NOVA LIMA, Brazil and MINAS GERAIS, Brazil, Aug. 27, 2020 (GLOBE NEWSWIRE) -- Afya Limited (Nasdaq: AFYA) (“Afya” or the “Company”), the leading medical education group in Brazil, today reported financial and operating results for the three and six-month periods ended June 30, 2020 (second quarter 2020, 2Q20 and first half 2020, respectively). Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

Second Quarter 2020

  • Net Revenue in 2Q20 increased 53.6% year over year (YoY) to R$274.2 million, this value does not include R$14.4 million of net revenue, that was deferred due to the interruption of practical activities on campus. Net Revenue excluding UniRedentor and UniSL grew 22.6%, reaching R$218.8 million.
  • Adjusted EBITDA in 2Q20 increased 76.6% YoY reaching R$118.2 million, considering the deferred revenue recognition of R$14.4 million related to the interruption of practical activities on campus, with Adjusted EBITDA margin of 43.1%, expanding 560 basis points (bps). Adjusted EBITDA excluding UniRedentor and UniSL grew 46.6%.
  • Adjusted Net Income in 2Q20 of R$82.6 million was 163.1% higher than 2Q19.

First Half 2020 Highlights

  • First Half 2020 Net Revenue of R$546.5 million, up 69.2% YoY, this value does not include R$14.4 million of net revenue, that was deferred due to the interruption of practical activities on campus. Net Revenue excluding UniRedentor and UniSL increased 47.3% YoY reaching R$475.8 million.
  • Adjusted EBITDA for first half 2020 (1H20) increased 82.7% YoY reaching R$258.8 million, with Adjusted EBITDA margin of 47.4%, expanding 360 bps. Adjusted EBITDA excluding UniRedentor and UniSL increased 66.5% YoY, reaching R$235.9 million, with Adjusted EBITDA margin of 49.6%.
  • Adjusted Net Income in 1H20 of R$206.6 million was 143.3% higher than 1H19.
  • Cash conversion of 82.6% with a solid cash position of R$1.1 billion at quarter-end.
  • Subsequent events:
    • Entrance into the digital health services segment with the acquisition of PEBMED, strengthening BU-2. PEBMED helps physicians in the decision making process through Whitebook with more than 165,000 active users per month, of which 91,000 are paying subscribers. It also provides Nursebook app and PEBMED portal;
    • Entrance into a purchase agreement for the acquisition of Faculdade Ciências Médicas da Paraíba, or FCMPB and Faculdade de Ensino Superior da Amazônia Reunida, or FESAR, adding a combined total of 277 medical seats. The transactions are subject to customary closing conditions and antitrust regulatory approvals. It is Afya’s first medical school in Paraíba state and FESAR, the second one, in the state of Pará.
             
Table 1: Financial Highlights            
 For the three months period ended June 30, For the six months period ended June 30, 
(in thousand of R$)2020 2020 Ex
Uniredentor and UniSL		2019 % Chg % Chg Ex
Uniredentor and UniSL		 2020 2020 Ex
Uniredentor and UniSL		2019 % Chg % Chg Ex
Uniredentor and UniSL		 
(a) Net Revenue¹274,211 218,813 178,493 53.6%22.6% 546,515 475,811 323,071 69.2%47.3% 
(b) Pro forma Net Revenue¹ ²274,211 218,813 184,229 48.8%18.8% 546,515 475,811 402,172 35.9%18.3% 
(c) Adjusted EBITDA³118,152 98,072 66,909 76.6%46.6% 258,796 235,867 141,639 82.7%66.5% 
(d) = (c )/(a) Adjusted EBITDA Margin²43.1%44.8%37.5%560 bps730 bps 47.4%49.6%43.8%360 bps580 bps 
(g) Pro forma Adjusted EBITDA¹ ²118,152 98,072 68,127 73.4%44.0% 258,796 235,867 152,509 69.7%54.7% 
(h) = (e)/(b) Pro forma Adjusted EBITDA¹ ² Margin43.1%44.8%37.0%610 bps780 bps 47.4%49.6%37.9%950 bps1170 bps 
(i) Adjusted Net Income³82,558 68,689 31,376 163.1%118.9% 206,569 190,654 84,907 143.3%124.5% 
1. Due to the interruption of pratical classes during the pandemic R$ 14.4 million of 1H2020 Net Revenue will be recognized in the 2H2020. 
2. Includes the pro-forma results of Medcel, IPEMED and FASA, as if the acquisition had been consummated on January 1, 2019.  
3. See more information on "Non-GAAP Financial Measures" (Item 8). 

