EX-99.1 2 ex99-1.htm EX-99.1

 

 

Afya Limited Announces Second-Quarter and First Half 2021 Financial Results

Strong Operational Performance

High Cash Flow Generation

 

Nova Lima, Brazil, August 26, 2021 – Afya Limited (Nasdaq: AFYA) (“Afya” or the “Company”), the leading medical education group and digital health service provider in Brazil, reported today financial and operating results for the three and six-month period ended June 30, 2021 (second quarter 2021). Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

 

Second Quarter 2021 Highlights

§2Q21 Adjusted Net Revenue increased 39.1% YoY to R$381.5 million. Adjusted Net Revenue excluding acquisitions grew 9.0%, reaching R$299.0 million.
§2Q21 Adjusted EBITDA increased 36.0% YoY reaching R$160.7 million, with an Adjusted EBITDA Margin of 42.1%. Adjusted EBITDA excluding acquisitions increased 3.1%, reaching R$121.8 million, with an Adjusted EBITDA Margin of 40.7%.
§2Q21 Adjusted Net Income of R$65.1 million, 27.3% lower than 2Q20.

 

First Half 2021 Highlights

§1H21 Adjusted Net Revenue increased 43.5% YoY to R$784.0 million. Adjusted Net Revenue excluding acquisitions grew 9.9%, reaching R$600.5 million.
§1H21 Adjusted EBITDA increased 42.3% YoY reaching R$368.3 million, with an Adjusted EBITDA Margin of 47.0%. Adjusted EBITDA excluding acquisitions grew 7.8%, reaching R$279.1 million, with an Adjusted EBITDA Margin of 46.5%
§Cash conversion of 103.5%, with a solid cash position of R$ 1.4 billion.
§2,303 medical seats, 23.4% increase YoY, and 13,390 medical students, which was up 47.2%.

 

Table 1: Financial Highlights                        
  For the three months period ended June 30,   For the six months period ended June 30,  
(in thousand of R$) 2021 2021 Ex Acquisitions* 2020 % Chg % Chg Ex Acquisitions   2021 2021 Ex Acquisitions* 2020 % Chg % Chg Ex Acquisitions  
(a) Net Revenue 372,374 292,024 274,211 35.8% 6.5%   766,725 586,975 546,515 40.3% 7.4%  
(b) Adjusted Net Revenue (1) 381,488 299,024 274,211 39.1% 9.0%   784,043 600,523 546,515 43.5% 9.9%  
(c) Adjusted EBITDA (2) 160,658 121,794 118,152 36.0% 3.1%   368,309 279,056 258,796 42.3% 7.8%  
(d) = (c)/(b)  Adjusted EBITDA Margin 42.1% 40.7% 43.1% -100 bps -240 bps   47.0% 46.5% 47.4% -40 bps -90 bps  
(e) Adjusted Net Income 65,109 35,036 89,560 -27.3% -60.9%   225,097 156,486 221,040 1.8% -29.2%  
                         
* Ex Acquisitions: stands for the same companies that Afya consolidated in the same period of the previous year.  For the three months period ended June 30, 2021, "2021 Ex Acquisitions" excludes: UniSl (only April, 2021; Closing of Unisl was in May,2020), PEBMED, FCMPB, MedPhone, FESAR, iClinic, Medicinae, Medical Harbour, Cliquefarma, Shosp and UNIFIPMoc.  
 
For the six months period ended June 30, 2021 - "2021 Ex Acquisitions" excludes UniRedentor (only January, 2021; Closing of Uniredentor was in January 31,2020), UniSl (January to April, 2021; Closing of Unisl was in May,2020), PEBMED, FCMPB, Medphone, FESAR, iClinic, Medicinae, Medical Harbour, Cliquefarma, Shosp and UNIFIPMoc.  
1. Includes mandatory discounts in tuition fees granted by state decrees and individual/collective legal proceedings and public civil proceedings due COVID 19 on site classes restriction and excludes recognized revenue that relates to discounts that were granted in 2H2020, but were invoiced in 1H21, based on the Supreme Court decision that was released in December 28, 2020.    
2. See more information on "Non-GAAP Financial Measures" (Item 10).          
                         

 

1.Message from Management

Virgilio Gibbon, Afya’s CEO, stated:

 

We’re proud to report strong operational and financial results, surpassing the guidance issued to the market – over forty percent revenue growth and record second quarter EBITDA margin. The pandemic is not over and due to our dedicated employees, we were able to increase our cash flow generation to the highest level since March, 2020, to continue extracting synergies of our recently acquired companies and to execute our digital strategy.

 

As physicians handle high volume of work, we’re proud our productivity tools were able to help. We expanded our clinical decision software to 18,000 additional physicians and medical students. We serve almost 40% of all Brazilian physicians and medical students with our offerings. Acquisitions completed this semester also complemented our Digital Services offering in multiple pillars, we consolidated iClinic, Medicinae, Medical Harbour, Cliquefarma and Shosp, reinforcing our unique complete offering for the medical career and gaining traction in the operational indicators.

 

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Our Digital Team is also committed to deliver the promises we made in Afya Investors and ESG Day. We already started to consolidate our costumer database into a single datalake, launched the first integrations between Medcel, iClinic and WhiteBook products, started testing the MVPs solutions with the pharma industry and initiated Afya’s Digital brand awareness strategy.

