Afya Limited (Nasdaq: AFYA; B3: A2FY34) (“Afya” or the “Company”), the leading medical education group and digital health services provider in Brazil, reported today financial and operating results for the three and six-month period ended June 30, 2023. Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).
Second Quarter 2023 Highlights
- 2Q23 Adjusted Net Revenue increased 23.6% YoY to R$712.2 million. Adjusted Net Revenue excluding acquisitions grew 13.5%, reaching R$654.0 million.
- 2Q23 Adjusted EBITDA increased 21.8% YoY, reaching R$268.2 million, with an Adjusted EBITDA Margin of 37.7%. Adjusted EBITDA excluding acquisitions grew 9.9%, reaching R$241.9 million, with an Adjusted EBITDA Margin of 37.0%.
First Half 2023 Highlights
- 1H23 Adjusted Net Revenue increased 24.3% YoY to R$1,421.6 million. Adjusted Net Revenue excluding acquisitions grew 13.5%, reaching R$1,298.2 million.
- 1H23 Adjusted EBITDA increased 21.9% YoY reaching R$598.4 million, with an Adjusted EBITDA Margin of 42.1%. Adjusted EBITDA excluding acquisitions grew 11.2%, reaching R$546.1 million, with an Adjusted EBITDA Margin of 42.1%.
- Cash conversion of 98.9% generating R$566.5 million of cash flow from operating activities that resulted a solid cash position of R$741.2 million.
- Almost 282 thousand monthly active physicians and medical students using Afya’s Digital Services.
| Table 1: Financial Highlights | |||||||||||
| For the three months period ended June 30, | For the six months period ended June 30, | ||||||||||
| (in thousand of R$) | 2023 | 2023 Ex Acquisitions* | 2022 | % Chg | % Chg Ex Acquisitions | 2023 | 2023 Ex Acquisitions* | 2022 | % Chg | % Chg Ex Acquisitions | |
| (a) Net Revenue | 712,607 | 654,325 | 598,156 | 19.1% | 9.4% | 1,422,568 | 1,299,175 | 1,164,480 | 22.2% | 11.6% | |
| (b) Adjusted Net Revenue (1) | 712,237 | 653,955 | 576,079 | 23.6% | 13.5% | 1,421,620 | 1,298,227 | 1,143,795 | 24.3% | 13.5% | |
| (c) Adjusted EBITDA (2) | 268,174 | 241,876 | 220,186 | 21.8% | 9.9% | 598,373 | 546,095 | 490,987 | 21.9% | 11.2% | |
| (d) = (c)/(b) Adjusted EBITDA Margin | 37.7% | 37.0% | 38.2% | -50 bps | -120 bps | 42.1% | 42.1% | 42.9% | -80 bps | -80 bps | |
| *For the three months period ended June 30, 2023, "2023 Ex Acquisitions" excludes: Glic (April to May, 2023; Closing of Glic was in May, 2022), and UNIT Alagoas and FITS Jaboatão dos Guararapes (April to June, 2023; Closing of UNIT and FITS was in January 2023). | |||||||||||
| *For the six months period ended June 30, 2023, "2023 Ex Acquisitions" excludes: Alem da Medicina (January & February 2023; Closing of Alem da Medicina was in March, 2022), Cardiopapers (January to March 2023; Closing of Cardiopapers was in April, 2022), Glic (January to May, 2023; Closing of Glic was in May, 2022), and UNIT Alagoas and FITS Jaboatão dos Guararapes (January to June, 2023; Closing of UNIT and FITS was in January 2023). | |||||||||||
| (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 07). | |||||||||||
Message from Management
In Afya, these results reinforce the success of our strategy, as evidenced by consistent growth in both operational and financial results. Notably, our Net Revenue and Adjusted EBITDA have increased significantly year-over-year, providing us with the confidence to reaffirm our 2023 guidance.
This quarter was marked by significant increases in Net Revenue within our three segments and we are delighted to see that the most significant growth came from our Continuing Education segment with a robust intake process, and course maturation reflecting a 50% quarter-over-quarter expansion.
In Digital Health Services, we observed an increase of 28% in Net Revenue compared to the same quarter of 2022. This result reinforces the opportunity ahead in Digital Services, and it is explained by the ramp-up in B2B engagements, with new contracts with the pharmaceutical industry companies, and the continuous ramp-up in B2P subscribers, as we will discuss further on.
