Mar 22, 2023

03/22/2023 | 04:20pm EDT Message : Another Year of Strong Performance Robust EPS Expansion Guidance Achievement Nova Lima, Brazil, March 22, 2023 - 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 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 Income increased 21.5% YoY, reaching R$535.1 million, with an EPS growth of 73.2% in the same period. § § ~260 thousand monthly active physicians and medical students using Afya's Digital Services, an increase of 5.3% over the same period last year. Table 1: Financial Highlights For the twelve months period ended December 31, (in thousand of R$) 595,138 40.7% 0 *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. 1 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. 2 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. 4 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. 6 241,949 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. In addition, the majority of Medcel's revenues are derived from printed books and e-books, which are recognized at the point in time when control is transferred to the customer. Consequently, the Digital Services segment generally has higher revenues and results of operations in the first and last quarters of the year than in the second and third quarters. Revenue Adjusted Net Revenue for the fourth quarter of 2022 was R$595.1 million, an increase of 17.8% over the same period of the prior year, mainly due to higher tickets in Medicine courses, maturation of medical seats, the beginning of 4 Mais Médicos campuses, the Continuing Education segment recovery, after practical activities were resumed after Covid 19 pandemic and Digital Services performance. The Digital Services segment increased 31.6% year over year, a combination of (a) a great start of the B2B engagements, reaching roughly 100 contracts - including pharma solutions and RX PRO contracts -with 45 different pharmaceutical industry companies, and (b) expansion of the active payers in the B2P, mainly in Whitebook, iClinic, and Shosp, partially offset by the lower performance of Medcel, due to a higher competition scenario in the Residency Preparatory market. For the twelve months ending December 31, 2022, Adjusted Net Revenue was R$2,319.1 million, an increase of 32.3% over the same period last year. For the year ended December 31, 2022, the Company has invoiced R$9.9 million from previous periods, net of discounts granted due to COVID-19 and net of provisions, being the amount substantially arising from its subsidiary FCMPB, following a lower court decision that suspended the granted discounts in favor of the Company but with restrictions on the collection in such invoices (R$ 33,081 discounts given, net of discounts recovered, for the year ended December 31, 2021). The outstanding balances are classified as accounts receivables. Afya has excluded these mandatory discounts from Adjusted Net Revenue in 2020 and 2021, the recovery of these amounts are not accounted for in Adjusted Net Revenue in 2022. 7 15.6% *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). Adjusted EBITDA Adjusted EBITDA for the three-month period ended December 31, 2022 increased 24.1% to R$242.2 million, up from R$195.1 million in the same period of the prior year, and the Adjusted EBITDA Margin increased 210 basis points to 40.7%. For the twelve-month period ended December 31, 2022, Adjusted EBITDA was R$961.9 million, an increase of 27.4% over the same period of the prior year, with an Adjusted EBITDA Margin decrease of 160 basis points in the same period. The Adjusted EBITDA Margin reduction is mainly due to the following: (a) Digital segment, primarily due to Medcel's performance; (b) increase in corporate expenses in the period; and (c) launch of the 4 Mais Médicos campuses in the third-quarter. Table 7: Adjusted EBITDA -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). Adjusted Net Income Net Income for the fourth quarter of 2022 was R$71.3 million, an increase of 45.6% over the same period of the prior year. Adjusted Net Income for the fourth quarter of 2022 was R$128.8 million, an increase of 30.8% over the same period from the previous year. For the twelve-month period ended December 31, 2022, Net Income increased 62.1%, from R$242.3 million to R$392.8 million, mainly due to: (a) the increase in operational results, as previously described, (b) the reduction of the tax yield and (c) the reduction of non-recurring expenses. Adjusted Net Income for the twelve-month period of 2022 was R$535.1 million, an increase of 21.5% year over year. Our EPS reached R$4.14 per share for the twelve-month period ended December 31, 2022, an increase of 73.2% year over year, reflecting the increase in our Net Income and capital allocation discipline executing our business combination and three buyback programs in a row. 8 (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 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. (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 December 31, 2022, cash and cash equivalents were R$1,093.1 million, an increase of 46.0% over the same period in 2021, due to a R$500 million debenture issued in December 2022. For the twelve-month period ended December 31, 2022, Afya reported Adjusted Cash Flow from Operations of R$877.0 million, up from R$666.6 million in the same period of the previous year, an increase of 31.6% YoY, boosted by the solid operational results. Operating Cash Conversion Ratio was 94.4% for the twelve-month period ended December 31, 2022, compared to 100.8% in 2021. Operating Cash Conversion Ratio in 2021 was positively