Message from Management

Virgilio Gibbon, Afya’s CEO, stated:

Our organization has responded and adapted to the challenges of the COVID-19  in an incredible and agile manner. I am extremely proud of the way Afya has adapted and executed to meet the significant changes and delivered an outstanding performance during the second quarter, which was ahead of our expectations.  

The story of the second quarter was dictated by the COVID-19 pandemic. Our priorities remain unchanged as we continue to navigate these challenging times. We are focused on taking care of our employees and students and operating in a safe environment that protects both our team members and students. To that end, in mid-March, we shifted all our classes online and moved to a remote work situation for all corporate employees. Our ability to adapt to these changes allowed us to deliver a strong performance in the second quarter and surpass our first half guidance. Importantly, we closed the quarter having exceeded all the key financial targets we laid out for first half 2020.

We began the year with a very strong intake process, had completed the enrollment process and delivered 100% occupancy for the first half. We also saw strong demand for medical seats for the upcoming semester, thus, we are once again assured of 100% occupancy for the remainder of the year.   

The COVID-19 pandemic intensified and accelerated some behavior shifts that were already underway, and caused us to rethink where best to invest our resources. In addition, as evidenced by the pandemic, the medical community and patients alike have embraced a digital component to healthcare. We discussed in the past that digital assets were appealing to us so that we can add more services to medical students and professionals, thus maximizing our product offering. Subsequent to quarter end, we furthered our Afya Digital with the acquisition of PEBMED, our first and significant acquisition in the health tech segment. This acquisition enables us to deepen our relationships with our students as well as getting our brand in front of many new doctors, nurses and other medical personnel and students, enhancing our competitive position and our capabilities.

Additionally, and also subsequent to quarter end, we announced two medical school acquisitions adding a further 277 seats – marking our entry in the state of Paraíba and strengthening our presence in the state of Pará. We are successfully executing on our strategy as we have completed 15 acquisitions over the past 2 years - 6 since we became public one year ago - and have added close to 700 medical seats in less than one year, or approximately 70% of our three-year target of 1,000 seats shared during our IPO. Importantly, we have a solid track record of integrating acquired companies and delivering cost efficiencies and synergies that can be seen in the margin expansion we are delivering. These acquisitions set us up to deliver continued strong results in the months and years to come.

We continue to have a peer-leading capital structure, providing agility to adapt to the dynamic environment we are operating in. Given our strong free cash flow and liquidity, we remain committed to our long-term capital priorities, with a balanced approach to invest in the business and return strong cash to our stockholders, all while keeping our students, faculty members and employees safe and managing through this volatile environment.

We are celebrating our one year anniversary of being a public company. Since then, we have all experienced significant change and new challenges over these past several months. Things we never predicted are now realities that we are all adapting to. Things we thought would evolve over the course of several years have changed in weeks. We are very pleased with our first half performance and are encouraged with how the back half is shaping up which is reflected in the guidance that we are introducing today.

To close, I could not be prouder of the Afya organization for how they have responded, the way we kept our focus on our people, students and physicians and delivered superior execution, leading to an outstanding first half in 2020.

1.  First Half 2020 Guidance

  Guidance for 1H20Actual 1H20
Net Revenue(1)(2) R$475 mn ≤ ∆ ≤ R$510 mnR$516.1 mn
Adjusted EBITDA Margin(3)  45% ≤ ∆ ≤ 46.5%48.1%

(1) Includes Uniredentor starting February 1st, 2020, and excludes any acquisition that was concluded after the issuance of the guidance; for instance, it does not include UniSL that was concluded on May 5, 2020, subsequent to the original issuance of guidance.
(2) Includes the postponement in the recognition of Net Revenue in the amount of R$14.4 million, due to the interruption of practical classes during the pandemic. 
(3) Includes the impact of the adoption of IFRS16.

2.  Second Half 2020 Guidance

The Company is introducing guidance for 2H20 which takes into account the successfully concluded acceptances of new medicine students for the second half of 2020 and assuming a certain degree of potential impacts of COVID-19 into the business during 2H20. We assume that the practical educational on-campus activities resume in second half but some portion might be provided only in 2021.