Afya's core business also delivered outstanding results again, as we saw higher tickets in Medicine courses, maturation of medical seats, and the consolidation of UNIT Alagoas and FITS Jaboatão dos Guararapes acquisition in January 2023.
Building on these achievements, our Afya Day event held this July marked another significant milestone as we unveiled the initiation of our rebranding efforts. This strategic move aims to ensure that our strong results are maximized and connected by an equally strong brand strategy. Propelling Afya to a high level of relevance, credibility and growth potential. Additionally, we took the opportunity to reiterate our strategic direction and articulate our vision for the forthcoming years.
Underlining these achievements, Afya's remarkable performance garnered three major awards within the 2nd quarter: "Executivo de Valor” recognizing Virgilio Gibbon as the top CEO in the Education Sector, “Valor Econômico's Best Education Company in Innovation", and another prestigious recognition for being the best Company in the Education Sector in the "Valor 1000" award.
We are very proud of our business and of what we have achieved so far, as well as of what we are planning for the future.
1. Key Events in the Quarter:
- Afya announced, on June 2023, that the resolutions set out in its Notice of Annual General Meeting 2023 were duly passed at its Annual General Meeting held: (1) the approval and ratification of Afya’s financial statements as of and for the fiscal year ended December 31, 2022; (2) the approval of João Paulo Seibel de Faria as a director of the Company with immediate effect to hold office for a two year term; (3) the approval of Vanessa Claro Lopes as a director of the Company with immediate effect to hold office for a two year term; (4) the approval of Miguel Filisbino Pereira de Paula as a director of the Company with immediate effect to hold office for a two year term; and (5) the approval of Marcelo Ken Suhara as a director of the Company with immediate effect to hold office for a two year term;
2. Subsequent Events in the quarter
- Afya (Nasdaq: AFYA, B3: A2FY34) announced, on July 2023 the start of negotiation of its non-sponsored Brazilian Depositary Receipts (BDRs), with a 1-for-2 stock split, aimed to provide investment opportunities on Afya for Brazilian investors;
- Afya hosted, on July 2023 its Investor and ESG Day. Attendees heard from Afya’s business executives the Company's evolution, business strategy, ESG initiatives, present and future perspectives. More details on: https://ir.afya.com.br/afya-day/
- Changes in the share-based compensation plan: On July 31, 2023, the People and ESG Committee approved a change in the share-based compensation plan to retain talents and reinforce the compensation plan. All the holders of stock options granted before July 11, 2022 were offered the possibility to exchange the stock options for a number of Restricted Stock Units (RSUs). The conversion ratios were measured by the Company considering the fair value for the original plans remeasured at the modification date with no significant increase in fair value as a result of such modification since the beneficiaries will have the benefit of settling its award for no cash consideration. Further, the People and ESG Committee also approved a modification in the index rate to the strike prices of its granted stock options. The result is that strike prices are now adjusted by the Brazilian inflation rate (IPCA) instead of the CDI rate. These changes will be accounted as modifications in accordance with IFRS 2 and the Company do not expect to have significant impacts on the consolidated financial statements.
- Municipality taxes amnesty program: In August 2023, the Company and the selling shareholders of Unigranrio agreed to settle a tax proceeding with the municipality of Rio de Janeiro for ISS (municipality tax on services) and Unigranrio entered into a tax amnesty program on interest and penalties and paid R$14,819 on August 10, 2023. As of June 30, 2023, the Company had an indemnification asset of R$20,000 and a provision for legal proceedings of R$53,302 for this matter. The Company is still measuring the impacts on the consolidated financial statements.
3. Full Year 2023 Guidance Reaffirmed
The Company is reaffirming its previously issued guidance for FY23, which already considered the impact of the increase of the FG-FIES, as Afya successfully concluded acceptances of new medical students for the second semester, ensuring 100% occupancy in all of its medical schools.
Under the new FIES Program (Higher Education Financing Fund) introduced in 2018, retention is applied to the amount paid by the Program to cover the delinquency of the financed students. This retention is allocated to the FG-FIES Fund and the fund cannot be redeemed or utilized for other purposes without the approval of the National Fund for the Development of Education (FNDE). There was a transition rule that capped the retention at certain levels until 2022. From 2023, the limit was lifted, and the retention was updated according to the delinquency per educational entity for those FIES students that entered on the amortization phase. For Afya, the expected impact on the increase of the FG-FIES in 2023 is R$24 million which was already considered in the 2023 Guidance.