 

We are also excited to expand our offering in the Undergrad business with the closing of the acquisition of UNIFIPMoc this quarter and the closing of the acquisition of UNIGRANRIO in August, 2021. These acquisitions combined contributed 468 authorized medical seats to Afya, reaching 2,611 seats. This translates into 18.8 thousand students at maturity, representing a CAGR of 9.3% from 2020 to 2026. Considering these two last acquisitions Afya has added 1,179 seat since the IPO.

 

We also completed two major operations with shareholders this quarter. First, the U$150 million investment from SoftBank in Afya’s Series A perpetual convertible preferred shares. SoftBank will beneficially own approximately 8.4% of Afya’s total shares of the company on an as-converted basis. In connection with this sale, Paulo Passoni from SoftBank, who has vast experience in the digital business, was appointed as a board member of Afya.

 

Second, Bertelsmann, that has a long-term relationship with Afya, completed the acquisition of Crescera’s stake of 24.6% of Afya’s total capital and will have three seats in our Board of Directors.

 

Following our commitment with the UN Global Compact to encourage companies to align their actions in order to promote sustainable growth and allow society to achieve sustainable development by 2030, we assumed a voluntary commitment to have at least 50% of women in our management positions by 2030.

In addition, we also announced that Afya was certificated by Women on Board, an independent initiative whose purpose is to acknowledge, appreciate and promote corporate environments in which women are members of the board of directors. We voluntarily committed to continuing to have at least two women as board members.

Our mission to become the reference partner for physicians in their journey, by rewarding their lifelong experience and enhancing their daily practice with Afya’s digital services, continues to guide our strategy and I am really proud on what we have achieved so far.

 

2.Key Events in the Quarter:

 

§Closing of the transaction with SoftBank in May, 2021 – SoftBank purchased US$150 million in Afya’s Series A perpetual convertible preferred shares set forth in the Certificate of Designations. In connection with such sale, Paulo Passoni from Softbank was appointed as a board member of Afya. Softbank and its affiliates beneficially own approximately 8.4% of the total shares of the company (on an as-converted basis for the Series A perpetual convertible preferred shares).
§Closing the UNIFIPMoc and FIPGuanambi acquisition in June, 2021 – a post-secondary education institution with government authorization to offer on-campus, undergraduate courses in medicine in the states of Minas Gerais and Bahia, contributing 160 authorized medical school seats to Afya.

 

§Signing of of Bertelsmann’s acquisition of Crescera’s shares in Afya in June, 2021 - Crescera Educacional announced the sale of the entirety of its 23,074,134 Class B common shares of Afya to an affiliate of Bertelsmann SE& Co. KGaA, or “Bertelsmann”. In accordance to the transaction, the Company announces to the market the following adjusts to the Board of Directors: a) resignation of Felipe Argalji, as a member indicated by Crescera and b) reappointment of Daulins Emílio to occupy the vacant position from Crescera.

 

 

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3.Subsequent Events in the Quarter

 

§Closing the UNIGRANRIO acquisition in August, 2021 – a post-secondary education institution with government authorization to offer 308 undergraduate medical seats in the state of Rio de Janeiro. With this acquisition Afya reaches 2,611 authorized medical seats. The aggregate purchase price (enterprise value) was R$700.0 million, including the assumption of estimated Net Debt of R$73.9 million. The equity value will be paid: 60% in cash on the transaction closing date and 40% in four equal annual instalments, adjusted by the CDI rate. We expected an EV/EBITDA of 4.1x at maturity and post synergies.

 

§Closing of Bertelsmann’s acquisition of Crescera’s shares in Afya in August, 2021 - Crescera Educacional announced the sale of the entirety of its 23,074,134 Class B common shares of Afya to Bertelsmann. As a result of the closing of the transaction, Daniel Borghi and Laura Guaraná from Crescera ceased to be Afya board members. Mr. Borghi will continue to support Afya as an Afya board observer during six months, starting today. Pursuant to Afya’s amended and restated articles of association, Shobhna Mohn and Kay Krafft were appointed by Bertelsmann as board members.

 

§In August 12, 2021 Afya assumed a voluntary commitment to have at least 50% of women in its management positions by 2030. In addition, Afya announced that was certificated by Women on Board, an independent initiative whose purpose is to acknowledge value and promote corporate environments in which women are part of the board of directors. The company voluntarily committed to continue having at least two women as board members.

 

 

4.First Half 2021 Guidance

 

    Guidance for 1H2021 Actual 1H2021
Adjusted Net Revenue (1) (2) (3)   R$ 740 mn ≤ ∆ ≤ R$ 780 mn  R$ 773.4 mn
Adjusted EBITDA Margin   46.0% ≤ ∆ ≤ 48.0% 47.3%
       
(1) Includes Mais Medicos schools in Santa Ines and Cruzeiro do Sul starting on January 1, 2021.
(2) Includes iClinic starting on January 21, 2021.
(3) Excludes any acquisition that may have been concluded after the issuance of the guidance. Thus, does not include UNIFIPMOC, Medicinae, Cliquefarma, Medical Harbour and Shosp.

 

5.Second Half 2021 Guidance

 

The Company is introducing guidance for 2H21 which takes into account the successfully concluded acceptances of new medicine students for the second half of 2021 and the consolidation of the digital companies and medical schools acquisitions during the 1H21.