The global Coronavirus outbreak is an unprecedented and still evolving situation. When considering Afya’s guidance for 2H20, it is paramount that shareholders and the market in general be advised that the COVID-19 pandemic is still evolving in Brazil, some state authorities may maintain quarentines or “shelter in place” status for a still undefined period of time and/or take other actions not contemplated into the guidance, all of which are outside of the Company’s control.

Considering the above factors, the guidance for 2H20 is defined in the following table.

Guidance for 2H20Important considerations
Net Revenue is expected to be between R$600 million – R$640 million
  • Includes PEBMED starting on July 20, 2020.
  • Includes R$14.4 million of Net Revenue related to the 1H20 that was not recognized due to the postponement of practical classes during the pandemic.
  • Excludes any acquisition that may be concluded after the issuance of the guidance. For instance does not include FCMPB and FESAR.
 
Adjusted EBITDA margin is expected to be between 45.5-47.0%
  • Includes PEBMED starting on July 20, 2020.
  • Includes R$14.4 million of Net Revenue related to the 1H20 that was not recognized due to the postponement of practical classes during the pandemic.
  • Excludes any acquisition that may be concluded after the issuance of the guidance. For instance does not include FCMPB and FESAR.
  • Includes the impact of the adoption of IFRS 16.

3.  Overview of 2Q20

Operational Review

Afya is the only company offering technological solutions to support students 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.

The Company operates two distinct business units. The first (Business Unit 1 or BU1), is comprised of Undergraduate – 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 Company also offers Residency Preparatory and Specialization Programs, as well as Digital Health Services (Business Unit 2 or BU2). Revenue is comprised of fees from these programs.

     
Table 2: Key Revenue DriversSix months ended June 30, 
 20202019% Chg 
Business Unit 1: Educational Services Segment ¹    
MEDICAL SCHOOL    
Approved Seats²1,8661,35238.0% 
Operating Seats1,5161,10237.6% 
Total Students9,0975,55063.9% 
Total Students (ex-UniSL and ex- Uniredentor)7,3195,55031.9% 
Tuition Fees (ex- UniSL and ex- Uniredentor - R$MM)358,214239,28049.7% 
Tuition Fees (Total - R$MM)406,439239,28069.9% 
Medical School Avg, Ticket (ex- UniSL and ex- Uniredentor - R$/month)8,1577,18613.5% 
UNDERGRADUATE HEALTH SCIENCE    
Total Students13,8536,93999.6% 
Total Students (ex-UniSL and ex- Uniredentor)7,0316,9391.3% 
Tuition Fees (ex- UniSL and ex- Uniredentor - R$MM)52,24949,5705.4% 
Tuition Fees (Total - R$MM)68,72349,57038.6% 
OTHER UNDERGRADUATE     
Total Students16,03112,71126.1% 
Total Students (ex-UniSL and ex- Uniredentor)8,72312,711-31.4% 
Tuition Fees (ex- UniSL and ex- Uniredentor - R$MM)58,82960,504-2.8% 
Tuition Fees (Total - R$MM)80,70760,50433.4% 
Business Unit 2: Prep Courses & CME and Medical Specialization    
Active Paying Students    
Prep Courses & CME - B2C10,5948,41525.9% 
Prep Courses & CME - B2B89073221.6% 
Medical Specialization & Others4,5131,728161.2% 
Medical Specialization & Others (ex-Uniredentor)2,1881,72826.6% 
Revenue from courses (ex- Uniredentor - R$MM) ³86,64323,371270.7% 
     
1. Uniredentor average tuition fee for medical school in 1H2020 was R$9,431 and for UniSL was R$7,691. 
2. This number does not includes FCMPB and FESAR that were acquired in August, 2020 and contribute 277 seats to Afya. 
3. As Medcel and Ipemed were acquired on March 31, 2019 and on May 9, 2019 respectively, revenue from courses for BU2 were not accounted for in 1Q19. The number of students is disclosed to contribute with investors analysis. 

Along with the active paying students, 11,619 medical students from 46 public and private medical schools are still accessing the Company’s Digital platform with a temporary free access during the pandemic crisis.

Total monthly active users (MaU) increased 27.6% quarter over quarter, reaching 20,420 users at the end of June. MaU represents the number of unique individuals that consumed Afya’s digital content in the last 30 days. Afya’s offers to its MaU a significant amount of learning assets, comprised of e-books, videos, podcasts and question/answer documents.