The guidance for FY2023 is defined in the following table:
| Guidance for 2023 | ||
| Adjusted Net Revenue* | R$ 2,750 mn ≤ ∆ ≤ R$ 2,850 mn | |
| Adjusted EBITDA | R$ 1,100 mn ≤ ∆ ≤ R$ 1,200 mn | |
| *Includes UNIT Alagoas and FITS Jaboatão dos Guararapes' acquisitions; Includes the increase of 64 medical seats of Faculdade Santo Agostinho, in the city of Itabuna; Excludes any acquisition that may be concluded after the issuance of the guidance. | ||
4. 1H23 Overview
Operational Review
Afya is the only company offering educational and technological solutions to support physicians across every stage of the 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 the 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, which is recognized at the point in time when control is transferred to the customer, and subscription fees, which are recognized as the services are transferred over time.
Key Revenue Drivers – Undergraduate Courses
| Table 2: Key Revenue Drivers | For the six months period ended June 30, | ||
2023 | 2022 | % Chg | |
| Undergrad Programs | |||
| MEDICAL SCHOOL | |||
| Approved Seats | 3,163 | 2,759 | 14.6% |
| Operating Seats | 3,113 | 2,481 | 25.5% |
| Total Students (end of period) | 20,790 | 17,555 | 18.4% |
| Average Total Students | 20,806 | 17,539 | 18.6% |
| Average Total Students (ex-Acquisitions)* | 18,811 | 17,539 | 7.3% |
| Tuition Fees (Total - R$ '000) | 1,262,673 | 1,001,808 | 26.0% |
| Tuition Fees (ex- Acquisitions* - R$ '000) | 1,148,822 | 1,001,808 | 14.7% |
| Medical School Gross Avg. Ticket (ex- Acquisitions* - R$/month) | 10,179 | 9,520 | 6.9% |
| Medical School Net Avg. Ticket (ex- Acquisitions* - R$/month) | 8,549 | 7,853 | 8.9% |
| UNDERGRADUATE HEALTH SCIENCE | |||
| Total Students (end of period) | 21,117 | 20,779 | 1.6% |
| Average Total Students | 21,389 | 20,841 | 2.6% |
| Average Total Students (ex-Acquisitions)* | 19,633 | 20,841 | -5.8% |
| Tuition Fees (Total - R$ '000) | 197,177 | 170,666 | 15.5% |
| Tuition Fees (ex- Acquisitions* - R$ '000) | 182,211 | 170,666 | 6.8% |
| OTHER UNDERGRADUATE | |||
| Total Students (end of period) | 24,545 | 23,945 | 2.5% |
| Average Total Students | 24,794 | 24,077 | 3.0% |
| Average Total Students (ex-Acquisitions)* | 21,569 | 24,077 | -10.4% |
| Tuition Fees (Total - R$ '000) | 155,709 | 137,464 | 13.3% |
| Tuition Fees (ex- Acquisitions* - R$ '000) | 134,772 | 137,464 | -2.0% |
TOTAL TUITION FEES | |||
| Tuition Fees (Total - R$ '000) | 1,615,560 | 1,309,937 | 23.3% |
| Tuition Fees (ex- Acquisitions* - R$ '000) | 1,465,805 | 1,309,937 | 11.9% |
| *For the six months period ended June 30, 2023, "2023 Ex Acquisitions" excludes: UNIT Alagoas and FITS Jaboatão dos Guararapes (January to June, 2023; Closing of UNIT and FITS was in January 2023). | |||
Key Revenue Drivers – Continuing Education and Digital Services
| Table 3: Key Revenue Drivers | For the six months period ended June 30, | ||
2023 | 2022 | % Chg | |
| Continuing Education | |||
| Medical Specialization & Others | |||
| Total Students (end of period) | 4,646 | 3,543 | 31.1% |
| Average Total Students | 4,710 | 3,511 | 34.1% |
| Average Total Students (ex-Acquisitions) | 4,710 | 3,511 | 34.1% |
| Net Revenue from courses (Total - R$ '000) | 70,584 | 47,662 | 48.1% |
| Net Revenue from courses (ex- Acquisitions¹) | 70,584 | 47,662 | 48.1% |
| Digital Services | |||
| Content & Technology for Medical Education | |||
| Medcel Active Payers | |||
| Prep Courses & CME - B2P | 6,440 | 12,741 | -49.5% |
| Prep Courses & CME - B2B | 6,029 | 4,909 | 22.8% |
| Além da Medicina Active Payers | 6,657 | 7,792 | -14.6% |
