 94.4%, with a solid cash position of R$1,093.1 million.
• ~260 thousand monthly active physicians and medical students using Afya’s Digital Services, an increase of 5.3% over the same period last year.

Table 1: Financial Highlights
	For the three months period ended December 31,						For the twelve months period ended December 31,
(in thousand of R$)	2022	2022 Ex Acquisitions*	2021	% Chg	% Chg Ex Acquisitions		2022	2022 Ex Acquisitions*	2021	% Chg	% Chg Ex Acquisitions
(a) Net Revenue	584,002	574,027	498,259	17.2%	15.2%		2,329,057	2,036,612	1,719,371	35.5%	18.5%
(b) Adjusted Net Revenue (1)	595,138	585,163	505,407	17.8%	15.8%		2,319,131	2,026,686	1,752,728	32.3%	15.6%
(c) Adjusted EBITDA (2)	242,207	239,390	195,128	24.1%	22.7%		961,924	828,497	754,836	27.4%	9.8%
(e) = (c)/(b) Adjusted EBITDA Margin	40.7%	40.9%	38.6%	210 bps	230 bps		41.5%	40.9%	43.1%	-160 bps	-220 bps
*For the three months period ended December 31, 2022, “2022 Ex Acquisitions” excludes: Garanhuns (only October, 2022; Closing of Garanhuns was in November, 2021), and Além da Medicina, Cardiopapers, and Glic (all from October to December, 2022; Closing of Além da Medicina, Cardiopapers, and Glic were in 2022).
*For the fiscal year ended December 31, 2022, “ex-Acquisitions” excludes: UNIFIPMoc and FIPGuanambi (from January to May, 2022; Closing of UNIFIPMoc and FIPGuanambi was in June 2021), UNIGRANRIO (from January to July 2022; Closing of UNIGRANRIO was in August 2021), Garanhuns (from January to October, 2022; Closing of Garanhuns was in November 2021), iClinic (only January 2022; Closing of iClinic was in January 2021), Medicinae (from January to March 2022; Closing of Medicinae was in March 2021), Medical Harbour (from January to April 2022; Closing of Medical Harbour was in April 2021), Cliquefarma (from January to April 2022; Closing of Cliquefarma was in April 2021), Shosp (from January to May 2022; Closing of Shosp was in May 2021), RX PRO (from January to September, 2022; Closing of RX PRO was in October 2021), and Além da Medicina, Cardiopapers and Glic (all from January to December, 2022; Closing of Além da Medicina, Cardiopapers, and Glic were in 2022).
(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 10).

Message from Management

We proudly present another year of outstanding 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 year was marked by significant increases in net revenue within our three segments, solid cash generation, and robust EPS growth, showing our consistent business expansion. All these factors combined have enabled us to achieve our 2022 guidance, and we are now facing forward to the goals for 2023.

We are delighted to see that the most significant growth of the year, in terms of revenue, came from our Continue Education segment. With a robust intake process, six new campuses, and course maturation, combined with the return of our practical classes, we can finally see our students, employees, and partners extracting the best from our ecosystem again after a challenging scenario during the pandemic.

Our second most significant growth came from our core business – the Undergrad segment -as we saw important movements throughout the year. First, the successful opening of four Mais Médicos campuses – Abaetetuba, Bragança, Itacoatiara, and Manacapuru – added 200 new medical seats to our portfolio. Second, the completeness of Unigranrio’s integration process in October, one year after its acquisition, proves our commitment to extracting synergies within the operation. Third, the increase 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 last but not least, the announcement of our largest acquisition so far, UNIT Alagoas and FITS Jaboatão dos Guararapes, adding 340 more medical seats to our base. These movements allowed us to reach an impressive number of 3,163 medical operating seats today, strengthening our consolidation as the medical undergrad leader in Brazil. All this effort means one thing: our medical education business remains, and will continue to be, the cornerstone of our business in the short and middle terms, delivering highly predicted growth combined with solid profitability and cash generation.

