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

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·23 min read
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Strong Operational Performance

High Cash Flow Generation

NOVA LIMA, Brazil, August 26, 2021--(BUSINESS WIRE)--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.

Our Digital Team is also committed to deliver the promises we made in Afya Investors and ESG Day. We already started to consolidate our customer 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 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.

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

2021 Adjusted EBITDA Margin is expected to be between 42.0%-44.0%

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 (Software 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.

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

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 ended 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) .

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 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.

(7) Basic earnings per share: Net Income/Total number of shares.

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 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.

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.

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

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:

...

Webinar ID:

917 8709 8699

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.

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

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

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

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

Reconciliation between Net Income and Adjusted EBITDA

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 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210826005800/en/

Contacts

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