Afya Limited Third Quarter and Nine Months 2024 Financial Results

Impressive Adjusted EBITDA Margin Expansion

Robust EPS Expansion

Expressive Cash Generation

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 and nine-month periods ended September 30, 2024 (third quarter 2024). Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

Third Quarter 2024 Highlights

• 3Q24 Net Revenue increased 16.3% YoY to R$841.2 million. Net Revenue excluding acquisitions grew 11.8%, reaching R$808.8 million.

• 3Q24 Adjusted EBITDA increased 25.0% YoY reaching R$347.9 million, with an Adjusted EBITDA Margin of 41.4%. Adjusted EBITDA Margin increased 290 bps YoY. Adjusted EBITDA excluding acquisitions grew 18.2%, reaching R$328.9 million, with an Adjusted EBITDA Margin of 40.7%.
• 3Q24 Net Income increased 26.4% YoY, reaching R$124.1 million, and Adjusted Net Income increased 28.8% YoY, reaching R$165.4 million. Adjusted EPS growth was 29.9% in the same period.

Nine Months 2024 Highlights

• 9M24 Net Revenue increased 14.4% YoY to R$2,455.3 million. Net Revenue excluding acquisitions grew 12.9%, reaching R$2,422.9 million.
• 9M24 Adjusted EBITDA increased 24.3% YoY reaching R$1,089.6 million, with an Adjusted EBITDA Margin of 44.4%. Adjusted EBITDA Margin increased 350 bps YoY. Adjusted EBITDA excluding acquisitions grew 22.1%, reaching R$1,070.6 million, with an Adjusted EBITDA Margin of 44.2%.
• 9M24 Net Income increased 63.0% YoY, reaching R$494.6 million, and Adjusted Net Income increased 46.9% YoY, reaching R$626.7 million. Adjusted EPS growth was 48.7% in the same period.
• Operating Cash Conversion ratio of 109.7%, with a solid cash position of R$836.9 million.
• ~326 thousand users in Afya’s ecosystem.

 

Table 1: Financial Highlights

Three months period ended September 30,

Nine months period ended September 30,

(in thousand of R$)

2024

2024 Ex Acquisitions*

2023

% Chg

% Chg Ex Acquisitions

2024

2024 Ex Acquisitions*

2023

% Chg

% Chg Ex Acquisitions

(a) Net Revenue

841,185

808,763

723,479

16.3%

11.8%

2,455,314

2,422,892

2,146,047

14.4%

12.9%

(b) Adjusted EBITDA 2

347,949

328,924

278,393

25.0%

18.2%

1,089,628

1,070,603

876,766

24.3%

22.1%

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

41.4%

40.7%

38.5%

290 bps
220 bps

44.4%

44.2%

40.9%

350 bps
330 bps


Net income

124,142

-

98,220

26.4%

-

494,641

-

303,530

63.0%

-

Adjusted Net income

165,372

-

128,393

28.8%

-

626,683

-

426,675

46.9%

-

*For the three months period ended September 30, 2024, "2024 Ex Acquisitions" excludes: UNIDOM (July to September, 2024; Closing of UNIDOM was in July 2024).


*For the nine months period ended September 30, 2024, "2024 Ex Acquisitions" excludes: UNIDOM (July to September, 2024; Closing of UNIDOM was in July 2024).


(2) See more information on "Non-GAAP Financial Measures" (Item 08).

Message from Management

We are pleased to announce another quarter of solid results, marked by strong cash generation, consistent margin expansion, and progress in our strategic initiatives. This performance underscores the differentials of Afya’s business model centered on the entire physician career and the successful execution of our growth strategy, as we continue advancing our mission to integrate education and digital solutions for the medical journey, enhancing training, updating, assertiveness, productivity, and physicians' connections with the healthcare ecosystem.

Our EBITDA margin expansion was largely supported by the integration of UNIMA and FCM Jaboatão delivered in 4Q23, the ramp-up of the four Mais Médicos campuses launched in 3Q22, restructuring efforts within the Continuing Education and Medical Practice Solutions, and improved cost management in Selling, General, and Administrative expenses.

This quarter, we completed the acquisition of Unidom adding 300 medical seats, strengthening our presence in Salvador, one of Brazil’s largest cities. Through dedicated efforts, we achieved a robust medical students’ intake at Unidom with more than 300 students enrolled in the 2nd half just one month after the acquisition, reinforcing the impact of our ecosystem and brand recognition throughout the country.

Additionally, we received authorization from Brazil’s Ministry of Education (“MEC”), to increase 80 medical seats at UNIMA and the reconsideration of 10 medical seats at Unigranrio in Rio de Janeiro, bringing our total approved seats across all campuses to 3,593. These expansions are aligned with our commitment to providing access to quality medical education and meeting the demand for healthcare professionals.