| Cardiopapers Active Payers | 6,880 | 4,765 | 44.4% |
| Medical Harbour Active Payers | 7,002 | 4,425 | 58.2% |
| Clinical Decision Software | |||
| Whitebook Active Payers | 145,744 | 133,238 | 9.4% |
| Clinical Management Tools² | |||
| iClinic Active Payers | 24,957 | 21,088 | 18.3% |
| Shosp Active Payers | 3,001 | 2,264 | 32.6% |
| Digital Services Total Active Payers (end of period) | 206,710 | 191,222 | 8.1% |
| Net Revenue from Services (Total - R$ '000) | 110,930 | 89,695 | 23.7% |
| Net Revenue - B2P | 91,284 | 79,013 | 15.5% |
| Net Revenue - B2B | 19,646 | 10,682 | 83.9% |
| Net Revenue From Services (ex-Acquisitions¹) | 103,841 | 89,695 | 15.8% |
| *For the six months period ended June 30, 2023, "2023 Ex Acquisitions" excludes: Alem da Medicina (January & February 2023; Closing of Alem da Medicina was in March, 2022), Cardiopapers (January to March 2023; Closing of Cardiopapers was in April, 2022), Glic (January to May, 2023; Closing of Glic was in May, 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 almost 282 thousand, 6.5% higher over the same period in the last year.
Monthly Active Unique Users (MUAU) represents the number of unique individuals, without overlap of users among products, in the last 30 days of a specific period.
| Table 4: Key Operational Drivers for Digital Services - Monthly Active Users (MaU) | |||||
2Q23 | 2Q22 | % Chg YoY | 1Q23 | 4Q22 | |
| Content & Technology for Medical Education | 24,973 | 20,739 | 20.4% | 31,549 | 16,539 |
| Clinical Decision Software | 230,338 | 221,862 | 3.8% | 237,003 | 221,762 |
| Clinical Management Tools¹ | 24,880 | 21,151 | 17.6% | 24,568 | 20,936 |
| Physician-Patient Relationship | 1,782 | 1,101 | 61.9% | 1,773 | 1,473 |
| Total Monthly Active Users (MaU) - Digital Services | 281,973 | 264,853 | 6.5% | 294,893 | 260,710 |
| 1) Clinical management tools includes Telemedicine and Digital Prescription features | |||||
| Includes Shosp, Medicinae and Além da Medicina starting in 1Q22 and Cardiopapers and Glic starting in 2Q22 | |||||
| Table 5: Key Operational Drivers for Digital Services - Monthly Unique Active Users (MuaU) | |||||
2Q23 | 2Q22 | % Chg QoQ | 1Q23 | 4Q22 | |
| Total Monthly Unique Active Users (MuaU) - Digital Services | 251,487 | 245,396 | 2.5% | 262,137 | 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 second quarter of 2023 was R$712.2 million, an increase of 23.6% over the same period of the prior year. Excluding acquisitions, Adjusted Net Revenue in the second quarter increased 13.5% YoY to R$654.0 million, mainly due to higher tickets in Medicine courses in 8.9% in the semester and the maturation of medical seats, the Continuing Education performance and the digital services expansion.
Net Revenue of Continuing Education for the second quarter of 2023 was R$35.6 million, an increase of 49.6%, boosted by student growth.
Digital services increased 28.2% quarter over quarter, totaling R$54.1 million. The organic growth is a combination of (a) an increase in the B2B engagements, increasing B2B Net Revenue by 83.9%, and (b) the expansion of the active payers in the B2P, mainly in Whitebook, IClinic, Medical Harbour and Cardiopapers.
For the six-month period ended June 30, 2023, Adjusted Net Revenue was R$1,421.6 million, an increase of 24.3% over the same period of last year. Excluding acquisitions, Adjusted Net Revenue in the six-month period increased 13.5% YoY to R$1,298.2 million.
| Table 6: Revenue & Revenue Mix | |||||||||||
| (in thousands of R$) | For the three months period ended June 30, | ||||||||||
