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    AFYA   KYG011251066

AFYA LIMITED

(AFYA)
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Delayed Nasdaq  -  04:00 2022-07-06 pm EDT
9.270 USD   -3.94%
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Afya : Unaudited interim condensed consolidated financial statements - Form 6-K

05/23/2022 | 04:38pm EDT

Unaudited interim condensed

consolidated financial statements

March 31, 2022

Afya Limited

Unaudited interim condensed consolidated statements of financial position

As of March 31, 2022, and December 31, 2021

(In thousands of Brazilian reais)

Notes March 31, 2022 December 31, 2021
Assets (unaudited)
Current assets
Cash and cash equivalents 5 789,435 748,562
Trade receivables 6 364,701 378,351
Inventories 13,864 11,827
Recoverable taxes 31,544 25,579
Other assets 8 30,678 42,533
Total current assets 1,230,222 1,206,852
Non-current assets
Trade receivables 6 28,390 27,442
Other assets 8 182,946 180,306
Investment in associate 9 51,163 48,477
Property and equipment 10 440,193 419,808
Right-of-use assets 12.2.2 676,402 663,686
Intangible assets 11 3,952,453 3,900,835
Total non-current assets 5,331,547 5,240,554
Total assets 6,561,769 6,447,406
Liabilities
Current liabilities
Trade payables 57,066 59,098
Loans and financing 12.2.1 142,654 128,720
Lease liabilities 12.2.2 27,750 24,955
Accounts payable to selling shareholders 12.2.3 264,520 239,849
Notes payable 12.2.4 15,306 14,478
Advances from customers 111,541 114,585
Labor and social obligations 153,752 131,294
Taxes payable 28,745 26,715
Income taxes payable 11,608 11,649
Other liabilities 13,205 15,163
Total current liabilities 826,147 766,506
Non-current liabilities
Loans and financing 12.2.1 1,246,187 1,246,156
Lease liabilities 12.2.2 705,670 689,130
Accounts payable to selling shareholders 12.2.3 433,893 439,977
Notes payable 12.2.4 55,574 58,248
Taxes payable 95,341 96,598
Provision for legal proceedings 22 152,106 148,287
Other liabilities 2,394 2,486
Total non-current liabilities 2,691,165 2,680,882
Total liabilities 3,517,312 3,447,388
Equity
Share capital 16 17 17
Additional paid-in capital 2,375,344 2,375,344
Share-based compensation reserve 97,030 94,101
Treasury stock (241,393) (152,630)
Retained earnings 760,927 631,317
Equity attributable to equity holders of the parent 2,991,925 2,948,149
Non-controlling interests 52,532 51,869
Total equity 3,044,457 3,000,018
Total liabilities and equity 6,561,769 6,447,406

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

F-2

Afya Limited

Unaudited interim condensed consolidated statements of income and comprehensive income

For the three-month periods ended March 31, 2022 and 2021

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

Notes March 31, 2022 March 31, 2021
(unaudited) (unaudited)
Net revenue 18 566,324 394,351
Cost of services 19 (186,730) (126,492)
Gross profit 379,594 267,859
General and administrative expenses 19 (178,514) (130,404)
Other (expenses) income, net (309) 1,185
Operating income 200,771 138,640
Finance income 20 24,569 13,815
Finance expenses 20 (81,291) (33,672)
Finance result (56,722) (19,857)
Share of income of associate 9 4,240 3,239
Income before income taxes 148,289 122,022
Income taxes expenses 21 (13,347) (8,674)
Net income 134,942 113,348
Other comprehensive income - -
Total comprehensive income 134,942 113,348
Income attributable to
Equity holders of the parent 129,610 108,090
Non-controlling interests 5,332 5,258
134,942 113,348
Basic earnings per share
Per common share 17 1.42 1.16

Diluted earnings per share

Per common share

17 1.42 1.15

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

F-3

Afya Limited

Unaudited interim condensed consolidated statements of changes in equity

For the three-month periods ended March 31, 2022 and 2021

(In thousands of Brazilian reais)