 

The guidance for 2021 added to our reported results for the 1H21 will total our full year 2021 as follows:

 

Guidance for 2021 Important considerations
2021  Adjusted Net Revenue is expected to be between R$1.720 million – R$1.760 million §     Includes UNIFIPMoc starting on June 1, 2021.
§     Includes UNIGRANRIO starting on August 4, 2021.
§     Excludes any acquisition that may be concluded after the issuance of the guidance.
2021 Adjusted EBITDA Margin is expected to be between 42.0%-44.0% §     Includes UNIFIPMoc starting on June 1, 2021.
§     Includes UNIGRANRIO starting on August 4, 2021.
§     Excludes any acquisition that may be concluded after the issuance of the guidance.
§     Includes the impact of the adoption of IFRS 16.
   
Guidance for 2H21 Excluding the Acquisitions of UNIFIPMoc and UNIGRANRIO
Net Revenue is expected to be between R$760 million – R$800 million

§     Excludes any acquisition that may be concluded after the issuance of the guidance.

 

 

Adjusted EBITDA Margin is expected to be between 42%-44% §     Excludes any acquisition that may be concluded after the issuance of the guidance.
§     Includes the impact of the adoption of IFRS 16.

 

  

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6.1H21 Overview

 

Operational Review

Afya is the only company offering technological solutions to support physicians across every stage of the medical career, from undergraduate students in its medical school years through medical residency preparatory courses, medical specialization programs and continuing medical education. Afya is also positioned in digital health services, providing clinical decision apps and practice management tools as SAAS (Sofware as a Service).

The Company report 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. 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 in 6 pillars: Content & Technology for Medical Education, Clinical Decision Software, Practice Management Tools & Electronic Medical Records, Physician - Patient Relationship, Telemedicine, and Digital Prescription and revenue is generated from printed books and e-books, which is recognized at the point in time when control is transferred to the customer and subscription fees (SaaS model).

 

Key Revenue Drivers – Undergraduate Courses

Table 2: Key Revenue Drivers Six months period ended June 30,
  2021 2020 % Chg
Undergrad Programs      
MEDICAL SCHOOL      
Approved Seats (1) 2,303 1,866 23.4%
Operating Seats  2,053 1,516 35.4%
Total Students  13,390 9,097 47.2%
Total Students (ex- Acquisitions)* 8,891 7,319 21.5%
Tuition Fees (ex- Acquisitions* - R$MM)  458,683  358,214 28.0%
Tuition Fees (Total - R$MM)  665,112  406,439 63.6%
Medical School Avg. Ticket (ex- Acquisitions* - R$/month) 8,598 8,157 5.4%
UNDERGRADUATE HEALTH SCIENCE      
Total Students  14,913  13,853 7.7%
Total Students (ex- Acquisitions)* 5,679 7,031 -19.2%
Tuition Fees (ex- Acquisitions* - R$MM)  41,788  52,249 -20.0%
Tuition Fees (Total - R$MM)  77,731  68,723 13.1%
OTHER UNDERGRADUATE       
Total Students  15,478  16,031 -3.4%
Total Students (ex- Acquisitions)* 7,729 8,723 -11.4%
Tuition Fees (ex- Acquisitions* - R$MM)  44,645  58,829 -24.1%
Tuition Fees (Total - R$MM)  88,489  80,707 9.6%
TOTAL TUITION FEES      
Total Tuition Fees (ex- Acquisitions* - R$MM)  545,116  469,292 16.2%
Total Tuition Fees (Total - R$MM)  831,332  555,869 49.6%
       
*For the six months period ended June 30, 2021 - Ex Acquisitions excludes UniRedentor, UniSl, FCMPB, FESAR and UNIFIPMoc.
(1) This number does not include UNIGRANRIO acquisition that will contribute 308 seats.

 

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Key Revenue Drivers – Continuing Education and Digital Services

Table 3: Key Revenue Drivers Six months ended June 30,
  2021 2020 % Chg
Continuing Education      
Medical Specialization & Others      
Medical Specialization & Others Students 3,285 4,513 -27.2%
Medical Specialization & Others Students (ex-Acquisitions¹) 1,941 2,188 -11.3%
Net Revenue from courses (Total - R$MM)  35,272  52,325 -32.6%
Net Revenue from courses (ex- Acquisitions¹)  25,852  33,004 -21.7%
Digital Services      
Content & Technology for Medical Education      
Active Paying Students      
Prep Courses & CME - B2C  15,670  10,594 47.9%
Prep Courses & CME - B2B 3,173  890 256.5%
Clinical Decision Software      
Whitebook Active Payers  115,149  -  n.a
Clinical Management Tools²      
iClinic Active Payers  14,371  -  n.a
       
Digital Services Total Active Payers  148,363  11,484 1191.9%
Digital Services Total Active Payers (ex-Acquisitions³)  18,843  11,484 64.1%
Net Revenue from Services (Total - R$MM)  81,665  43,281 88.7%
Net Revenue From Services (ex-Acquisitions³)  48,610  43,281 12.3%
       
(1) Acquisitions include the consolidation of Continuing Education courses offered by Uniredentor (acquired in January, 2021)
(2) Clinical management tools includes Telemedicine and Digital Prescription features 
(3) Acquisitions include the consolidation of PEBMED, MedPhone, iClinic, Medicinae, Medical Harbour, Cliquefarma and Shosp.