Table 3: Key Operational Drivers for BU22020 
 2Q201Q20% Chg
Total Monthly Active Users (MaU)           20,420           16,00827.6%

*Does not include PEBMED’s numbers

Seasonality

Afya’s two businesses are impacted by seasonality but at different time periods. The first is associated with the concentration of prep course revenues in the first and fourth quarters of each year, when new content (books and e-books) is delivered and most part of the revenues are recognized. The second is associated with the maturation of several medical schools, which leads to a higher enrollment base in the second half of each year. As a result, in a typical year, the first quarter is normally the strongest. The fourth quarter is normally the second strongest, followed by the third and second quarters, respectively. Finally, the second half of the year is normally stronger than the first half.

Revenue

Total Net Revenue for second quarter 2020 was R$274.2 million, an increase of 53.6% over the same period of prior year. Pro forma Net Revenue, which considers results of Medcel, IPEMED and FASA as if they were acquired on January 1st 2019, was R$274.2 million in 2Q20, up 48.8% over the same period of the prior year. Excluding UniSL and UniRedentor, Pro Forma Net Revenue in 2Q20 increased 18.8% YoY, reaching R$218.8 million. This increase was primarily driven by organic revenue growth, mainly due to the maturation of medical school seats and increase in average ticket.

For the six-months ended June 30, 2020 Total Net Revenue was R$546.5 million, an increase of 69.2% over the same period of last year. For the six-months ended June 30, 2020, Pro forma Net Revenue increased 35.9% over the same period of last year, to R$546.5 million. Excluding UniSL and UniRedentor, Pro Forma Net Revenue in six-months ended June 30 increased 18.3% YoY, reaching R$475.8 million.

Taking into account the interruption of on-campus activities and that some non-practical educational activities had to be rearranged to 2H20, according to IFRS15, the Company concluded it was necessary to defer R$14.4 million of its 2Q20 Net Revenue, with no postponement of costs or expenses in the same period. The Company expects these activities to gradually resume during 2H20 and the associated deferred revenues to be recognized at that time.

            
Table 4: Revenue & Revenue Mix            
 
(in thousand of R$)For the three months period ended June 30, For the six months period ended June 30,
 20202020 Ex
Uniredentor
and UniSL		2019 % Chg% Chg Ex
Uniredentor
and UniSL		 2020 2020 Ex
Uniredentor
and UniSL		2019 % Chg% Chg Ex
Uniredentor
and UniSL
Net Revenue Mix           
    Business Unit-1240,102190,064156,940 53.0%21.1% 451,886 389,168301,518 49.9%29.1%
    Business Unit-234,10928,74923,371 45.9%23.0% 95,606 86,64323,371 309.1%270.7%
    Inter-segment transactions--(1,818)- -  (977)-(1,818)-46.3%- 
Total Reported Net Revenue274,211218,813178,493 53.6%22.6% 546,515 475,811323,071 69.2%47.3%
Total Pro Forma Net Revenue¹274,211218,813184,229 48.8%18.8% 546,515 475,811402,172 35.9%18.3%
1. Includes the pro-forma results of Medcel, IPEMED and FASA, as if the acquisition had been consummated on January 1, 2019.

Adjusted EBITDA

Adjusted EBITDA in the three-months ended June 30, 2020 increased 76.6% to R$118.2 million, from R$66.9 million in the same period of the prior year. Adjusted EBITDA margin of 43.1% was up from 37.5% reported in the three-months ended June 30, 2019. For the six-months ended June 30, 2020, Adjusted EBITDA increased 82.7% to R$258.8 million, from R$141.6 million in the six-months ended June 30, 2019. Adjusted EBITDA margin of 47.4% was 360 basis points higher than the 43.8% reported in the six-months ended June 30, 2019.  

Excluding the consolidation of UniRedentor and UniSL, Pro forma Adjusted EBITDA in the three-months ended June 30, 2020 increased 44.0% YoY to R$98.1 million from R$68.1 million while Pro forma Adjusted EBITDA margin increased 780 basis points, to 44.8% from 37.0%. For the six-months ended June 30, 2020, Pro forma Adjusted EBITDA excluding Uniredentor and UniSL increased 54.7% YoY to R$235.9 million up from R$152.5 million and Pro forma Adjusted EBITDA margin increased 1170 basis points, to 49.6% from 37.9%. Both improvements reflect mainly operational leverage, synergies obtained from recent acquisitions and other improvements.