During our Afya Day event in October, we also announced a projected 5.1% increase in tuition fees for new students in 2025, above inflation expectations for 2024, which reflect the continued strength of our value proposition and the recognition of our brand.

For the nine-month period, Net Revenue increased across all three segments. For Medical Practice Solutions we have seen a robust 15% increase in Net Revenue compared to the nine-month period of the prior year. Reaffirming the immense potential of our Solutions.

For our Undergrad segment, Net Revenue grew by 14% when compared to the same period last year. Mainly supported by medical tickets increasing above inflation, the maturation of the medical seats, in addition to the acquisition of Unidom and increase of medical seats approved. Afya has concluded a very successful intake process in 2024 with more than 6 candidates per seat considering all 32 campuses reflecting the strengthening of Afya’s brand recognition and reputation among the medical community.

In our Continuing Education segment, we are also proud to see another year of organic growth. Net Revenue increased over 10% in the nine-month period. Through a robust intake process, with the establishment of four new campuses in 2024 alone, we can see once more, our students, employees, and partners benefit from our constantly developing ecosystem.

It is worth mentioning that our ecosystem has reached today 326 thousand active users, adopting at least one of Afya’s solutions. This achievement is complemented by a high level of satisfaction, reflecting the strong recognition and trust in Afya’s brand and its ecosystem

Our commitment to high-quality education and comprehensive support for healthcare professionals remains at the core of our mission. Afya’s focus on operational excellence, strategic expansions, and sustainable growth positions us for continued success. We remain steadfast in our vision to transform health together with those who have medicine as a vocation, leveraging our ecosystem to create long-lasting value for all stakeholders.

1. Key Events in the Quarter:

• On July 1, 2024, Afya Participações announced the closing of its 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 contributes 300 operational medical school seats to Afya in Salvador, one of Brazil's largest cities. The authorization request for these 300 seats was made to MEC before the Mais Médicos´ Law was enacted and MEC concluded its analysis and issued Ordinance 630/2020 ("Ordinance") in 2020 to partially authorize the operation considering 125 medical seats. In 2021, as a result of a judicial order, MEC reviewed the Ordinance to authorize the 300 seats initially requested by Unidompedro. Said decision was confirmed by a judgment in 2023. Currently, Unidompedro has 300 seats authorized, of which 125 are final and 175 are subject to a final conclusion of the aforementioned court proceedings. The aggregate purchase price (enterprise value) was R$660.0 million, and the estimated Net Debt was deducted from the down payment. The price and payment conditions are:
  • R$347.8 million, deducted from the estimated Net Debt, was paid in cash at closing.
  • 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 of 4.2x at maturity and post-synergies (2027).
• On July 12, 2024, the Secretary of Regulation and Supervision of Higher Education of MEC authorized the increase of 80 medical school seats of UNIMA, located in the city of Maceió, State of Alagoas, which will result in an additional payment of R$1.25 million per increased medical school seat, updated by IPCA since January 2, 2023 until the payment date to the selling shareholders of DelRey. With this authorization, Afya reaches 220 medical school seats on this campus.
• On August 30, 2024, has received the total disbursement of R$500.0 million under the loan agreement with International Finance Corporation ("IFC") to finance its expansion program, through acquisitions. The financing is IFC’s first sustainability-linked loan based on social targets in the education sector. The pricing of IFC’s loan will be linked to Afya reaching performance target levels in selected social key performance indicators encompassing free medical consultations for the community and quality of education according to Brazil’s Ministry of Education criteria (“Sustainability KPIs”). According to the financing terms, the loan shall be repaid in seven equal semi-annual installments starting in April 2027. The interest rate is the Brazilian CDI rate plus 1.2%, and it may be reduced by 15 bps if the Sustainability KPIs are achieved.
• On September 6, 2024, Afya Participações announced that following the conclusion of an administrative procedure, MEC has granted the request for reconsideration submitted by Unigranrio. Per the e-MEC portal, Unigranrio reestablished 10 medical seats in the city of Rio de Janeiro, reaching 318 medical seats across both Unigranrio campuses, contributing to Afya´s 3,593 total approved medical seats.

2. 2024 Guidance

Afya reaffirms the Guidance FY2024, which was updated upward at the end of 2Q24 to encompass the acquisition of Unidom, the authorization of 80 seats in UNIMA, and the performance of the first semester.

Guidance for 2024

Net Revenue 1

R$ 3,225 mn ≤ ∆ ≤ R$ 3,325 mn


Adjusted EBITDA

R$ 1,375 mn ≤ ∆ ≤ R$ 1,475 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 Unidom acquisition was 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 (FIP Guanambi), and also excludes the earn-out payment due to UNIMA Alagoas for the 80-seat increase in July 2024.