Equity attributable to equity holders of the parent
Share capital Additional paid-in capital Treasury Shares Share-based compensation reserve Retained earnings Total Non-controlling interests Total equity
Balances at December 31, 2020 17 2,323,487 - 50,724 407,992 2,782,220 51,560 2,833,780
Net income - - - - 108,090 108,090 5,258 113,348
Total comprehensive income - - - - 108,090 108,090 5,258 113,348
Capital increase - 71,500 - - - 71,500 - 71,500
Treasury shares - - (64,752) - - (64,752) - (64,752)
Share-based compensation - - - 14,009 - 14,009 - 14,009
Dividends declared - - - - - - (4,275) (4,275)
Balances at March 31, 2021 (unaudited) 17 2,394,987 (64,752) 64,733 516,082 2,911,067 52,543 2,963,610
Balances at December 31, 2021 17 2,375,344 (152,630) 94,101 631,317 2,948,149 51,869 3,000,018
Net income - - - - 129,610 129,610 5,332 134,942
Total comprehensive income - - - - 129,610 129,610 5,332 134,942
Treasury shares - - (88,763) - - (88,763) - (88,763)
Share-based compensation - - - 2,929 - 2,929 - 2,929
Dividends declared - - - - - - (4,669) (4,669)
Balances at March 31, 2022 (unaudited) 17 2,375,344 (241,393) 97,030 760,927 2,991,925 52,532 3,044,457

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

F-4

Afya Limited

Unaudited interim condensed consolidated statements of cash flows

For the three-month periods ended March 31, 2022 and 2021

(In thousands of Brazilian reais)

March 31, 2022 March 31, 2021
Operating activities (unaudited) (unaudited)
Income before income taxes 148,289 122,022
Adjustments to reconcile income before income taxes
Depreciation and amortization 48,387 31,651
Disposals of property and equipment 319 26
Disposals of intangible 2,894 -
Allowance for doubtful accounts 14,983 11,065
Share-based compensation expense 2,929 14,009
Net foreign exchange differences 126 (3,988)
Accrued interest 46,106 12,285
Accrued lease interest 20,641 13,120
Share of income of associate (4,240) (3,239)
Provision for legal proceedings 3,819 2,002
Changes in assets and liabilities
Trade receivables (576) (33,229)
Inventories (2,037) (2,077)
Recoverable taxes (5,965) 779
Other assets 9,263 1,550
Trade payables (2,736) 7,088
Taxes payables 1,043 729
Advances from customers (9,229) 13,582
Labor and social obligations 22,388 9,046
Other liabilities (2,839) (2,341)
293,565 194,080
Income taxes paid (14,850) (14,801)
Net cash flows from operating activities 278,715 179,279
Investing activities
Acquisition of property and equipment (30,670) (23,056)
Dividends received 1,554 5,770
Acquisition of intangibles assets (21,680) (9,866)
Payments of notes payable (3,614) (2,628)
Acquisition of subsidiaries, net of cash acquired (47,904) (150,483)
Net cash flows used in investing activities (102,314) (180,263)
Financing activities
Payments of loans and financing (14,494) (2,010)
Payments of lease liabilities (27,476) (17,509)
Treasury shares (88,763) (64,752)
Dividends paid to non-controlling interests (4,669) (4,275)
Net cash flows from (used in) financing activities (135,402) (88,546)
Net foreign exchange differences (126) 3,984
Net increase in cash and cash equivalents 40,873 (85,546)
Cash and cash equivalents at the beginning of the year 748,562 1,045,042
Cash and cash equivalents at the end of the year 789,435 959,496

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

F-5

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

1 Corporate information

Afya Limited ("Afya"), collectively with its subsidiaries referred to as the "Company", is a holding company incorporated under the laws of the Cayman Islands on March 22, 2019. Afya Limited became the holding company of Afya Participações S.A. (hereafter referred to as "Afya Brazil"), formerly denominated NRE Participações S.A., through the completion of the corporate reorganization in July 2019. Up to that date, Afya Limited did not have commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments. Accordingly, Afya Limited's consolidated financial information substantially reflects the operations of Afya Brazil after the corporate reorganization.

The Company is formed by a network of higher education and post graduate institutions focused on medicine located in 18 Brazilian states forming the largest educational group by the number of medical seats in the country. In the non-regulated education, Afya provides services that comprise the development and sale of electronically distributed educational courses on medicine science, related printed and technological educational content. The Company also offers solutions to empower the physicians in their daily routine including supporting clinic decisions through mobile app subscription and delivering practice management tools through a SaaS model.

On February 23, 2022, Afya announced that the Secretary of Regulation and Supervision of Higher Education of the Ministry of Education ("MEC") authorized the operations of the medical schools in Abaetetuba, in the State of Pará, and Itacoatiara, in the State of Amazonas, both under Mais Médicos II program. With the authorizations, Afya reaches its third and fourth authorized schools to start operating under the Mais Medicos II program. Each medical school will contribute with 50 seats.