We are proud to see another year of strong inorganic and organic growth in our Digital Services segment. With three relevant acquisitions – Além da Medicina, Cardiopapers, and Glic -our 6 pillars strategy within the B2P is now complete, and our focus is on further exploring the development of our ecosystem. This strategy is being built with multiple offerings, unlocking new interactions and revenue streams beyond the physicians, achieving pharma players, hospitals, labs, and drugstore chains, and empowering our B2B strategy. In 2022, we closed almost 100 contracts with around 45 pharma companies, and we can gladly see the ramp-up of this part of the business quarter by quarter, as we have been now disclosing our B2B figures for a better perspective.

Afya´s 2022 Net Revenues was at least three times higher than in 2019, the year of our IPO. Furthermore, we have marked an approximate expansion regarding profitability and cash generation. With more than 200bps in EBITDA margin expansion, the cash conversion rate has continued to perform above 90%, showing our capacity to deliver strong growth expanding profitability and cash generation. Lastly, our EPS has increased more than two times since 2019, proving our capacity to combine organic and inorganic growth with strong capital allocation discipline and, consequently, great returns to our shareholders.

It is important to remark that Afya´s 2022 tripled its net revenue compared to 2019, the year of our IPO. Furthermore, regarding Profitability and Cash Generation, we have marked an approximate expansion of 300bps in Adjusted Ebitda Margin. Moreover, the Operating Cash Conversion rate has continued to perform above 90%, showing our capacity to deliver strong growth with profitability. Lastly, our EPS has doubled since 2019, proving our capacity to combine organic and inorganic growth with strong capital allocation discipline and, consequently, great returns to our shareholders.

As a reflection of our outstanding results and actions that are being shown to the market, we could joyfully celebrate several awards recognitions this year, such as “Anuário Época Negócios 360º”, “2022 Valor Inovação Brasil”, “Institutional Investor 2022”, “Great Place to Work,” “Bloomberg Gender-Equality Index,” “TOP 100 Open Corps 2022”, among others. We are very proud of all these achievements, as they reflect the work and passion of our thousands of employees around a unique vision: to transform health together with those who have medicine as a vocation.

Strong performance, consistent growth, success in all segments, and public recognition: this is how we are evolving and empowering our mission 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 what we have achieved so far, and excited the future.

1. Key Events in the Quarter:

• Afya announced on October 13th, 2022, that it has entered into a share purchase agreement for the acquisition of 100% of the total share capital of Sociedade Educacional e Cultural Sergipe DelRey Ltda., that encompasses the operations of Centro Universitário Tiradentes Alagoas (“UNIT Alagoas”) and Faculdade Tiradentes Jaboatão dos Guararapes (“FITS Jaboatão dos Guararapes”). The acquisition will contribute 340 medical school seats to Afya. The aggregate purchase price (enterprise value) is R$825.0 million before the deduction of Net Debt that will be calculated at the closing date, and it will be paid as follows: R$575 million in cash on the transaction closing date and R$250 million in three annual installments, respectively, of R$150 million, R$50 million, and R$50 million, adjusted by the Brazilian interest rate (SELIC). We expected an EV/EBITDA of 5.8x at maturity and post synergies (2024). With the acquisition, Afya further consolidates its presence in the Brazilian Northeast, entering a new state in the region.
• Afya announced on December 6^th, 2022, its intention to issue, through its wholly-owned subsidiary Afya Participações S.A, 500,000 simple, non-convertible, unsecured debentures in a single series, each with a par value of R$1,000, totaling an aggregate amount of R$500 million, by means of a proposed public distribution with restricted placement efforts in the Brazilian market, under the terms of the Brazilian Securities and Exchange Commission Rule No. 476, dated January 16, 2009, and is not being generally made anywhere outside of Brazil, including in the United States or to US investors. Accordingly, the Debentures will not be registered under the United States Securities Act of 1933, as amended and may not be offered or sold in the United States absent registration or an applicable exemption from registration under the Securities Act. Afya intends to use the proceeds of the Offering for general corporate purposes, strengthening its cash position, and extending its debt maturity profile. The Debentures are intended to be issued with a maturity date of January 15, 2028, with the principal to be amortized in two equal installments payable on January 15, 2027 and January 15, 2028, corresponding to the fourth and fifth years of the transaction, respectively. On December 16^th, 2022, Afya announced the closing of the issuance under the aforementioned terms. The Debentures bear interest at 100% of the CDI interest rate (the average of interbank overnight rates in Brazil, based on 252 business days) plus 1.80% per year, payable semi-annually on January 15 and July 15 of each year, until the maturity date.