3. 3Q24 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

Nine months period ended September 30

2024

2023

% Chg

Undergrad Programs

MEDICAL SCHOOL

Approved Seats

3,593

3,163

13.6%

Operating Seats 1

3,543

3,113

13.8%

Total Students (end of period)

24,234

21,556

12.4%

Average Total Students

23,168

21,056

10.0%

Average Total Students (ex-Acquisitions)*

22,782

21,056

8.2%

Net Revenue (Total - R$ '000)

1,852,742

1,607,217

15.3%

Net Revenue (ex- Acquisitions* - R$ '000)

1,822,157

1,607,217

13.4%

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

8,887

8,481

4.8%

UNDERGRADUATE HEALTH SCIENCE

Total Students (end of period)

25,950

21,564

20.3%

Average Total Students

25,028

21,447

16.7%

Average Total Students (ex-Acquisitions)*

24,810

21,447

15.7%

Net Revenue (Total - R$ '000)

170,520

151,833

12.3%

Net Revenue (ex- Acquisitions* - R$ '000)

169,733

151,833

11.8%

OTHER EX- HEALTH UNDERGRADUATE

Total Students (end of period)

27,855

24,286

14.7%

Average Total Students

27,745

24,625

12.7%

Average Total Students (ex-Acquisitions)*

27,302

24,625

10.9%

Net Revenue (Total - R$ '000)

132,633

124,038

6.9%

Net Revenue (ex- Acquisitions* - R$ '000)

131,583

124,038

6.1%

Total Net Revenue

Net Revenue (Total - R$ '000)

2,155,895

1,883,089

14.5%

Net Revenue (ex- Acquisitions* - R$ '000)

2,123,473

1,883,089

12.8%

*For the nine months period ended September 30, 2024, "2024 Ex Acquisitions" excludes: UNIDOM (July to September, 2024; Closing of UNIDOM was in July 2024).


(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

Nine months period ended September 30

2024

2023

% Chg

Continuing Education 1

Total Studends (end of period)

Residency Journey - Business to Physicians B2P 2

15,678

10,325

51.8%

Graduate Journey - Business to Physicians B2P

7,293

7,063

3.3%

Other Courses - B2P and Business to Business Offerings

29,780

24,385

22.1%

Total Students (end of period)

52,751

41,773

26.3%

Net Revenue (R$ '000)

Business to Physicians - B2P

175,002

153,792

13.8%

Business to Business - B2B

12,730

16,216

-21.5%

Total Net Revenue

187,731

170,010

10.4%

(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

Nine months period ended September 30

2024

2023

% Chg

Medical Practice Solutions 1

Active Payers (end of period)

Clinical Decision

166,780

150,796

10.6%

Clinical Management

33,503

29,281

14.4%

Total Active Payers (end of period)

200,283

180,077

11.2%

Monthly Active Users (MaU)

Total Monthly Active Users (MaU) - Digital Services 2

248,775

259,259

-4.0%

Net Revenue (R$ '000)

Business to Physicians - B2P

99,707

88,485

12.7%

Business to Business - B2B

17,583

13,803

27.4%

Total Net Revenue

117,290

102,289

14.7%

(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 – Users Positively Impacted by Afya

Users Positively Impacted by Afya represents the total number of medical students from the Undergrad segment, students from the Continuing Education and users from Medical Practice Solutions. For the third quarter of 2024, Afya’s ecosystem reached 325,760 users, in line with the same period of the prior year.

Table 5: Key Revenue Drivers

Nine months period ended September 30

2024

2023

% Chg

Users Positively Impacted by Afya 1

Undergrad (Total Medical School Students - End of Period)

24,234

21,556

12.4%

Continuing Education (Total Students - End of Period)

52,751

41,773

26.3%

Medical Practice Solutions (Monthly Active Users)

248,775

259,259

-4.0%

Ecosystem Outreach

325,760

322,588

1.0%

(1) Ecosystem outreach does not contemplate intercompany figures. Note that there may be overlap in student numbers within the data.

Seasonality of Operations

Undergrad tuition revenues are related to the intake process, and monthly tuition fees charged to students and do not significantly fluctuate during each semester.

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) Residence journey product revenues, 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.

Medical Practice Solutions are comprised mainly of Afya Whitebook and Afya iClinic revenues, which do not significantly fluctuate regarding seasonality.

Net Revenue

Net Revenue for the third quarter of 2024 was R$841.2 million, an increase of 16.3% over the same period in the prior year. Excluding acquisitions, Net Revenue in the third quarter increased 11.8% YoY to R$808.8 million. For the nine-month period ending September 30, 2024, Net Revenue was R$2,455.3 million, reflecting a 14.4% increase over the same period of last year. Excluding acquisitions, Net Revenue in the nine-month period increased 12.9% YoY to R$2,422.9 million.

The revenue increase was mainly due to higher tickets in Medicine courses, the maturation of medical seats, the 40-seat expansion in the Guanambi campus, the Continuing Education intake performance, and the execution of Medical Practice Solutions. Specifically, in the third quarter, we also had the impact of 80 new seats at UNIMA and the reconsideration of 10 seats at Unigranrio (Rio de Janeiro). Additionally, on July 1, 2024, Afya acquired Unidom.