On March 16, 2022, MEC authorized the operations of the medical schools in Bragança, in the State of Pará, and Manacapuru, in the State of Amazonas, both under Mais Médicos II program. With the authorizations, Afya reaches its fifth and sixth authorized schools to start operating under the Mais Medicos II program. Each medical school will contribute with 50 seats.

On March 18, 2022, Afya announced that MEC authorized the increase of 28 seats of Centro Universitário São Lucas, in Ji-Parana located in the state of Rondônia. The earn-out related to the seats approval is R$800 per seat, adjusted by the CDI rate from the closing until the payment date, of which: (i) 50% was paid in April 2022, and (ii) 50% is payable in cash in two equal installments through 2024.

Corporate reorganization

On March 29, 2019, Afya Brazil merged (i) BR Health Participações S.A. ("BR Health"), a wholly-owned subsidiary of Bozano Educacional II Fundo de Investimento em Participações Multiestratégia ("Crescera") that controlled Guardaya Empreendimentos and Participações S.A. ("Guardaya") and was one of Afya Brazil's shareholders; and (ii) Guardaya which owned 100% of Medcel Editora e Eventos S.A. ("Medcel Editora") and CBB Web Serviços e Transmissões On Line S.A. ("CBB Web"), focused on medical residency preparation courses located in the state of São Paulo, resulting in the transfer to Afya Brazil of 100% of Medcel Editora and CBB Web and 15% of União Educacional do Planalto Central S.A. ("UEPC"), a medical school located in the Federal District. On June 18, 2019 Afya Brazil acquired an additional 15% interest in UEPC resulting in an interest of 30%.

F-6

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

On July 7, 2019, each of Afya Brazil´s shareholders had agreed to contribute their respective shares on Afya Brazil into Afya Limited, exchanging one common share into 28 Class A or Class B common shares of Afya Limited. The holders of the Class A common shares and Class B common shares have identical rights, except that (i) the holder of Class B common shares is entitled to 10 votes per share, whereas holders of Class A common shares are entitled to one vote per share, (ii) Class B common shares have certain conversion rights and (iii) the holders of Class B common shares are entitled to maintain their proportional ownership interest in the event that common shares and/or preferred shares are proposed to be issued. The holders of Class A common shares and Class B common shares vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders, unless otherwise required by law and subject to certain exceptions.

Acquisitions in 2022

(i) On March 4, 2022, Afya Brazil acquired BMV Atividades Médicas Ltda. ("Além da Medicina"). Além da Medicina is a medical content online platform for physicians and medical students that provides educational tools besides technical medical content that can assist them throughout their careers. Its contents include mentoring for residency, soft skills and finance, accounting, and investment basics for physicians. See Note 4

COVID-19

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have emerged in Wuhan, China. COVID-19 has since spread to most of the countries around the globe, including every state in Brazil. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and on March 20, 2020 the Brazilian federal government declared a national emergency with respect to COVID-19.

Since March 17, 2020, there has been some interruption of our on-campus activities due to Brazilian government authorities' mandatory lockdowns. We managed to rapidly adapt our business to these unusual times, and although there has been an interruption of our on-campus activities, we are offering our non-practical educational activities to our students through our online platform (rather than on-site). Regarding the offering of practical classes, we quickly resumed our in-hospital and health care residency programs for fifth and sixth-year students, which represents the largest portion of our practical curriculum.

During 2020, the States of Rio de Janeiro, Pará, Tocantins, Piauí, Rondônia, Bahia and Maranhão had issued state decrees granting discounts to our students because of COVID-19. These mandatory discounts have been suspended as their constitutionality has been challenged in the superior courts.

Additionally, we are also facing individual and collective legal proceedings all across the country. On November 18, 2021, the Brazilian Federal Court of Justice (STF) decided, by the majority of the votes, that any lawsuit with decisions to apply linear discounts in monthly tuition fees for private universities with respect to the COVID-19 pandemic are unconstitutional. The decisions were made in connection to the suits "Arguições de Descumprimento de Preceito Fundamental - ADPF", numbers 706 e 713, distributed by ANUP (Associação Nacional das Universidades Particulares) e CRUB (Conselho de Reitores das Universidades Brasileiras), respectively. Therefore, the Company shall not apply linear discounts in any active monthly tuition fees that are related to the effects of the Covid-19 pandemic. The Company is still granting discounts on individual lawsuits regarding the pandemics. Regarding the discounts granted by the date of issuance of these financial statements, the Company is charging back the students as final legal decisions are given by Brazilian courts.