affected by the end of the grace period of tuition renegotiation that occurred in 2020. On December 31, 2022, net debt, excluding the effect of IFRS 16, totaled R$1,380.7 million, achieving the same level when compared to net debt of R$1,378.9 million in the same period in 2021, supported by the strong cash generation in 2022 of R$ 843.9 million, that was offset by (i) investments activities in properties, equipment, and intangibles (excluding goodwill) totaling R$ 297.0 million, (ii) R$ 99.4 million of acquisition of subsidiaries and (iii) R$ 152.3 million of share repurchase programs. The following table shows more information regarding the cost of debt for 2022, 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. Considering UNIT and FITS acquisition and the mid guidance for 2023, Afya's Net Debt/ Adjusted Ebitda would be 1.9x. 9 CAPEX Capital expenditures consist of the purchase of property and equipment and intangible assets, including expenditures mainly related to the expansion and maintenance of our campuses and headquarters, leasehold improvements, and the development of new solutions in the digital segment, among others. For the twelve-month period ending December 31, 2022, CAPEX went from R$302.0 million to R$318.2 million, an increase of 5.4% over the prior year, representing 13.7% of Afya's Net Revenue in 2022 against 17.2% in 2021. The increase in expenditures was mainly due to: (a) expenditures with property and equipment that increased 33.6% YoY, especially related to Unigranrio campuses, partially offset by a 14.8% decrease in intangible assets, mainly due to the reduction of license acquisition. Table 12: CAPEX ESG Metrics ESG commitment is essential to 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. On January 2023, Afya announced 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. In addition, 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. 11 60 (1) Some factors can influence in the adequate proportionality analysis of data over the years, such as: climate changes, COVID-19 pandemic effects, seasonalities, number of employees, number of students, number of active units, among others. (2) "Other sources" refers to: (a) Derived from renewable sources, such as solar panels installed in the units; and (b) Derived from the search for alternative energy options in the market. (3) Starting in 2Q22, previously disclosed environmental data were updated to consider: (a) GHG Protocol guidelines improvements, and (b) additional data-collection criteria refinements. (4) Starting in 2Q22, previously disclosed social data were updated to consider: (a) the number of graduated physicians considering all units after its closing, and (b) partnerships related only to medical schools. 6.Conference Call and Webcast Information When: March 22, 2023 at 5:00 p.m. ET. Who: Dial-in: Brazil: +55 11 4632 2236 or +55 11 4632 2237 or +55 11 4680 6788 or +55 11 4700 9668 or +55 21 3958 7888 United States: +1 360 209 5623 or +1 386 347 5053 or +1 507 473 4847 or +1 564 217 2000 or +1 646 931 3860 or +1 669 444 9171 or +1 669 900 6833 or +1 689 278 1000 or +1 719 359 4580 or +1 929 205 6099 or +1 253 205 0468 or +1 253 215 8782 or +1 301 715 8592 or +1 305 224 1968 or +1 309 205 3325 or +1 312 626 6799 or +1 346 248 7799 Webinar ID: 948 1695 9070 7.About Afya Limited (Nasdaq: AFYA) 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 digital products to help doctors enhance their healthcare services through their whole career. For more information, please visit www.afya.com.br. 12 8.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/ . 9.Non-GAAP Financial Measures To supplement the Company's consolidated financial statements, which are prepared and presented in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board-IASB, Afya uses Adjusted EBITDA and Operating Cash Conversion Ratio information, which are non-GAAP financial measures, for the convenience of investors. A non-GAAP financial measure is generally defined as one that intends to measure financial performance but excludes or includes amounts that would not be equally adjusted in the most comparable GAAP measure. Afya calculates Adjusted EBITDA as net income plus/minus net financial result plus income taxes expense plus depreciation and amortization plus interest received on late payments of monthly tuition fees, plus share-based compensation plus/minus share of income of associate plus/minus non-recurring expenses. The calculation of Adjusted Net Income is net income plus amortization of customer relationships and trademark, plus share-based compensation. We calculate Operating Cash Conversion Ratio as the cash flow from operations, adjusted with income taxes paid divided by Adjusted EBITDA plus/minus non-recurring expenses. Management presents Adjusted EBITDA, because it believes these measures provide investors with a supplemental measure of financial performance of the core operations that facilitates period-to-period comparisons on a consistent basis. Afya also presents Operating Cash Conversion Ratio because it believes this measure provides investors with a measure of how efficiently the Company converts EBITDA into cash. The non-GAAP financial measures described in this prospectus are not a substitute for the IFRS measures of earnings. Additionally, calculations of Adjusted EBITDA and Operating Cash Conversion Ratio may be different from the calculations used by other companies, including competitors in the education services industry, and therefore, Afya's measures may not be comparable to those of other companies. 10.Investor Relations Contact