Table 6: Revenue & Revenue Mix

(in thousands of R$)

Three months period ended September 30,

Nine months period ended September 30,

2024

2024 Ex Acquisitions*

2023

% Chg

% Chg Ex Acquisitions

2024

2024 Ex Acquisitions*

2023

% Chg

% Chg Ex Acquisitions

Net Revenue Mix














Undergrad

741,729

709,307

636,849

16.5%

11.4%

2,155,895

2,123,473

1,883,089

14.5%

12.8%

Continuing Education

60,225

60,225

56,335

6.9%

6.9%

187,731

187,731

170,010

10.4%

10.4%

Medical Practice Solutions

40,436

40,436

34,450

17.4%

17.4%

117,290

117,290

102,289

14.7%

14.7%

Inter-segment transactions

- 1,205

- 1,205

- 4,155

-71.0%

-71.0%

-5,602

-5,602

-9,341

-40.0%

-40.0%

Total Reported Net Revenue

841,185

808,763

723,479

16.3%

11.8%

2,455,314

2,422,892

2,146,047

14.4%

12.9%

*For the three months period ended September 30, 2024, "2024 Ex Acquisitions" excludes: UNIDOM (July to September, 2024; Closing of UNIDOM was in July 2024).


*For the nine months period ended September 30, 2024, "2024 Ex Acquisitions" excludes: UNIDOM (July to September, 2024; Closing of UNIDOM was in July 2024).

Adjusted EBITDA

Adjusted EBITDA for the three-month period ended September 30, 2024, increased by 25.0% to R$347.9 million, up from R$278.4 million in the same period of the prior year, with the Adjusted EBITDA Margin rising by 290 basis points to 41.4. For the nine-month period ending September 30, 2024, Adjusted EBITDA was R$1,089.6 million, an increase of 24.3% over the same period of the prior year, accompanied by an Adjusted EBITDA Margin increase of 350 basis points in the same period.

The Adjusted EBITDA Margin expansion is primarily attributable to: (a) gross margin expansion in the Undergrad Segment; (b) completion of UNIMA and FCM 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$)

Three months period ended September 30,

Nine months period ended September 30,

2024

2023

% Chg

2024

2023

% Chg

Net income

124,142

98,220

26.4%

494,641

303,530

63.0%

Net financial result

99,844

80,535

24.0%

242,761

267,313

-9.2%

Income taxes expense

12,432

12,146

2.4%

26,388

33,296

-20.7%

Depreciation and amortization

85,828

73,908

16.1%

249,135

212,172

17.4%

Interest received 1

13,945

10,619

31.3%

34,979

25,760

35.8%

Income share associate

(2,526)

(615)

310.7%

(9,726)

(7,671)

26.8%

Share-based compensation

5,871

6,684

-12.2%

26,299

20,082

31.0%

Non-recurring expenses:

8,413

(3,104)

n.a.

25,151

22,284

12.9%

- Integration of new companies 2

6,444

7,769

-17.1%

17,722

19,951

-11.2%

- M&A advisory and due diligence 3

1,220

703

73.5%

2,803

12,377

-77.4%

- Expansion projects 4

198

2,007

-90.1%

2,568

2,536

1.3%

- Restructuring expenses 5

551

3,722

-85.2%

2,058

5,673

-63.7%

- Mandatory Discounts in Tuition Fees 6

-

(493)

n.a.

-

(1,441)

n.a.

- Gain on tax amnesty 7

-

(16,812)

n.a.

-

(16,812)

n.a.

Adjusted EBITDA

347,949

278,393

25.0%

1,089,628

876,766

24.3%

Adjusted EBITDA Margin

41.4%

38.5%

290 bps

44.4%

40.9%

350 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.



(7) 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.

Adjusted Net Income

Net Income for the three-month period ended September 30, 2024 was R$124.1 million, an increase of 26.4% over the same period of the prior year. Adjusted Net Income was R$165.4 million, which resulted in an increase of 28.8% over the same period from the previous year. For the nine-month period, Afya achieved a Net Income of R$494.6 million, 63.0% higher than the same period of 2023, and an Adjusted Net Income of R$626.7 million which was 46.9% higher than the previous period. This performance was mainly due to: (a) enhancement of operational results; (b) lower effective tax rates than last year; and (c) lower interest rates.

Adjusted EPS reached R$6.81 per share for the nine-month period ended September 30, 2024, an increase of 48.7% YoY, reflecting the increase in Net Income and capital allocation discipline.