• Afya announced on December 9^th, 2022, that Mr. Flávio Dias, a board member since July 2020, has ended his term as an independent member of the Board of Directors, and will not be renewed. The remaining independent board members will have their term extended until Afya’s next Annual General Meeting. Furthermore, Afya also announced that Mr. Daulins Emilio, a board member since August 2019, has submitted his resignation letter as a member of the Board of Directors and, consequently, Bertelsmann SE&Co. KGaA has appointed Mrs. Tina Krebs as his replacement, effective as of that date. With these changes, the number of women members now represents 40% of the Board of Directors. Afya’s Board of Directors is composed of two co-chairmen – one representing Bertelsmann SE&Co. KGaA, and one representing the Esteves family -, one more member of the Esteves family, three more members of Bertelsmann SE&Co. KGaA, one member from Softbank and three independent members, resulting in a diversity of skills and experience to enhance Afya’s decision-making.

• Afya announced on December 29^th, 2022, that the Secretary of Regulation and Supervision of Higher Education of the Ministry of Education (“MEC”) authorized the increase of 64 medical seats of Faculdade Santo Agostinho, in the city of Itabuna, located in the state of Bahia. With the authorization, Afya reached 149 medical seats on this campus.

2. Subsequent Events in the Quarter:

• Afya announced on January 3^rd, 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 31^st, 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.

3. Full Year 2022 Guidance Achievement

The Company’s financial results reaffirmed the resiliency and predictability of Afya’s business model. Excluding Cardiopapers and Glic, the Adjusted Net Revenue of R$2,308.8 million and the Adjusted EBITDA of R$960.7 million were in the mid-guidance range.

		Guidance for 2022	Actual 2022
Adjusted Net Revenue		R$ 2,280 mn ≤ ∆ ≤ R$ 2,360 mn	R$ 2,309 mn
Adjusted EBITDA		R$ 935 mn ≤ ∆ ≤ R$ 1.015 mn	R$ 961 mn
Includes four Mais Médicos units start operating in 2H22; Includes Ji-Parana acquisition start operating in the 2H22; Includes Além da Medicina acquisition; Excludes any acquisition that may be concluded after the issuance of the guidance, such as Cardiopapers and Glic.

4. 2023 Guidance

The Company is introducing guidance for 2023 which considers the successfully concluded acceptances of new medical 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.

5. 4Q22 and 2022 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	Twelve months period ended December 31,
	2022	2021	% Chg
Undergrad Programs
MEDICAL SCHOOL
Approved Seats¹	2,823	2,731	3.4%
Operating Seats	2,773	2,481	11.8%
Total Students (end of period)	17,968	16,017	12.2%
Average Total Students	17,761	14,492	22.6%
Average Total Students (ex-Acquisitions)²	15,883	14,492	9.6%
Tuition Fees (Total – R$MM)	2,032,888	1,511,442	34.5%
Tuition Fees (ex- Acquisitions² – R$MM)	1,791,590	1,511,442	18.5%
Medical School Gross Avg. Ticket (ex- Acquisitions² – R$/month)	9,400	8,615	9.1%
Medical School Net Avg. Ticket (ex- Acquisitions² – R$/month)	7,896	7,115	11.0%
UNDERGRADUATE HEALTH SCIENCE
Total Students (end of period)	17,967	19,882	-9.6%
Average Total Students	19,441	15,918	22.1%
Average Total Students (ex-Acquisitions)²	15,293	15,918	-3.9%
Tuition Fees (Total – R$MM)	336,238	239,235	40.5%
Tuition Fees (ex- Acquisitions² – R$MM)	249,550	239,235	4.3%
OTHER UNDERGRADUATE
Total Students (end of period)	22,265	25,219	-11.7%
Average Total Students	23,376	20,198	15.7%
Average Total Students (ex-Acquisitions)²	16,209	20,198	-19.7%
Tuition Fees (Total – R$MM)	266,306	239,776	11.1%
Tuition Fees (ex- Acquisitions² – R$MM)	200,690	239,776	-16.3%
TOTAL TUITION FEES
Tuition Fees (Total – R$MM)	2,635,432	1,990,453	32.4%
Tuition Fees (ex- Acquisitions² – R$MM)	2,241,830	1,990,453	12.6%
1) Approved and Operating seats does not include UNIT Alagoas and FITS Jaboatão dos Guararapes’ acquisition that was closed on January 2nd, 2023;
2) For the fiscal year ended December 31, 2022, “ex-Acquisitions” excludes: UNIFIPMoc and FIPGuanambi (from January to May, 2022; Closing of UNIFIPMoc and FIPGuanambi was in June 2021), UNIGRANRIO (from January to July 2022; Closing of UNIGRANRIO was in August 2021), and Garanhuns (from January to October, 2022; Closing of Garanhuns was in November 2021).