 

Key Operational Drivers – Digital Services

Monthly Active Users (MaU) represents the number of unique individuals that consumed Digital Services content in the last 30 days of a specific period.

Total monthly active users reached 233.1 thousand, 31.6% higher than 2020.

Table 4: Key Operational Drivers for Digital Services - Monthly Active Users (MaU)          
  2Q21 1Q21 % Chg 4Q20 % Chg
Content & Technology for Medical Education 18,968  19,857 -4.5%  14,658 35.5%
Clinical Decision Software 181,138 173,959 4.1% 162,512 7.0%
Clinical Management Tools¹ 32,968  27,799 18.6% -  - 
Total Monthly Active Users (MaU) - Digital Services 233,074 221,615 5.2% 177,170 31.6%
1) Clinical management tools includes Telemedicine and Digital Prescription features
2) There may be an overlap of users among the pillars
           
Total Monthly Active Users (MaU) - Medcel 18,968  19,857    14,658 35.5%
Total Monthly Active Users (MaU) - WhiteBook 181,138 173,959   162,512 7.0%
Total Monthly Active Users (MaU) - iClinic 29,967  27,397    10,221 168.0%
Total Monthly Active Users (MaU) - Medicinae   402      
Total Monthly Active Users (MaU) - Shosp  3,001        

 

   

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Seasonality

Undergrad´s and Continuing Education tuition revenues are related to the intake process and monthly tuition fees charged to students over the period thus the Company does not have significant fluctuations. On Digital Services, Medcel’s sales are concentrated in the first and last quarter of the year, as a result of enrollments of Medcel’s clients at the end and the beginning of the year. The majority of Medcel’s revenue is derived from printed books and e-books, which is recognized at the point in time when control is transferred to the customer. All other Digital Services do not present any significant seasonality. Consequently, Digital Services generally has higher revenue and results from operations in the first and last quarter of the year compared to the second and third quarters of the year.

 

Revenue

Total Net Revenue for the second quarter of 2021 was R$ 372.4 million, an increase of 35.8% over the same period of the prior year, due to the maturation of medical seats, increase of Medicine average ticket, expansion of Digital Services and consolidation of acquisitions. Adjusted Net Revenue in 2Q21, includes an impact of R$ 9.1 million due to the net temporary discounts in tuition fees granted by individual and collective legal proceedings and public civil proceedings related to COVID 19 and totaled R$ 381.5 million, an increase of 39.1% over the same period of the prior year.

Excluding acquisitions, Adjusted Net Revenue in the second quarter increased 9.0% YoY to R$ 299.0 million.

 

For the six-month period ended June 30, 2021, Total Net Revenue was R$ 766.7 million, an increase of 40.3% over the same period of last year. Adjusted Net Revenue presented an increase of 43.5% over the same period of last year, totaling R$ 784.0 million. Excluding acquisitions, Adjusted Net Revenue in the six-month period increased 9.9% YoY to R$ 600.5 million

 

Continuing Education business reported decrease in Net Revenues in the three-month 2021 and the six-month period eneded June 30, 2021 due to a reduction in active paying students because of: (a) practical programs that are not being offered since 1H20 and, (b) physicians’ decision to postpone admission to specialization courses due to COVID 19 pandemic.

 

Table 5: Revenue & Revenue Mix                           
(in thousands of R$)   For the three months period ended June 30,   For the six months period ended June 30,  
    2021 2021 Ex Acquisitions* 2020 % Chg % Chg Ex Acquisitions   2021 2021 Ex Acquisitions* 2020 % Chg % Chg Ex Acquisitions  
Net Revenue Mix                          
Undergrad   328,434 266,491 240,102 36.8% 11.0%   650,286 505,619 451,886 43.9% 11.9%  
Adjusted Undergrad¹   337,548 273,491 240,102 40.6% 13.9%   667,604 519,167 451,886 47.7% 14.9%  
Continuing Education   15,984 15,984 24,758 -35.4% -35.4%   35,272 33,110 52,325 -32.6% -36.7%  
Digital Services   28,127 9,720 9,351 200.8% 3.9%   81,665 48,744 43,281 88.7% 12.6%  
Inter-segment transactions   - 171 - 171 - n.a n.a   - 498 - 498 - 977 -49.0% -49.0%  
Total Reported Net Revenue   372,374 292,024 274,211 35.8% 6.5%   766,725 586,975 546,515 40.3% 7.4%  
Total Adjusted Net Revenue ¹   381,488 299,024 274,211 39.1% 9.0%   784,043 600,523 546,515 43.5% 9.9%  
* Ex Acquisitions: stands for the same companies that Afya consolidated in the same period of the previous year.For the three months period ended June 30, 2021, "2021 Ex Acquisitions" excludes: UniSl (only April, 2021; Closing of Unisl was in May,2020), PEBMED, FCMPB, MedPhone, FESAR, iClinic, Medicinae, Medical Harbour, Cliquefarma, Shosp and UNIFIPMoc.  
 