Table 8: Adjusted Net Income

(in thousands of R$)

Three months period ended September 30,

Nine months period ended September 30,

2024

2023

 

% Chg

 

2024

2023

 

% Chg

Net income

124,142

98,220

 

26.4%

494,641

303,530

 

63.0%

Amortization of customer relationships and trademark 1

26,946

26,593

 

1.3%

80,592

80,779

 

-0.2%

Share-based compensation

5,871

6,684

 

-12.2%

26,299

20,082

 

31.0%

Non-recurring expenses:

8,413

(3,104

)

n.a.

25,151

22,284

 

12.9%

- Integration of new companies 2

6,444

7,769

 

-17.1%

17,722

19,951

 

-11.2%

- M&A advisory and due diligence 3

1,220

703

 

73.5%

2,803

12,377

 

-77.4%

- Expansion projects 4

198

2,007

 

-90.1%

2,568

2,536

 

1.3%

- Restructuring expenses 5

551

3,722

 

-85.2%

2,058

5,673

 

-63.7%

- Mandatory Discounts in Tuition Fees 6

-

(493

)

n.a.

-

(1,441

)

n.a.


- Gain on tax amnesty 7

-

(16,812

)

n.a.

-

(16,812

)

n.a.

Adjusted Net Income

165,372

128,393

 

28.8%

626,683

426,675

 

46.9%

Basic earnings per share - in R$ 8

1.33

1.04

 

27.9%

5.35

3.21

 

66.6%

Adjusted earnings per share - in R$ 9

1.79

1.38

 

29.9%

6.81

4.58

 

48.7%

(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) 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) 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.


(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

As of September 30, 2024, Afya's Cash and Cash Equivalents stood at R$836.9 million, marking a 51.3% increase compared to December 31, 2023. Net Debt, excluding IFRS 16 impacts, reached R$1,894.4 million—an increase of R$106.6 million over the same period of the previous year. Despite the R$660.0 million acquisition of Unidom and the R$157.2 million earn-out payment regarding the additional seats in Guanambi and UNIMA, Afya’s Net Debt (excluding IFRS 16) increased by only 4.4%, thanks to strong Cash Flow from operating activities.

For the nine-month period ended September 30, 2024, Afya reported Cash Flow from Operating Activities of R$1,167.5 million, up from R$933.8 million in the same period of the previous year, an increase of 25.0% YoY, boosted by solid operational results. Operating Cash Conversion Ratio achieved 109.7%.

Table 9: Operating Cash Conversion Ratio Reconciliation

Nine months period ended September 30,

(in thousands of R$)

Considering the adoption of IFRS 16

2024

2023

% Chg

(a) Net cash flows from operating activities

1,148,175

896,202

28.1%

(b) Income taxes paid

19,290

37,599

-48.7%

(c) = (a) + (b) Cash flow from operating activities

1,167,465

933,801

25.0%

 


(d) Adjusted EBITDA

1,089,628

876,766

24.3%

(e) Non-recurring expenses:

25,151

22,284

12.9%

- Integration of new companies 1

17,722

19,951

-11.2%

- M&A advisory and due diligence 2

2,803

12,377

-77.4%

- Expansion projects 3

2,568

2,536

1.3%

- Restructuring Expenses 4

2,058

5,673

-63.7%

- Mandatory Discounts in Tuition Fees 5

0

-1,441

n.a.


- Gain on tax amnesty 6

-

-16,812

n.a.

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

1,064,477

854,482

24.6%

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

109.7%

109.3%

40 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.


(6) 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.

The following table shows more information regarding the cost of debt for 9M24, considering loans and financing and accounts payable to selling shareholders. Afya’s capital structure remains solid, with a conservative leveraging position and a low cost of debt. Considering the updated mid guidance, Afya’s Net Debt (excluding the effect of IFRS16) divided by the Adjusted EBITDA is 1.33x.

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

%CDI²

2024

2023

2024

2023

2024

2023

2024

2023

Loans and financing: Softbank

828

826

1.6

2.6

6.5%

6.5%

51%

50%

Loans and financing: Debentures

511

512

2.8

3.9

12.1%

15.5%

112%

114%

Loans and financing: Others

309

570

1.0

1.4

12.8%

15.4%

119%

114%

Loans and financing: IFC

497

-

4.1

-

11.8%

-

110%

-

Accounts payable to selling shareholders

586

702

3.3

0.9

10.7%

12.8%

100%

96%

Total¹| Average

2,731

2,610

2.6

2.2

9.4%

11.8%

88%

88%

(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: 9M24: ~10.65% p.y. and for 9M23: ~12.65% p.y.

Table 11: Cash and Debt Position

(in thousands of R$)

3Q24

FY2023

% Chg

3Q23

% Chg

(+) Cash and Cash Equivalents

836,876

553,030

51.3%

822,008

1.8%

Cash and Bank Deposits

5,594

11,746

-52.4%

11,107

-49.6%

Cash Equivalents

831,282

541,284

53.6%

810,901

2.5%

(-) Loans and Financing

2,145,270

1,800,775

19.1%

1,908,299

12.4%

Current

30,051

179,252

-83.2%

186,903

-83.9%

Non-Current

2,115,219

1,621,523

30.4%

1,721,396

22.9%

(-) Accounts Payable to Selling Shareholders

586,042

566,867

3.4%

651,068

-10.0%

Current

247,192

353,998

-30.2%

382,500

-35.4%

Non-Current

338,850

212,869

59.2%

268,568

26.2%

(-) Other Short and Long Term Obligations

n.a.