F-7

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

The total mandatory discounts granted due to COVID-19 for individual lawsuits, net of discounts that have been recovered from the previous period, totaled R$ 1,392 during 2022 (R$ 8,204, net of discounts recovered, for three-month period ended March 31, 2021).

By the date of issuance of these interim financial statements all of the lockdown restrictions have been revoked by Brazilian authorities in our campus locations and the Company has also successfully retaken all of its practical classes in medicines courses and all of its classroom classes.

Conflict between Russia and Ukraine.

As a result of the current geopolitical tensions and conflict between Russia and Ukraine, and the recent recognition by Russia of the independence of the self-proclaimed republics of Donetsk and Luhansk in the Donbas region of Ukraine, the governments of the United States, the European Union, Japan and other jurisdictions have recently announced the imposition of sanctions on certain industry sectors and parties in Russia, Belarus and the regions of Donetsk and Luhansk, as well as enhanced export controls on certain products and industries. These and any additional sanctions and export controls, as well as any counter responses by the governments of Russia or other jurisdictions, could adversely affect, directly or indirectly, the global supply chain, with negative implications on the availability of raw materials, energy prices, and our customers, as well as the local and global financial markets and financial services industry and the global economy in general.

As of the date of these interim financial statements, the conflict between Russia and Ukraine has not brought significant impact over Afya's operations and results

2 Significant accounting policies

2.1 Basis for preparation of the unaudited interim condensed consolidated financial statements

The unaudited interim condensed consolidated financial statements as of March 31, 2022 and for the three-month periods ended March 31, 2022 and 2021 have been prepared in accordance with IAS 34 Interim Financial Reporting.

The unaudited interim condensed consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value.

The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Company's annual consolidated financial statements as of December 31, 2021.

Afya Limited is a holding company, as such the primary source of revenue derives from its interest on the operational companies in Brazil. As result, the Brazilian Real has been assessed as the Company`s functional currency.

The unaudited interim condensed consolidated financial statements are presented in Brazilian Reais ("BRL" or "R$"), which is the Company's functional and presentation currency. All amounts are rounded to the nearest thousand.

These unaudited interim condensed consolidated financial statements as of March 31, 2022 and for the three-month periods ended March 31, 2022 and 2021 were authorized for issuance by the Board of Directors on May 23, 2022.

F-8

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

2.2 Changes in accounting policies and disclosures

New standards, interpretations and amendments adopted by the Company

The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Company's annual consolidated financial statements for the year ended December 31, 2021. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

Certain amendments apply for the first time in 2022, but do not have an impact on the interim condensed consolidated financial statements of the Company.

F-9

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

2.3 Basis consolidation

The table below is a list of the Company's subsidiaries and associate:

Direct and indirect interest
Name Principal activities Location Investment type

March 31, 2022

(unaudited)