For the six months period ended June 30, 2021 - "2021 Ex Acquisitions" excludes UniRedentor (only January, 2021; Closing of Uniredentor was in January 31,2020), UniSl (January to April, 2021; Closing of Unisl was in May,2020), PEBMED, FCMPB, Medphone, FESAR, iClinic, Medicinae, Medical Harbour, Cliquefarma, Shosp and UNIFIPMoc.  
1. Includes mandatory discounts in tuition fees granted by state decrees and individual/collective legal proceedings and public civil proceedings due COVID 19 on site classes restriction and excludes recognized revenue that relates to discounts that were granted in 2H2020, but were invoiced in 1H21, based on the Supreme Court decision that was released in December 28, 2020.  
2. See more information on "Non-GAAP Financial Measures" (Item 10).            

 

Adjusted EBITDA

 

Adjusted EBITDA for the three-month period ended June 30, 2021 increased 36.0% to R$ 160.7 million, up from R$ 118.1 million in the same period of the prior year. For the six-month period ended June 30, 2021, Adjusted EBITDA was R$ 368.3 million, an increase of 42.3% from the same period last year. The adjusted EBITDA Margins of both periods were slightly below the reported margins of last year, mainly due to: 1) the consolidation of PEBMED, Iclinic, MedPhone, Medicinae, Medical Harbour, Cliquefarma, Shosp and UNIFIPMoc that presented lower margins than the integrated companies; 2) lower revenue from Continuing Education, as explained on the topic “Revenue” and 3) partially offset by recently acquisitions that were consolidated with high EBITDA margins (FCMPB and FESAR) .

 

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Excluding the consolidation of acquisitions, Adjusted EBITDA for the three-month period ended June 30, 2021 increased 3.1% to R$ 121.8 million, up from R$ 118.1 million in the same period of the prior year. For the six-month period ended June 30, 2021, Adjusted EBITDA increased 7.8% YoY to R$ 279.1 million from R$ 258.8 million, while the Adjusted EBITDA Margin decreased 90 basis points to 46.5%. The adjusted EBITDA Margins of both periods were slightly below the reported margins of last year, mainly due to lower performance from Continuing Education, as explained on the topic “Revenue”.

 

Table 6: Adjusted EBITDA                        
(in thousands of R$) For the three months period ended June 30,   For the six months period ended June 30,  
  2021 2021 Ex Acquisitions* 2020 % Chg % Chg Ex Acquisitions   2021 2021 Ex Acquisitions* 2020 % Chg % Chg Ex Acquisitions  
Adjusted EBITDA 160,658  121,794 118,152 36.0% 3.1%   368,309  279,056 258,796 42.3% 7.8%  
% Margin 42.1% 40.7% 43.1% -100 bps -240 bps   47.0% 46.5% 47.4% -40 bps -90 bps  
* Ex Acquisitions: stands for the same companies that Afya consolidated in the same period of the previous year.For the three months period ended June 30, 2021, "2021 Ex Acquisitions" excludes: UniSl (only April, 2021; Closing of Unisl was in May,2020), PEBMED, FCMPB, MedPhone, FESAR, iClinic, Medicinae, Medical Harbour, Cliquefarma, Shosp and UNIFIPMoc.  
 
For the six months period ended June 30, 2021 - "2021 Ex Acquisitions" excludes UniRedentor (only January, 2021; Closing of Uniredentor was in January 31,2020), UniSl (January to April, 2021; Closing of Unisl was in May,2020), PEBMED, FCMPB, Medphone, FESAR, iClinic, Medicinae, Medical Harbour, Cliquefarma, Shosp and UNIFIPMoc.  
 

 

Adjusted Net Income

Adjusted Net Income for the second quarter of 2021 was R$ 65.1 million, an decrease of 27.3% over the same period of the prior year, mainly due to an decrease in net financial result that was affected by: a) R$ 1.5 billion increase YoY in gross debt, excluding IFRS 16, due to new debt contracts, acquisitions and the SoftBank investment and, b) depreciation of Brazilian Reais vs US Dollars in the period that affected our cash position in US Dollars and c) the fx rate difference between the signing of Softbank transaction and the internalization of the proceeds, that with point b) resulted in a R$28.6 million foreign exchange loss.

 

For the six months ended June 30, 2021, Adjusted Net Income totaled 225.1 million, an increase of 1.8% compared to the same period from the prior year, mainly affected by the semester net financial result, as explained above.

 

Table 7: Adjusted Net Income              
(in thousands of R$) For the three months period ended June 30,   For the six months period ended June 30,
  2021 2020 % Chg   2021 2020 % Chg
Net income 21,945 63,886 -65.6%   135,293 167,556 -19.3%
Amortization of customer relationships and trademark (1) 13,667 12,515 9.2%   27,984 24,416 14.6%
Share-based compensation  11,093 6,157 80.2%   25,102 14,597 72.0%
Non-recurring expenses: 18,404 7,002 162.8%   36,718 14,471 153.7%
 - Integration of new companies (2) 4,514 1,862 142.4%   7,536 4,982 51.3%
 - M&A advisory and due diligence (3) 1,745 2,886 -39.5%   3,556 5,636 -36.9%
 - Expansion projects (4) 2,163 1,308 65.4%   3,390 2,091 62.1%
 - Restructuring expenses (5)  868  946 -8.2%   4,918 1,762 179.1%
 - Mandatory Discounts in Tuition Fees(6) 9,114  -  n.a.   17,318  -  n.a.
Adjusted Net Income 65,109 89,560 -27.3%   225,097 221,040 1.8%
               
Basic earnings per share - R$ (7) 0.18 0.82 -78.0%   1.34 1.74 -23.0%
(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 COVID 19 on site classes restriction and excludes recognized revenuethat relates to discounts that were granted in 2H2020, but were invoiced in 1H21, based on the Supreme Court decision that was released in December 28, 2020.
(7) Basic earnings per share: Net Income/Total number of shares.