         
Table 5: Adjusted EBITDA        
(in thousand of R$)For the three months period ended June 30, For the six months period ended June 30,
 2020 2020 Ex
Uniredentor
and UniSL		2019 % Chg% Chg Ex
Uniredentor
and UniSL		 2020 2020 Ex
Uniredentor
and UniSL		2019 % Chg% Chg Ex
Uniredentor
and UniSL
Adjusted EBITDA118,152 98,072 66,909 76.6%46.6% 258,796 235,867 141,639 82.7%66.5%
% Margin43.1%44.8%37.5%560 bps730 bps 47.4%49.6%43.8%360 bps580 bps
Proforma Adjusted EBITDA¹118,152 98,072 68,127 73.4%44.0% 258,796 235,867 152,509 69.7%54.7%
% Margin43.1%44.8%37.0%610 bps780 bps 47.4%49.6%37.9%950 bps1170 bps
1. Includes the pro-forma results of Medcel, IPEMED and FASA, as if the acquisition had been consummated on January 1, 2019.

Net Income

Adjusted Net Income for the second quarter 2020 was R$82.6 million, increasing 163.1% over the same period of the prior year. For the six-months ended June 30, 2020, the Company reported Adjusted Net Income of R$206.6 million, compared to an Adjusted Net Income of R$84.9 million in the six-months ended June 30, 2019, an increase of 143.3%. Both increases reflect mainly the revenue contribution, synergies captured and margin expansion from the consolidation of acquisitions as well as organic growth.

        
(in thousand of R$)       
 For the three months period ended June 30, For the six months period ended June 30,
 2020 2019 % Chg 2020 2019 % Chg
Net income63,886 21,326 199.6% 167,556 70,802 136.7%
Amortization of customer relationships and trademark (1)12,515 9,182 36.3% 24,416 12,196 100.2%
Share-based compensation6,157 868 609.3% 14,597 1,909 664.6%
Adjusted Net Income82,558 31,376 163.1% 206,569 84,907 143.3%
        
(1) Consists of amortization of customer relationships and trademark recorded under business combinations.    

Balance Sheet and Cash Flow

Cash and cash equivalents, including restricted cash, at June 30, 2020 were R$1.1 billion, compared to R$1.3 billion at March 31, 2020, a decrease of 19.0% due to the acquisitions concluded during the 1H20.

For the six-month period ended June 30, 2020, Afya reported an Adjusted Cash Flow from Operations of R$201.8 million up from R$111.2 million in same period of previous year, an 81.5% year-over-year increase.

Operating Cash Conversion Ratio for the six-month period ended June 30, 2020 was 82.6% compared with 85.4% in same period of the previous year. This decrease was mainly due to the consolidation of Medcel results in 1H20 figures and our students renegotiation of overdue monthly installments due to Covid-19 crisis. Prep course’s revenues are recognized mainly in the first and fourth quarters of each year, but the receivables are mostly stable during the year, Medcel’s results negatively affects cash conversion in the first and fourth quarters.

  
Table 6: Operating Cash Conversion Ratio ReconciliationFor the six months period ended June 30,
(in thousand of R$)Considering the adoption of IFRS 16
 2020 2019 % Chg
(a) Cash flow from operations189,417 108,810 74.1%
(b) Income taxes paid12,397 2,392 418.3%
(c) = (a) + (b) Adjusted cash flow from operations201,814 111,202 81.5%
    
(d) Adjusted EBITDA258,796 141,639 82.7%
(e) Non-recurring expenses:   
 - Integration of new companies (1)4,982 3,607 38.1%
 - M&A advisory and due diligence (2)5,636 1,099 412.8%
 - Expansion projects (3)2,091 943 121.7%
 - Restructuring Expenses (4)1,762 5,749 -69.4%
(f) = (d) - (e) Adjusted EBITDA ex- non-recurring expenses 244,325 130,241 87.6%
(g) = (a) / (f) Operating cash conversion ratio82.6%85.4%-280 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.

4.  Subsequent Events

Acquisition of PEBMED
On July 20, 2020, the Company announced the acquisition of 100% of the total share capital of PEBMED, through its wholly-owned subsidiary Afya Participações S.A. PEBMED offers content and clinical decision applications with the aim of assisting healthcare professionals make quicker and/or better decisions by providing up to date information at their fingertips, through its products WhiteBook, Nursebook and Portal PEBMED. The business model consists of both paid subscriptions and free content. The net purchase price was R$132.9 million, with the assumption of estimated net debt of R$7.1 million, of which: (i) 86.8% was paid in cash, and (ii) 13.2% was paid in Afya’s stock. The price multiple is equivalent to 4x PEBMED’s annual recurring revenue.