50,469

-100.0%

(=) Net Debt (Cash) excluding IFRS 16

1,894,436

1,814,612

4.4%

1,787,828

6.0%

(-) Lease Liabilities

974,780

874,569

11.5%

869,729

12.1%

Current

45,133

36,898

22.3%

36,705

23.0%

Non-Current

929,647

837,671

11.0%

833,024

11.6%

Net Debt (Cash) with IFRS 16

2,869,216

2,689,181

6.7%

2,657,557

8.0%

CAPEX

Capital expenditures consist of the purchase of property and equipment and intangible assets, including expenditures mainly related to the expansion and maintenance of Afya’s campuses and headquarters, leasehold improvements, and the development of new solutions in the Medical Practice Solutions segment.

For the nine-month period ending September 30, 2024, CAPEX was R$316.8 million. Excluding the one-off effect in the first quarter of R$49.6 million regarding the earn-out of Guanambi, due to the expansion of 40 seats as disclosed to the market in January 2024, and the earn-out of UNIMA in the amount of R$107.6 million, due to the expansion of 80 seats as disclosed to the market in July 2024 the CAPEX/Net Revenue ratio would be 6.5%.

Table 12: CAPEX

(in thousands of R$)

For the nine months period ended September 30,

2024

2023

% Chg

CAPEX

316,766

155,127

104.2%

Property and equipment

93,367

88,014

6.1%

Intanglibe assets

223,399

67,113

232.9%

- Licenses

157,227

0

n.a.


- Others

66,172

67,113

-1.4%

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 in three key metrics, Governance and Employee Management, Environmental and Social.

The 2023 Sustainability Report can be found at: https://ir.afya.com.br/annual-report/

Table 13: ESG Metrics 1, 2 & 3

3Q24

3Q23

2023

#

GRI

Governance and Employee Management

1

405-1

Number of employees

10,155

9,868

9,680

2

405-1

Percentage of female employees

59%

58%

58%

3

405-1

Percentage of female employees in the board of directors

30%

36%

36%

4

102-24

Percentage of independent member in the board of directors

40%

36%

36%

 

 

Environmental

5

 

Total renewable energy generated by own photovoltaic plants (MWh)

1,471,476

1,151,649

4,510,637

6

302-1

Total energy consumed (MWh)

5,644,403

6,078,952

24,036,608

7

302-1

% of renewable energy consumed from own generation

22.5%

16.4%

16.0%

8

302-1

% of energy consumed from the power grid

37.6%

56.7%

60.3%

9

302-1

% of energy consumed from the free market

39.9%

26.9%

23.7%

 

 

Social

10

413-1

Number of free clinical consultations offered by Afya

221,230

146,294

586,611

11

 

Number of physicians graduated in Afya's campuses

21,266

18,965

20,197

12

201-4

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

11,636

10,628

10,584

13

 

% students with scholarships over total undergraduate students

14.9%

15.8%

16.0%

14

413-1

Hospital, clinics and city halls partnerships

567

664

649

(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) 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.


(3) The number of students with financing and scholarship programs (FIES and PROUNI) in 2023 excludes students from the Unima and FCM Jaboatão acquisition, and for 3Q24, also excludes those from the UNIDOM acquisition.

4. Conference Call and Webcast Information

When:

November 13, 2024 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

 

Webcast:

https://afya.zoom.us/j/94887462478

OR

Dial-in:

Brazil: [phone] or [phone] or [phone] or [phone] or [phone]

United States: [phone] or [phone] or [phone] or [phone] or [phone] or [phone] or [phone] or [phone] or [phone] or [phone] or [phone] or [phone] or [phone] or [phone] or [phone] or [phone] or [phone]

Webinar ID: 948 8746 2478

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

5. About Afya Limited (Nasdaq: AFYA; B3: A2FY34)

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

6. Forward – Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. All statements other than statements of historical fact could be deemed forward looking, and include risks and uncertainties related to statements about our competition; our ability to attract, upsell and retain students; our ability to increase tuition prices and prep course fees; our ability to anticipate and meet the evolving needs of students and professors; our ability to source and successfully integrate acquisitions; general market, political, economic, and business conditions; and our financial targets such as revenue, share count and IFRS and non-IFRS financial measures including gross margin, operating margin, net income (loss) per diluted share, and free cash flow. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the potential impacts of the COVID-19 pandemic on our business operations, financial results and financial position and the Brazilian economy.