 

 

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Cash and Debt Position

 

For the six-month period ended June 30, 2021, Afya reported Adjusted Cash Flow from Operations of R$ 343.2 million, up from R$ 201.8 million in same period of the previous year, an increase of 70.0% YoY.

 

Operating Cash Conversion Ratio for the six-month period ended June 30, 2021 was 103.5%, compared with 82.6% in same period of the previous year. This increase was mainly due to the reduction in trade receivables change that was mainly affected by the end of the grace period of overdue tuition, that was given to some students during 2020.

 

Table 8: Operating Cash Conversion Ratio Reconciliation For the six months period ended June 30,
(in thousands of R$) Considering the adoption of IFRS 16 
  2021 2020 % Chg
(a) Cash flow from operations 320,515 189,417 69.2%
(b) Income taxes paid 22,667 12,397 82.8%
(c) = (a) + (b) Adjusted cash flow from operations 343,182 201,814 70.0%
       
(d) Adjusted EBITDA 368,309 258,796 42.3%
(e) Non-recurring expenses: 36,718 14,471  
 - Integration of new companies (1) 7,536 4,982 51.3%
 - M&A advisory and due diligence(2) 3,556 5,636 -36.9%
 - Expansion projects (3) 3,390 2,091 62.1%
 - Restructuring Expenses (4) 4,918 1,762 179.1%
 - Mandatory Discounts in Tuition Fees(5)  17,318  -  -
(f) = (d) - (e) Adjusted EBITDA ex- non-recurring expenses  331,591 244,325 35.7%
(g) = (a) / (f) Operating cash conversion ratio 103.5% 82.6% 2090 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 and individual/collective legal proceedings and public civil proceedings due COVID 19 on site classes restriction and excludes recognized revenuethat relates to discounts that were granted in 2H2020, but were invoiced in 1H21, based on the Supreme Court decision that was released in December 28, 2020.

 

Cash and cash equivalents in June 30, 2021 were R$ 1.4 billion, representing an 36.3% increase when compared to December,2020 position.

 

On June 30, 2021, net debt, excluding the effect of IFRS 16, totaled R$ 582.7 million, compared with a net debt of R$ 166.9 million on December 31, 2020, mainly due to the closing of UNIFIPMoc and FipGuanambi acquisition in June, 2021, that was paid in cash in the amount of R$ 328.9 million.

 

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Table 9: Cash and Debt Position          
(in thousands of R$)          
  2Q21 FY2020 % Chg 2Q20 % Chg
(+) Cash and Cash Equivalents 1,424,718 1,045,042 36.3% 1,041,462 36.8%
Cash and Bank Deposits  49,528  57,729 -14.2%  25,433 94.7%
Cash Equivalents  1,375,190 987,313 39.3%  1,016,029 35.3%
(-) Loans and Financing 1,466,621 617,485 137.5%  61,402 2288.6%
Current 117,679 107,162 9.8%  42,094 179.6%
Non-Current  1,348,942 510,323 164.3%  19,308 6886.4%
(-) Accounts Payable to Selling Shareholders 466,663 518,240 -10.0% 395,446 18.0%
Current 210,350 188,420 11.6% 149,879 40.3%
Non-Current 256,313 329,820 -22.3% 245,567 4.4%
(-) Other Short and Long Term Obligations 74,138 76,181 -2.7%  17,710 318.6%
(=) Net Debt (Cash) excluding IFRS 16 582,704 166,864 249.2% (566,904) -129.4%
(-) Lease Liabilities 583,545 447,703 30.3% 394,240 13.6%
Current  80,302  61,976 29.6%  46,920 32.1%
Non-Current 503,243 385,727 30.5% 347,320 11.1%
Net Debt (Cash) with IFRS 16 1,166,249 614,567 89.8% (172,664) n/a

 

 

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, going forward, ESG metrics will be disclosed in the Company’s quarterly financial results.

In August 2021, Afya assumed a voluntary commitment to have at least 50% of women in its management positions by 2030. In addition, Afya announced that was certificated by Women on Board, an independent initiative whose purpose is to acknowledge value and promote corporate environments in which women are part of the board of directors. The company voluntarily committed to continue having at least two women as board members.

Table 10: ESG Metrics 2Q21 1Q21 2020 2019
# Governance and Employee Management        
1 Number of employees 6,806  6,012  6,100  3,369
2 Percentage of female employees 55% 55% 55% 57%
3 Percentage of female employees in the board of directors 18% 18% 18% 22%
4 Percentage of independent member in the board of directors 36% 36% 36% 22%
  Environmental        
4 Total energy consumption (kWh) 1,493,572 1,877,353 6,428,382 5,928,450
4.1 Consumption per campus 57,445  69,532  257,135  395,230
5 % supplied by distribution companies 85.19% 90.0% 87.4% 96.2%
6 % supplied by other sources 14.81% 10.0% 12.6% 3.8%
7 Greenhouse gas emissions (tons) 82.6  99  397  445
  Social        
8 Number of free clinical consultations offered by Afya  93,802 62,096 427,184  270,000
9 Number of physicians graduated in Afya's campuses 13,002  n.a  12,691  8,306
10 Number of students with financing and scholarship programs (FIES and PROUNI)  5,995 5,789 4,999  2,808
11 % of the undergraduate students 13.7% 15.9% 13.7% 11.7%
12 Hospital and clinics partnership  443  432  432  60

 

 

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7.               Conference Call and Webcast Information

When: August 26, 2021 at 05:00 p.m. ET.