Acquisition of Faculdade Ciências Médicas da Paraíba (FCMPB)
On August 20, 2020, the Company announced it entered into a purchase agreement for the acquisition, through its wholly-owned subsidiary Afya Participações S.A., of 100% of the total share capital of Faculdade Ciências Médicas da Paraíba. FCMPB is a post-secondary education institution with government authorization to offer on-campus, undergraduate courses in medicine in the State of Paraíba. The projected Net Revenue for FCMPB in 2024 is R$107.0 million with an EV/EBITDA post synergies and maturation of 6.3x, all derived from its medical school. The aggregate purchase price is R$380.0 million, of which: (i) 50% is payable in cash on the transaction closing date, and (ii) 50% is payable in cash in four equal installments through 2024, adjusted by the CDI rate. The acquisition will contribute 157 medical school seats to Afya, increasing Afya’s total medical school seats to 2,023.

Acquisition of Faculdade de Ensino Superior da Amazônia Reunida (FESAR)
On August 26, 2020, the Company announced it entered into a purchase agreement for the acquisition, through its wholly-owned subsidiary Afya Participações S.A., of 100% of the total share capital of Faculdade de Ensino Superior da Amazônia Reunida. FESAR is a post-secondary education institution with government authorization to offer on-campus, undergraduate courses in medicine in the State of Pará. The projected Net Revenue for FESAR in 2024 is R$88.6 million with an EV/EBITDA post synergies and maturation of 4.7x adjusted by the real estate. The aggregate purchase price is R$260 million, of which 100% is payable in cash on the transaction closing date. The enterprise value also includes real estate which is valued at R$21.0 million. The acquisition will contribute 120 medical school seats to Afya, increasing Afya’s total medical school seats to 2,143.

5.  Conference Call and Webcast Information

When: August 28, 2020 at 11:00 a.m. ET.
   
Who: Mr. Virgilio Gibbon, Chief Executive Officer
Mr. Luis André Blanco, Chief Financial Officer
Ms. Renata Costa Couto, Head of Investor Relations

Dial-in: +55-11-3181-8565 or +1-844- 204-8586 or +1-412-717-9627 (International), conference ID: Afya

Webcast: ir.afya.com.br

Replay: available between August 28, 2020 until September 9, 2020, by dialing +1-412-317-0088 conference ID: 10147648.

6.  About Afya Limited (Nasdaq: AFYA)

Afya is the leading medical education group in Brazil based on number of medical school seats, delivering 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, graduation 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.

7.  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, including 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 student and teachers; 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 on 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 is included in 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/.

8.  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 Proforma Revenue, Adjusted EBITDA, Pro Forma Adjusted EBITDA, Pro Forma Adjusted Net Income and Operating Cash Conversion Ratio information for the convenience of investors, which are non-GAAP financial measures. A non-GAAP financial measure is generally defined as one that purports to measure financial performance but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure.

Afya calculates Adjusted EBITDA as net income plus/minus net financial result plus income taxes expense plus depreciation and amortization plus interest received on late payments of monthly tuition fees, plus share-based compensation plus/minus income share associate plus/minus non-recurring expenses. Pro Forma Adjusted EBITDA is calculated as pro forma net income plus/minus pro forma net financial result plus pro forma income taxes expense plus pro forma depreciation and amortization plus pro forma interest received on late payments of monthly tuition fees, plus pro forma share-based compensation plus/minus pro forma income share associate plus/minus pro forma non-recurring expenses. The calculation for Adjusted Net Income is net income plus amortization of customer relationships and trademark, plus shared based compensation. We calculate Operating Cash Conversion Ratio as the cash flows from operations, adjusted with income taxes paid divided by Adjusted EBITDA plus/minus non-recurring expenses.

Management presents Adjusted EBITDA, Pro Forma Adjusted EBITDA and Pro Forma Adjusted Net Income because it believes these measures provide investors with a supplemental measure of the 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, Pro Forma Adjusted EBITDA, Pro Forma Adjusted Net Income 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.