The Company undertakes no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law. The achievement or success of the matters covered by such forward-looking statements involves known and unknown risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. Readers should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent management’s beliefs and assumptions only as of the date such statements are made. Further information on these and other factors that could affect the Company’s financial results are included in the filings made with the United States Securities and Exchange Commission (SEC) from time to time, including the section titled “Risk Factors” in the most recent Rule 434(b) prospectus. These documents are available on the SEC Filings section of the investor relations section of our website at: https://ir.afya.com.br/.

7. Non-GAAP Financial Measures

To supplement the Company's consolidated financial statements, which are prepared and presented in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board—IASB, Afya presents Adjusted EBITDA, Operating Cash Conversion Ratio, Adjusted Net Income and Adjusted EPS, 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 income share associate, plus/minus non-recurring expenses/income. Operating Cash Conversion Ratio is calculated as the Cash flow from Operating Activities plus income taxes paid, minus/plus non-recurring expenses/income divided by Adjusted EBITDA. The calculation of Adjusted Net Income is the Net Income plus amortization of customer relationships and trademark, plus share-based compensation, plus/minus non-recurring expenses/income. The calculation of Adjusted EPS is the Adjusted Net Income minus the non-controlling interests divided by the Weighted average number of outstanding shares.

The non-GAAP supplemental financial measures are provided with the intend to help investors in assessing the overall performance of Afya’s business regarding its core operations, cash generation and profitability. The non-GAAP financial measures described in this prospectus are not substitutes for the IFRS measures. In addition, the calculations of Adjusted EBITDA, Operating Cash Conversion Ratio, Adjusted Net Income and Adjusted EPS are not standardized financial measures and may differ from the calculations used by other companies, including competitors in the education services industry, and therefore, Afya’s measures may not be comparable to those of other companies.

8. Investor Relations Contact

E-mail: [e-mail]

9. Financial Tables

Unaudited interim condensed consolidated statements of income and comprehensive income

For the three and nine-month periods ended September 30, 2024 and 2023

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

 

 

Three-month period ended

 

Nine-month period ended

 

 

September 30, 2024

September 30, 2023

 

September 30, 2024

September 30, 2023

 

 

(unaudited)

(unaudited)

 

(unaudited)

(unaudited)

 

 

 

 

 

 

 

Revenue

 

841,185

723,479

 

2,455,314

2,146,047

Cost of services

 

(324,083)

(288,234)

 

(908,429)

(820,136)

Gross profit

 

517,102

435,245

 

1,546,885

1,325,911

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

(280,027)

(257,002)

 

(784,953)

(739,808)

Other income (expenses), net

 

(3,183)

12,043

 

(7,868)

10,365

 

 

 

 

 

 

 

Operating income

 

233,892

190,286

 

754,064

596,468

 

 

 

 

 

 

 

Finance income

 

30,396

34,771

 

79,659

86,259

Finance expenses

 

(130,240)

(115,306)

 

(322,420)

(353,572)

Net finance result

 

(99,844)

(80,535)

 

(242,761)

(267,313)

 

 

 

 

 

 

 

Share of income of associate

 

2,526

615

 

9,726

7,671

 

 

 

 

 

 

 

Income before income taxes

 

136,574

110,366

 

521,029

336,826

 

 

 

 

 

 

 

Income taxes expenses

 

(12,432)

(12,146)

 

(26,388)

(33,296)

 

 

 

 

 

 

 

Net income

 

124,142

98,220

 

494,641

303,530

 

 

 

 

 

 

 

Other comprehensive income

 

-

-

 

-

-

Total comprehensive income

 

124,142

98,220

 

494,641

303,530

 

 

 

 

 

 

 

Income attributable to:

 

 

 

 

 

 

Equity holders of the parent

 

119,979

93,347

 

481,583

288,263

Non-controlling interests

 

4,163

4,873

 

13,058

15,267

 

 

124,142

98,220

 

494,641

303,530

 

 

 

 

 

 

Basic earnings per common share

 

1.33

1.04

 

5.35

3.21

Diluted earnings per common share

 

1.31

1.03

 

5.28

3.18

Unaudited interim condensed consolidated statements of financial position

As of September 30, 2024 and December 31, 2023

(In thousands of Brazilian reais)

 

September 30, 2024

December 31, 2023

 

(unaudited)

Assets

 

 

 

 

Current assets

 

 

Cash and cash equivalents

 

836,876

553,030

Trade receivables

 

552,381

546,438

Inventories

 

235

1,382

Recoverable taxes

 

41,424

43,751

Other assets

 

45,304

 

58,905

Total current assets

 

1,476,220

 

1,203,506

 

 

Non-current assets

 

 

Trade receivables

 

36,940

 

39,485

Other assets

 

117,789

117,346

Investment in associate

 

55,365

51,834

Property and equipment

 

639,187

608,685

Right-of-use assets

 

846,333

767,609

Intangible assets

 