 

Who:  

Mr. Virgilio Gibbon, Chief Executive Officer

Mr. Luis André Blanco, Chief Financial Officer

Ms. Renata Costa Couto, Director of Investor Relations

 

Dial-in:   Brazil: +55 11 4632 2237 or +55 11 4680 6788 or +55 11 4700 9668 or +55 21 3958 7888 or +55 11 4632 2236

 

        United States: +1 929 205 6099 or +1 301 715 8592 or +1 312 626 6799 or +1 669 900 6833 or +1 253 215 8782 or +1 346 248 7799

 

Webinar ID: 917 8709 8699

 

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

 

OR

Webcast: https://afya.zoom.us/j/91787098699

 

Webinar ID: 917 8709 8699

 

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8.               About Afya Limited (Nasdaq: AFYA)

Afya is the leading medical education group in Brazil based on number of medical school seats. It delivers an end-to-end physician-centric ecosystem that serves and empowers students to be lifelong medical learners, from the moment they enroll as medical students, through their medical residency preparation, graduate program, and continuing medical education activities. Afya also offers content and clinical decision applications for healthcare professionals through its products WhiteBook, Nursebook and Portal PEBMED. For more information, please visit www.afya.com.br.

 

9.               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/.

 

10.            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.

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11.            Investor Relations Contact

Renata Couto, Director of Investor Relations
Phone: +55 31 3515.7564 | +55 31 98463.3341
E-mail: renata.couto@afya.com.br

 

 

 

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12.            Financial Tables

Consolidated statements of income

For the three and six months period ended June 30, 2021 and 2020

(In thousands of Brazilian Reais, except earnings per share)

    Three-month period ended   Six-month period ended
    June 30, 2021   June 30, 2020   June 30, 2021   June 30, 2020
    (unaudited)   (unaudited)   (unaudited)   (unaudited)
                 
Net revenue    372,374    274,211   766,725   546,515
Cost of services    (144,459)    (106,683)   (270,951)   (195,934)
Gross profit   227,915   167,528   495,774   350,581
                 
General and administrative expenses   (135,184)   (90,039)   (265,588)   (176,762)
Other (expenses) income, net   113   (689)   1,298   (748)
                 
Operating income   92,844   76,800   231,484   173,071
                 
Finance income   12,428   13,954   22,250   42,780
Finance expenses   (80,855)   (23,130)   (110,534)   (40,802)
Finance result   (68,427)   (9,176)   (88,284)   1,978
                 
Share of income of associate   2,383   2,603   5,622   4,905
                 
Income before income taxes   26,800   70,227   148,822   179,954
                 
Income taxes expenses   (4,855)   (6,341)   (13,529)   (12,398)
                 
Net income   21,945   63,886   135,293   167,556
                 
Other comprehensive income   -   -   -   -
Total comprehensive income   21,945   63,886   135,293   167,556
                 
Income attributable to                
Equity holders of the parent   17,237   60,679   125,327   160,495
Non-controlling interests   4,708   3,207   9,966   7,061
    21,945   63,886   135,293   167,556
Basic earnings per share                
Per common share   0.18   0.65   1.34   1.74

Diluted earnings per share

Per common share

   0.18   0.65   1.33   1.73
                 
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Consolidated balance sheets - For the six month period ended June 30, 2021 and for the twelve month period ended December, 31 2020

(In thousands of Brazilian Reais)

    June 30, 2021   December 31, 2020
Assets   (unaudited)    
Current assets        
Cash and cash equivalents   1,424,718   1,045,042
Financial investments   3,152   -
Trade receivables   332,393   302,317
Inventories   8,535   7,509
Recoverable taxes   26,467   21,019
Other assets   22,557   29,614
Total current assets   1,817,822   1,405,501
         
Non-current assets        
Restricted cash   -   2,053
Trade receivables   26,061   7,627
Other assets   99,494   74,037
Investment in associate   51,261   51,410
Property and equipment   329,330   260,381
Right-of-use assets   544,984   419,074
Intangible assets   3,112,982   2,573,010
Total non-current assets   4,164,112   3,387,592
         
Total assets   5,981,934   4,793,093
         
Liabilities        
Current liabilities        
Trade payables   41,490   35,743
Loans and financing     117,679   107,162
Lease liabilities   80,302   61,976
Accounts payable to selling shareholders   210,350   188,420
Notes payable   12,303   10,503
Advances from customers   75,292   63,839
Labor and social obligations         117,342   77,855
Taxes payable         29,482   32,976
Income taxes payable          4,637   4,574
Other liabilities         13,851   6,331
Total current liabilities   702,728   589,379
         