December 31, 2021
Afya Participações S.A. ("Afya Brazil") Holding Nova Lima - MG Subsidiary 100% 100%
Instituto Tocantinense Presidente Antônio Carlos Porto S.A. - ("ITPAC Porto") Undergraduate degree programs Porto Nacional - TO Subsidiary 100% 100%
Instituto Tocantinense Presidente Antônio Carlos S.A. - ("ITPAC Araguaina") Undergraduate degree programs Araguaína - TO Subsidiary 100% 100%
União Educacional do Vale do Aço S.A. - ("UNIVAÇO") Medicine undergraduate degree program Ipatinga - MG Subsidiary 100% 100%
IPTAN - Instituto de Ensino Superior Presidente Tancredo de Almeida Neves S.A. ("IPTAN") Undergraduate degree programs São João Del Rei - MG Subsidiary 100% 100%
Instituto de Educação Superior do Vale do Parnaíba S.A. ("IESVAP") Undergraduate degree programs Parnaíba - PI Subsidiary 80% 80%
Centro de Ciências em Saúde de Itajubá S.A. ("CCSI") Medicine undergraduate degree program Itajubá - MG Subsidiary 60% 60%
Instituto de Ensino Superior do Piauí S.A. ("IESP") Undergraduate and graduate degree programs Teresina - PI Subsidiary 100% 100%
Centro Integrado de Saúde de Teresina ("CIS") Outpatient care Teresina - PI Subsidiary 100% 100%
FADEP - Faculdade Educacional de Pato Branco Ltda. ("FADEP") Undergraduate degree programs Pato Branco - PR Subsidiary 100% 100%
Medcel Editora e Eventos S.A. ("Medcel") Medical education content São Paulo - SP Subsidiary 100% 100%
Instituto Educacional Santo Agostinho S.A. ("FASA") Undergraduate degree programs Montes Claros - MG Subsidiary 100% 100%
ESMC Educação Superior Ltda. ("ESMC") Undergraduate degree programs Montes Claros - MG Subsidiary 100% 100%
Instituto de Pesquisa e Ensino Médico do Estado de Minas Gerais Ltda. ("IPEMED") Graduate Belo Horizonte - MG Subsidiary 100% 100%
Instituto Paraense de Educação e Cultura Ltda ("IPEC") Medicine degree programs Marabá - PA Subsidiary 100% 100%
Sociedade Universitária Redentor S.A. ("UniRedentor") Undergraduate and graduate degree programs Itaperuna - RJ Subsidiary 100% 100%
Centro Universitário São Lucas Ltda. ("UniSL") Undergraduate degree programs Porto Velho - RO Subsidiary 100% 100%
Peb Med Instituição de Pesquisa Médica e Serviços Ltda ("PebMed") Content and clinical tools and online platform Rio de Janeiro - RJ Subsidiary 100% 100%
Faculdade de Ensino Superior da Amazônia Reunida - ("FESAR") Undergraduate degree programs Redenção - PA Subsidiary 100% 100%
Centro Superior de Ciências da Saúde S/S Ltda. ("FCMPB") Medicine degree programs João Pessoa - PB Subsidiary 100% 100%
MedPhone Tecnologia em Saúde Ltda. ("MedPhone") Content and clinical tools and online platform Recife - PE Subsidiary 100% 100%
iClinic Desenvolvimento de Software Ltda ("iClinic") Electronic Medical Record, Clinical Management System Ribeirão Preto - SP Subsidiary 100% 100%
Medicinae Solutions S.A. ("Medicinae") Healthcare payments and financial services Rio de Janeiro - RJ Subsidiary 100% 100%
Medical Harbour Aparelhos Médico Hospitalares e Serviços em Tecnologia Ltda. ("Medical Harbour") Educational health and medical imaging Florianópolis - SC Subsidiary 100% 100%
Cliquefarma Drogarias Online Ltda.("Cliquefarma") Online platform São Paulo - SP Subsidiary 100% 100%
Shosp Tecnologia da Informação Ltda. ("Shosp") Electronic Medical Record, Clinical Management System Rio de Janeiro - RJ Subsidiary 100% 100%
Sociedade Padrão de Educação Superior Ltda. ("UnifipMoc") Undergraduate degree programs Montes Claros - MG Subsidiary 100% 100%
Companhia Nilza Cordeiro Herdy de Educação e Cultura. ("Unigranrio") Undergraduate and graduate degree programs Duque de Caxias - RJ Subsidiary 100% 100%
Policlínica e Centro de Estética Duque de Caxias Ltda. ("Policlínica") Medical Care Duque de Caxias - RJ Subsidiary 100% 100%
Sociedade Educacional de Palhoça S/A Ltda. ("SOCIESP") Basic Education Palhoça - SC Subsidiary 100% 100%
Instituto de Ensino Superior de Palhoça S/S Ltda. ("IESP PALHOÇA") Undergraduate degree programs Palhoça - SC Subsidiary 100% 100%
RX PRO Soluções de Tecnologia Ltda. ("RX PRO") Marketing for pharmaceutical industry São Paulo - SP Subsidiary 100% 100%
RX PRO LOG Transporte e Logística Ltda. ("RX PRO LOG") Marketing for pharmaceutical industry São Paulo - SP Subsidiary 100% 100%
BMV Atividades Médicas Ltda. ("Além da Medicina") * Medical education content São Paulo - SP Subsidiary 100% -
União Educacional do Planalto Central S.A. ("UEPC") Undergraduate degree programs Brasília - DF Associate 30% 30%

* See Note 4 for further details of the business combinations during 2022.

F-10

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

The financial information of the acquired subsidiaries is included in the Company's consolidated financial statements beginning on the respective acquisition dates.

The Company consolidates the financial information for all entities it controls. Control is achieved when the Company is exposed to, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and it ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Company gains control until the date the Company ceases to control the subsidiary.

When necessary, adjustments are made to the financial statements of subsidiaries in order to bring their accounting policies in line with the Company's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Company loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resulting gain or loss is recognized in the statement of income.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statements of financial position, consolidated statements of income and comprehensive income and consolidated statements of changes in equity.