Key Revenue Drivers – Continuing Education and Digital Services

Table 3: Key Revenue Drivers	Twelve months period ended December 31,
	2022	2021	% Chg
Continuing Education
Medical Specialization & Others
Total Students (end of period)	4,280	3,189	34.2%
Average Total Students	3,835	3,252	17.9%
Average Total Students (ex-Acquisitions)	3,835	3,252	17.9%
Net Revenue from courses (Total – R$MM)	108,806	72,983	49.1%
Net Revenue from courses (ex- Acquisitions¹)	108,806	72,983	49.1%
Digital Services
Content & Technology for Medical Education
Medcel Active Payers
Prep Courses & CME – B2P	14,569	17,171	-15.2%
Prep Courses & CME – B2B	5,887	4,460	32.0%
Além da Medicina Active Payers	6,081	–	n.a.
Cardiopapers Active Payers	5,034	–	n.a.
Medical Harbour Active Payers	7,668	–	n.a.
Clinical Decision Software
Whitebook Active Payers	137,767	125,372	9.9%
Clinical Management Tools²
iClinic Active Payers	22,764	17,978	26.6%
Shosp Active Payers	2,915	2,305	26.5%
Digital Services Total Active Payers (end of period)	202,685	167,286	21.2%
Net Revenue from Services (Total – R$MM)	189,984	151,958	25.0%
Net Revenue – B2P	166,515	142,716	16.7%
Net Revenue – B2B	23,469	9,242	153.9%
Net Revenue From Services (ex-Acquisitions¹)	157,943	151,958	3.9%
(1) For the fiscal year ended December 31, 2022, “ex-Acquisitions” excludes: iClinic (only January 2022; Closing of iClinic was in January 2021), Medicinae (from January to March 2022; Closing of Medicinae was in March 2021), Medical Harbour (from January to April 2022; Closing of Medical Harbour was in April 2021), Cliquefarma (from January to April 2022; Closing of Cliquefarma was in April 2021), Shosp (from January to May 2022; Closing of Shosp was in May 2021), RX PRO (from January to September, 2022; Closing of RX PRO was in October 2021), and Além da Medicina, Cardiopapers and Glic (all from January to December, 2022; Closing of Além da Medicina, Cardiopapers and Glic were in 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 more than 260 thousand, 5.3% 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. Since this concept started to be implemented this year, the historical metrics of MuaU could not be disclosed.

Table 4: Key Operational Drivers for Digital Services – Monthly Active Users (MaU)
	4Q22	4Q21	% Chg YoY	3Q22	% Chg QoQ
Content & Technology for Medical Education	16,539	16,205	2.1%	21,811	-24.2%
Clinical Decision Software	221,762	194,308	14.1%	239,640	-7.5%
Clinical Management Tools¹	20,936	37,030	-43.5%	23,036	-9.1%
Physician-Patient Relationship	1,473	–	n.a.	1,397	5.4%
Total Monthly Active Users (MaU) – Digital Services	260,710	247,543	5.3%	285,884	-8.8%
1) Clinical management tools includes Telemedicine and Digital Prescription features
2) Clinical management tools MAU excludes other users other than payors, starting in 1Q22
3) Shosp, Medicinae and Além da Medicina starting in 1Q22
4) Cardiopapers and Glic starting in 2Q22
Table 5: Key Operational Drivers for Digital Services – Monthly Unique Active Users (MuaU)
		4Q22
Total Monthly Unique Active Users (MuaU) – Digital Services		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.

Contacts

Investor Relations Contact:

Afya Limited

ir@afya.com.br

Media Contact:

Cíntia Moraes Marin

cintia.marin@afya.com.br

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