Non-current liabilities        
Loans and financing        1,348,942   510,323
Lease liabilities        503,243   385,727
Accounts payable to selling shareholders        256,313   329,820
Notes payable      61,835   65,678
Taxes payable      18,562   21,425
Provision for legal proceedings        70,195   53,139
Other liabilities        3,305   3,822
Total non-current liabilities   2,262,395   1,369,934
Total liabilities   2,965,123   1,959,313
         
Equity        
Share capital     17   17
Additional paid-in capital        2,382,816   2,323,488
Share-based compensation reserve       75,826   50,724
Treasury stock   (26,075)   -
Retained earnings           533,318   407,991
Equity attributable to equity holders of the parent   2,965,902   2,782,220
Non-controlling interests   50,909   51,560
Total equity   3,016,811   2,833,780
         
Total liabilities and equity   5,981,934   4,793,093

  

 

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Consolidated statements of cash flow - For six month period ended June 30, 2021 and 2020

(In thousands of Brazilian Reais)

  June 30, 2021   June 30, 2020
  (unaudited)   (unaudited)
Operating activities      
  Income before income taxes 148,822   179,954
    Adjustments to reconcile income before income taxes      
      Depreciation and amortization 66,915   51,330
      Disposals of property and equipment 748   -
      Allowance for doubtful accounts 20,509   13,953
      Share-based compensation expense 25,102   14,597
      Net foreign exchange differences 24,622   (14)
      Net (gain) loss on derivatives -   (19,430)
      Accrued interest 34,075   11,017
      Accrued lease interest 29,213   20,428
      Share of income of associate (5,622)   (4,905)
      Provision for legal proceedings 4,241   1,183
Changes in assets and liabilities      
  Trade receivables (34,668)   (104,831)
  Inventories (1,026)   (976)
  Recoverable taxes (4,065)   (11,464)
  Other assets (5,256)   2,940
  Trade payables 4,128   996
  Taxes payables 1,697   10,214
  Advances from customers 103   (13,317)
  Labor and social obligations 32,379   39,605
  Other liabilities 1,265   10,534
    343,182   201,814
  Income taxes paid (22,667)   (12,397)
  Net cash flows from operating activities 320,515   189,417
         
Investing activities      
  Acquisition of property and equipment (58,132)   (37,583)
  Acquisition of intangibles assets (22,825)   (7,766)
  Dividends received 5,771   -
  Restricted cash 4,951   3,870
  Payments of notes payable (5,288)   (1,611)
  Acquisition of subsidiaries, net of cash acquired (547,529)   (307,935)
  Net cash flows used in investing activities (623,052)   (351,025)
       
Financing activities      
  Payments of loans and financing (12,952)   (99,096)
  Issuance of loans and financing 809,539   911
  Payments of lease liabilities (37,888)   (25,538)
  Treasury Stock (64,752)   -
  Capital increase -   -
  Share-based compensation plan receipts 23,505   -
  Proceeds from issuance of common shares -   389,170
  Shares issuance cost -   (19,704)
  Dividends paid to non-controlling interests (10,617)   (5,770)
  Net cash flows from financing activities 706,835   239,973
  Net foreign exchange differences (24,622)   19,888
  Net increase in cash and cash equivalents 379,676   98,253
  Cash and cash equivalents at the beginning of the period 1,045,042   943,209
  Cash and cash equivalents at the end of the period 1,424,718   1,041,462

 

15 
 

 

Reconciliation between Net Income and Adjusted EBITDA

 

Reconciliation between Adjusted EBITDA and Net Income              
(in thousands of R$)              
  For the three months period ended June 30,   For the six months period ended June 30,
  2021 2020 % Chg   2021 2020 % Chg
Net income 21,945 63,886 -65.6%   135,293 167,556 -19.3%
Net financial result 68,427 9,176 645.7%   88,284 (1,978) n.a.
Income taxes expense 4,855 6,341 -23.4%   13,529 12,398 9.1%
Depreciation and amortization 35,264 26,383 33.7%   66,915 51,330 30.4%
Interest received (1) 3,053 1,810 68.7%   8,090 5,327 51.9%
Income share associate (2,383) (2,603) -8.5%   (5,622) (4,905) 14.6%
Share-based compensation 11,093 6,157 80.2%   25,102 14,597 72.0%
Non-recurring expenses: 18,404 7,002 162.8%   36,718 14,471 153.7%
 - Integration of new companies (2) 4,514 1,862 142.4%   7,536 4,982 51.3%
 - M&A advisory and due diligence (3) 1,745 2,886 -39.5%   3,556 5,636 -36.9%
 - Expansion projects (4) 2,163 1,308 65.4%   3,390 2,091 62.1%
 - Restructuring expenses (5) 868 946 -8.2%   4,918 1,762 179.1%
 - Mandatory Discounts in Tuition Fees(6) 9,114  -  n.a.   17,318  -  n.a.
Adjusted EBITDA 160,658 118,152 36.0%   368,309 258,796 42.3%
Adjusted EBITDA Margin 42.1% 43.1% -100 bps   47.0% 47.4% -40 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 and individual/collective legal proceedings due COVID 19 on site classes restriction and excludes recognized revenuethat relates to discounts that were granted in 2H2020, but were invoiced in 1H21, based on the Supreme Court decision that was released in December 28, 2020.

 

 

16