3 Segment information

The Company has three operating segments as follows:

• Undergrad, which provides educational services through undergraduate courses related to medicine, other health sciences and other undergraduate programs;

• Continuing Education, which provides specialization programs and graduate courses in medicine; and

• Digital Services, which provides content and technology for medical education, clinical decisions software, practice management tools and electronic medical records, doctor-patient relationship, telemedicine and digital prescription for physicians and provides access and demand for the healthcare players.

Segment information is presented consistently with the internal reports provided to the Company's Chief Executive Officer (CEO), which is the Chief Operating Decision Maker (CODM) and is responsible for allocating resources, assessing the performance of the Company's operating segments, and making the Company's strategic decisions.

No operating segments have been aggregated to form the above reportable operating segments. There is only one geographic region and the results are monitored and evaluated as a single business.

F-11

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

The following tables presents assets and liabilities information for the Company's operating segments as of March 31, 2022 and December 31, 2021, respectively:

Undergrad Continuing Education Digital Services Total reportable segments Adjustments and eliminatitons Total
As of March 31, 2022 (unaudited)
Total assets 6,175,354 137,198 249,217 6,561,769 - 6,561,769
Current assets 1,062,721 46,172 121,329 1,230,222 - 1,230,222
Non-current assets 5,112,633 91,026 127,888 5,331,547 - 5,331,547
Total liabilities and equity 6,175,354 137,198 249,217 6,561,769 - 6,561,769
Current liabilities 689,638 41,247 95,262 826,147 - 826,147
Non-current liabilities 2,575,459 71,556 44,150 2,691,165 - 2,691,165
Equity 2,910,257 24,395 109,805 3,044,457 - 3,044,457
Undergrad Continuing Education Digital Services Total reportable segments Adjustments and eliminations Total
As of March 31, 2022 (unaudited)
Other disclosures
Investments in associate 51,163 - - 51,163 - 51,163
Capital expenditures (*) 56,046 3,404 17,308 76,758 - 76,758
Undergrad Continuing Education Digital Services Total reportable segments Adjustments and eliminations Total
As of December 31, 2021
Total assets 6,072,135 105,629 272,122 6,449,886 (2,480) 6,447,406
Current assets 1,048,869 42,737 117,726 1,209,332 (2,480) 1,206,852
Non-current assets 5,023,266 62,892 154,396 5,240,554 - 5,240,554
Total liabilities and equity 6,072,135 105,629 272,122 6,449,886 (2,480) 6,447,406
Current liabilities 645,657 32,300 91,029 768,986 (2,480) 766,506
Non-current liabilities 2,551,175 47,705 82,002 2,680,882 - 2,680,882
Equity 2,875,303 25,624 99,091 3,000,018 - 3,000,018
Undergrad Continuing Education Digital Services Total reportable segments Adjustments and eliminations Total
As of December 31, 2021
Other disclosures
Investments in associate 48,477 - - 48,477 - 48,477
As of March 31, 2021 (unaudited)
Capital expenditures (*) 22,034 1,252 9,636 32,922 - 32,922

(*) Capital expenditures consider the acquisitions of property and equipment and intangible assets.

F-12

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

The following tables present the statements of income for the Company's operating segments for the three-month periods ended March 31, 2022 and 2021:

March 31, 2022 (unaudited)
Undergrad Continuing Education Digital Services Total reportable segments Elimination (inter-segment transactions) Total
External customer 495,395 23,851 47,078 566,324 - 566,324
Inter-segment - - 399 399 (399) -
Net revenue 495,395 23,851 47,477 566,723 (399) 566,324
Cost of services (161,112) (15,412) (10,605) (187,129) 399 (186,730)
Gross profit 334,283 8,439 36,872 379,594 - 379,594
General and administrative expenses (178,514)
Other income, net (309)
Operating income 200,771
Finance income 24,569
Finance expenses (81,291)
Share of income of associate 4,240
Income before income taxes 148,289
Income taxes expenses (13,347)
Net income 134,942
March 31, 2021 (unaudited)
Undergrad Continuing Education Digital Services Total reportable segments Elimination (inter-segment transactions) Total
External customer 321,852 19,288 53,211 394,351 - 394,351
Inter-segment - - 327 327 (327) -
Net revenue 321,852 19,288 53,538 394,678 (327) 394,351
Cost of services (105,075) (9,594) (12,150) (126,819) 327 (126,492)
Gross profit 216,777 9,694 41,388 267,859 - 267,859
General and administrative expenses - - - - - (130,404)
Other expenses, net - - - - - 1,185
Operating income - - - - - 138,640
Finance income - - - - - 13,815
Finance expenses - - - - - (33,672)
Share of income of associate - - - - - 3,239
Income before income taxes - - - - - 122,022
Income taxes expenses - - - - - (8,674)
Net income - - - - - 113,348

Seasonality of operations

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 during the semester.