5,541,793

4,796,016

Total non-current assets

 

7,237,407

6,380,975

 

 

Total assets

 

8,713,627

7,584,481

 

 

Liabilities

 

 

Current liabilities

 

 

Trade payables

 

129,920

108,222

Loans and financing

 

30,051

179,252

Lease liabilities

 

45,133

36,898

Accounts payable to selling shareholders

 

247,192

353,998

Advances from customers

 

154,759

153,485

Labor and social obligations

 

269,381

192,294

Taxes payable

 

32,470

27,765

Income taxes payable

 

12,066

3,880

Other liabilities

 

4,213

2,773

Total current liabilities

 

925,185

1,058,567

 

 

Non-current liabilities

 

 

Loans and financing

 

2,115,219

1,621,523

Lease liabilities

 

929,647

837,671

Accounts payable to selling shareholders

 

338,850

212,869

Taxes payable

 

86,016

88,198

Provision for legal proceedings

 

115,042

104,361

Other liabilities

 

52,025

18,280

Total non-current liabilities

 

3,636,799

2,882,902

Total liabilities

 

4,561,984

3,941,469

 

 

Equity

 

 

Share capital

 

17

17

Additional paid-in capital

 

2,344,053

2,365,200

Treasury shares

 

(276,944)

 

(299,150)

Share-based compensation reserve

 

181,372

155,073

Retained earnings

 

1,861,948

1,380,365

Equity attributable to equity holders of the parent

 

4,110,446

3,601,505

Non-controlling interests

 

41,197

41,507

Total equity

 

4,151,643

3,643,012

 

 

Total liabilities and equity

 

8,713,627

7,584,481

Unaudited interim condensed consolidated statements of cash flows

For the nine-month periods ended September 30, 2024 and 2023

(In thousands of Brazilian reais)

 

 

September 30, 2024

 

September 30, 2023

 

 

(unaudited)

 

(unaudited)

Operating activities

 

 

 

 

Income before income taxes

 

521,029

 

336,826

Adjustments to reconcile income before income taxes

 

 

 

 

Depreciation and amortization

 

249,135

 

212,172

Write-off of property and equipment

 

2,108

 

1,209

Write-off of intangible assets

 

243

 

288

Allowance for expected credit losses

 

41,589

 

57,160

Share-based compensation

 

26,299

 

20,082

Net foreign exchange differences

 

7,462

 

448

Accrued interest

 

166,343

 

224,349

Accrued interest on lease liabilities

 

82,803

 

74,867

Share of income of associate

 

(9,726)

 

(7,671)

Provision (reversal) for legal proceedings

 

4,619

 

(27,119)

 

 

 

 

 

Changes in assets and liabilities

 

 

 

 

Trade receivables

 

(35,619)

 

(52,169)

Inventories

 

1,147

 

7,828

Recoverable taxes

 

2,409

 

(34,921)

Other assets

 

20,107

 

35,960

Trade payables

 

19,966

 

1,920

Taxes payable

 

(6,625)

 

25,321

Advances from customers

 

40

 

(27,883)

Labor and social obligations

 

69,719

 

94,465

Other liabilities

 

4,417

 

(9,331)

 

 

1,167,465

 

933,801

Income taxes paid

 

(19,290)

 

(37,599)

Net cash flows from operating activities

 

1,148,175

 

896,202

 

 

 

 

 

Investing activities

 

 

 

 

Acquisition of property and equipment

 

(93,367)

 

(88,014)

Acquisition of intangibles assets

 

(223,399)

 

(67,113)

Dividends received

 

6,195

 

8,294

Acquisition of subsidiaries, net of cash acquired

 

(579,074)

 

(726,530)

Payments of interest from acquisition of subsidiaries and intangibles

 

(55,898)

 

(36,674)

Net cash flows used in investing activities

 

(945,543)

 

(910,037)

 

 

 

 

 

Financing activities

 

 

 

 

Payments of principal of loans and financing

 

(126,666)

 

(12,216)

Payments of interest of loans and financing

 

(156,897)

 

(124,468)

Proceeds from loans and financing

 

492,351

 

5,288

Payments of principal of lease liabilities

 

(30,218)

 

(22,657)

Payments of interest of lease liabilities

 

(82,567)

 

(78,001)

Treasury shares

 

-

 

(12,369)

Proceeds from exercise of stock options

 

6,041

 

3,546

Dividends paid to non-controlling shareholders

 

(13,368)

 

(15,914)

Net cash flows generated (used) in financing activities

 

88,676

 

(256,791)

Net foreign exchange differences

 

(7,462)

 

(448)

Net increase (decrease) in cash and cash equivalents

 

283,846

 

(271,074)

Cash and cash equivalents at the beginning of the period

 

553,030

 

1,093,082

Cash and cash equivalents at the end of the period

 

836,876

 

822,008

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20241113502172/en/

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