9.  Unaudited Pro Forma Condensed Consolidated Financial Information

The unaudited interim pro forma condensed consolidated statement of income for the three and six months ended June 30, 2019 is based on the historical unaudited interim consolidated financial statements of each company, and gives effect of the acquisition of Medcel, IPEMED and FASA by Afya Brazil as if it had been consummated on January 1, 2019. Pro forma adjustments were made to reflect the acquisition of Medcel, IPEMED and FASA by Afya Brazil.

10.  Investor Relations Contact

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

 

11.  Financial Tables

Interim condensed consolidated statements of income and comprehensive income

For the three and six-months periods ended June 30, 2020 and 2019

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

 
  Three-month period ended Six-month period ended
  June 30,
2020		 June 30,
2019		 June 30, 2020 June 30, 2019
  (unaudited) (unaudited) (unaudited) (unaudited)
         
Net revenue  274,211  178,493  546,515  323,071 
Cost of services  (106,683) (82,283) (195,934) (136,647)
Gross profit 167,528   96,210  350,581   186,424 
         
 General and administrative expenses (90,039) (59,584) (176,762) (90,818)
 Other (expenses) income, net (689) 576  (748) 370 
         
Operating income 76,800  37,202  173,071  95,976 
         
 Finance income 13,954  4,650  42,780  9,817 
 Finance expenses (23,130) (19,721) (40,802) (31,957)
  Finance result (9,176) (15,071) 1,978  (22,140)
         
  Share of income of associate 2,603  920  4,905  920 
         
Income before income taxes 70,227  23,051  179,954  74,756 
         
  Income taxes expense (6,341) (1,725) (12,398) (3,954)
         
Net income96 63,886  21,326  167,556  70,802 
         
  Other comprehensive income -  -  -  - 
Total comprehensive income 63,886  21,326  167,556  70,802 
         
Income attributable to        
Equity holders of the parent 60,679  16,317  160,495  57,852 
Non-controlling interests 3,207  5,009  7,061  12,950 
  63,886  21,326  167,556  70,802 
Basic earnings per share        
Per common share 0.65  0.23  1.74  0.91 
Diluted earnings per share
Per common share		 0.65  0.23  1.73  0.89 
         
         

Interim condensed consolidated statements of financial position

As of June 30, 2020 and December 31, 2019

(In thousands of Brazilian Reais)

  June 30, 2020 December 31, 2019
Assets (unaudited)  
Current assets    
Cash and cash equivalents 1,041,462 943,209
Restricted cash 10,902 14,788
Trade receivables 238,874 125,439
Inventories 5,375 3,932
Recoverable taxes 18,774 6,485
Derivatives 8,720 -
Other assets 14,108 17,912
Total current assets 1,338,215 1,111,765
     
Non-current assets    
Restricted cash 2,053 2,053
Trade receivables 13,611 9,801
Other assets 41,240 17,267
Investment in associate 50,539 45,634
Property and equipment 192,686 139,320
Right-of-use assets 376,023 274,275
Intangible assets 1,835,823 1,312,338
Total non-current assets 2,511,975 1,800,688
     
Total assets 3,850,190 2,912,453
     
Liabilities    
Current liabilities    
Trade payables 23,234 17,628
Loans and financing 42,094 53,607
Derivatives - 757
Lease liabilities 46,920 22,693
Accounts payable to selling shareholders 149,879 131,883
Notes payable 9,322 -
Advances from customers 40,621 36,860
Labor and social obligations 98,916 46,770
Taxes payable 32,483 19,442
Income taxes payable 4,395 3,213
Other liabilities 14,662 376
Total current liabilities 462,526 333,229
     
Non-current liabilities    
Loans and financing 19,308 6,750
Lease liabilities 347,320 261,822
Accounts payable to selling shareholders 245,567 168,354
Notes payable 69,115 -
Taxes payable 23,924 21,304
Provision for legal proceedings 19,807 5,269
Other liabilities 3,048 1,999
Total non-current liabilities 728,089 465,498
Total liabilities 1,190,615 798,727
     
Equity    
Share capital 17 17
Additional paid-in capital 2,300,513 1,931,047
Share-based compensation reserve 32,711 18,114
Retained earnings 276,411 115,916
Equity attributable to equity holders of the parent 2,609,652 2,065,094
Non-controlling interests 49,923 48,632
Total equity 2,659,575 2,113,726
     
Total liabilities and equity 3,850,190 2,912,453
 
 