Digital Services is comprised mostly by Medcel, Pebmed and iClinic revenues. While Pebmed and iClinic do not have significant fluctuation regarding seasonality, Medcel revenues are concentrated in the first and last quarter of the year, as a result of enrollments of Medcel's clients period. The majority of Medcel's revenues is derived from printed books and e-books, which are recognized at the point in time when control is transferred to the customer. Consequently, Digital Services segment generally has higher revenues and results of operations in the first and last quarters of the year compared to the second and third quarters of the year.

F-13

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

4 Business combinations

The preliminary fair values of the identifiable assets acquired and liabilities assumed as of acquisition date were:

Assets Além da Medicina
Cash and cash and equivalents 298
Trade receivables 1,705
Other assets 267
Property and equipment 37
Intangible assets 15,903
18,210
Liabilities
Trade payables 704
Labor and social obligations 70
Taxes and contributions payable 1,192
Advances from customers 6,185
Other liabilities 1,265
9,416
Total identifiable net assets at fair value 8,794
Preliminary goodwill arising on acquisition 17,232
Purchase consideration transferred 26,026
Cash paid 14,952
Contingent consideration 11,074
Analysis of cash flows on acquisition:
Transaction costs of the acquisition (included in cash flows from operating activities) 227
Cash paid net of cash acquired with the subsidiary (included in cash flows from investing activities) 14,654
Net of cash flow on acquisition 14,881

(a) Acquisition of Além da Medicina

On March 4, 2022, Afya Brazil acquired 100% of the share capital of BMV Atividades Médicas Ltda. ("Além da Medicina"). The aggregate purchase price of R$26,025 is comprised by: i) 14,952 of which 100% was paid in cash on the transaction closing date and ii) an earn-out ("contingent consideration") of up of R$ 19,200 is payable in connection with product revenue achievements for 2023 and 2024. The contingent consideration of R$11,074 is based on the present value of the obligation considering the facts and circumstances at the acquisition date.

Além da Medicina is a medical content online platform for physicians and medical students that provides educational tools besides technical medical content that can assist them throughout their careers. Its contents include mentoring for residency, soft skills and finance, accounting, and investment basics for physicians.

The acquisition of Além da Medicina was accounted for under IFRS 3 - Business Combinations.

Transaction costs to date amount to R$227 and were expensed and are included in general and administrative expenses in the consolidated statement of income.

At the acquisition date, the fair value of the trade receivables acquired equals its carrying amount.

The goodwill recognized includes the value of expected synergies arising from the acquisition, which is not separately recognized. Goodwill is allocated entirely to Digital Services segment. The preliminary goodwill recognized is not expected to be deductible for income taxes purposes.

F-14

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

The valuation techniques used for measuring the fair value of separately identified intangible assets acquired were as follows:

Intangible assets acquired Valuation technique
Trademark

Relief from royalty

This methodology is based on the market remuneration of the use license granted to third parties. The value of the asset is restated by the savings of royalties that the owner would have to own the asset. It is necessary to determine a royalty rate that reflects the appropriate remuneration of the asset. The royalty payments, net of taxes, are discounted to present value.

Customer relationships

Multi-period excess earnings method

The method considers the present value of net cash flows expected to be generated by customer relationships, by excluding any cash flows related to contributory assets.

Educational content

Replacement cost

This methodology is based on the estimated cost of replacing the referred asset with a new one (acquisition or reconstruction), adjusted to reflect the losses in value resulting from the physical deterioration and the functional and economic obsolescence of that asset.

Developed technology intangible assets

Replacement cost

This methodology is based on the estimated cost of replacing the referred asset with a new one (acquisition or reconstruction), adjusted to reflect the losses in value resulting from the physical deterioration and the functional and economic obsolescence of that asset.

From the date of acquisition, Além da Medicina has contributed R$1,110 of net revenue and R$ 42 of income before income taxes to the Company. Should the acquisition had taken place at the beginning of the period, net revenue for the period ended March 31, 2022 would have been increased by R$2,529 and income before income taxes would have been increased by R$867.