Interim condensed consolidated statements of cash flows

For the six-months periods ended June 30, 2020 and 2019

(In thousands of Brazilian Reais)

 June 30, 2020 June 30, 2019
 (unaudited) (unaudited)
Operating activities   
 Income before income taxes179,954  74,756 
  Adjustments to reconcile income before income taxes   
   Depreciation and amortization51,330  28,441 
   Allowance for doubtful accounts13,953  8,606 
   Share-based compensation expense14,597  1,909 
   Net foreign exchange differences(14) (1,858)
   Net (gain) loss on derivatives(19,430) 2,809 
   Accrued interest11,017  9,873 
   Accrued lease interest20,428  14,540 
   Share of income of associate(4,905) (920)
   Provision for legal proceedings1,183  (347)
Changes in assets and liabilities   
 Trade receivables(104,831) (28,624)
 Inventories(976) 884 
 Recoverable taxes(11,464) (2,827)
 Other assets2,940  (15,758)
 Trade payables996  5,257 
 Taxes payables10,214  1,139 
 Advances from customers(13,317) 1,428 
 Labor and social obligations39,605  13,352 
 Other liabilities10,534  (1,458)
  201,814  111,202 
 Income taxes paid(12,397) (2,392)
 Net cash flows from operating activities189,417  108,810 
     
Investing activities   
 Acquisition of property and equipment(37,583) (20,674)
 Acquisition of intangibles assets(7,766) (718)
 Restricted cash3,870  (1,153)
 Payments of accounts payable to selling shareholders(67,304) (30,674)
 Payments of notes payable(1,611) - 
 Acquisition of subsidiaries, net of cash acquired(240,631) (148,880)
 Loans to related parties-  (1,695)
 Net cash flows used in investing activities(351,025) (203,794)
    
Financing activities   
 Payments of loans and financing(99,096) (23,868)
 Issuance of loans and financing911  - 
 Payments of lease liabilities(25,538) (17,316)
 Capital increase-  150,000 
 Proceeds from issuance of common shares389,170  - 
 Shares issuance cost(19,704) - 
 Dividends paid to non-controlling interests(5,770) (7,621)
 Net cash flows from financing activities239,973  101,195 
 Net foreign exchange differences19,888  - 
 Net increase in cash and cash equivalents78,365   6,211 
 Cash and cash equivalents at the beginning of the period943,209  62,260 
 Cash and cash equivalents at the end of the period1,041,462  68,471 
       
       

Reconciliation between Net Income and Adjusted EBITDA, Pro Forma Adjusted EBITDA

      
(in thousand of R$) 
 For the three months period ended June 30, For the six months period ended June 30,
 2020 2019 % Chg 2020 2019 % Chg
Net income63,886 21,326 199.6% 167,556 70,802 136.7%
Net financial result9,176 15,071 -39.1% (1,978)22,140 n.a.
Income taxes expense6,341 1,725 267.6% 12,398 3,954 213.6%
Depreciation and amortization26,383 19,387 36.1% 51,330 28,441 80.5%
Interest received (1)1,810 1,410 28.4% 5,327 3,915 36.1%
Income share associate(2,603)(920)182.9% (4,905)(920)433.2%
Share-based compensation6,157 868 609.3% 14,597 1,909 664.6%
Non-recurring expenses:7,002 8,042 -12.9% 7,002 8,042 -12.9%
 - Integration of new companies (2)1,862 2,607 -28.6% 4,982 3,607 38.1%
 - M&A advisory and due diligence (3)2,886 959 200.9% 5,636 1,099 412.8%
 - Expansion projects (4)1,308 638 105.0% 2,091 943 121.7%
 - Restructuring expenses (5)946 3,838 -75.4% 1,762 5,749 -69.4%
Adjusted EBITDA118,152 66,909 76.6% 258,796 141,639 82.7%
Adjusted EBITDA Margin43.1%37.5%560 bps 47.4%43.8%360 bps
Adjusted EBITDA comparable to guidance107,363 66,909 60.5% 248,007 141,639 75.1%
Adjusted EBITDA Margin comparable to guidance44.0%37.5%650 bps 48.1%43.8%430 bps
Pro Forma Adjusted EBITDA118,152 68,127 73.4% 258,796 152,509 69.7%
Pro Forma Adjusted EBITDA Margin43.1%37.0%610 bps 47.4%37.9%950 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.  
        

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