5 Cash and cash equivalents
March 31, 2022 December 31, 2021
(unaudited)
Cash and bank deposits 42,648 88,487
Cash equivalents 746,787 660,075
789,435 748,562

Cash equivalents correspond mainly to financial investments in Bank Certificates of Deposit ("CDB") with highly rated financial institutions and investments funds managed by highly rated financial institutions. As of March 31, 2022, the average interest on these investments are equivalent to 100.17% of the Interbank Certificates of Deposit ("CDI") (December 31, 2021: 100.38%). These funds are available for immediate use and have insignificant risk of changes in value. Cash equivalents denominated in U.S. dollars totaled R$1,683 as of March 31, 2022 (December 31, 2021: R$23,228).

F-15

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

6 Trade receivables
March 31, 2022 December 31, 2021
(unaudited)
Tuition fees 275,163 279,915
Educational content (a) 68,801 69,227
FIES 60,462 61,342
Educational credits 6,106 5,375
Mobile app subscription (b) 16,143 20,946
Others 13,023 14,001
439,698 450,806
(-) Allowance for doubtful accounts (46,607) (45,013)
393,091 405,793
Current 364,701 378,351
Non-current 28,390 27,442

(a) Related to trade receivables from sales of printed books, e-books and medical courses through digital platform from Medcel.

(b) Related to trade receivables from mobile applications subscriptions for digital medical content.

As of March 31, 2022 and December 31, 2021, the aging of trade receivables was as follows:

March 31, 2022 December 31, 2021
(unaudited)
Neither past due nor impaired 188,091 184,382
Past due
1 to 30 days 86,639 68,932
31 to 90 days 62,558 69,299
91 to 180 days 30,951 55,764
More than 180 days 71,459 72,429
439,698 450,806

The changes in the allowance for doubtful accounts for the three-month periods ended March 31, 2022 and 2021, was as follows:

March 31, 2022 March 31, 2021
(unaudited) (unaudited)
Balances at the beginning of the period (45,013) (32,980)
Additions (14,983) (11,065)
Write-offs 13,389 2,442
Balances at the end of the period (46,607) (41,603)
F-16

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

7 Related parties

The table below summarizes the balances and transactions with related parties:

March 31, 2022 December 31, 2021
(unaudited)
Assets
Trade receivables (a) 801 692
801 692
Current 801 692
Non-current - -
Liabilities
Accounts payable to selling shareholders (b) 55,878 54,556
55,878 54,556
Current 27,939 27,278
Non-current 27,939 27,278
March 31, 2022 March 31, 2021
(unaudited) (unaudited)
Other income
UEPC (a) 294 321
294 321
Lease
RVL Esteves Gestão Imobiliária S.A. 4,754 2,913
UNIVAÇO Patrimonial Ltda. 812 846
IESVAP Patrimonial Ltda. 1,172 1,147
6,738 4,906

(a) Refers to sales of educational content from Medcel to UEPC.

(b) Refers to amounts to be payable to our shareholder Nicolau Carvalho Esteves regarding the agreement to which Afya Brazil acquired the right to develop ITPAC Garanhuns medical school, a greenfield unit. 50% of the transaction is due in two equal annual installments, adjusted by the CDI rate.

Key management personnel compensation

Key management personnel compensation included in the Company's consolidated statement of income comprised the following:

March 31, 2022 March 31, 2021
(unaudited) (unaudited)
Short-term employee benefits 2,031 1,679
Share-based compensation plan 3,204 6,803
5,235 8,482

Compensation of the Company's key management includes short-term employee benefits comprised by salaries, labor and social charges, and other ordinary short-term employee benefits. The amounts disclosed in the table above are the amounts recognized as an expense in general and administrative expenses during the reporting period related to key management personnel.

The executive officers participate in share-based compensation plans described in Note 15(b).

F-17

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

8 Other assets

As of March 31, 2022, the Company has R$213,624 (R$ 222,839 in December 31, 2021) accounted for as other assets as follow:

March 31, 2022 December 31, 2021
(unaudited)
Indemnification assets (a) 136,089 135,355
Judicial deposits 19,171 18,825
Prepaid expenses 7,520 10,110
Other FIES receivables 23,858 21,450
Other assets 26,986 37,099
Total 213,624 222,839
Current 30,678 42,533
Non-current 182,946 180,306

(a) Under the terms of the Share Purchase and Sale Agreements ("Agreements") between the Company and the selling shareholders of the subsidiaries acquired, the Company assesses that the selling shareholders are exclusively responsible for any provisions (including labor, tax and civil), which are or will be the subject of a claim by any third party, arising from the act or fact occurred, by action or omission, prior to or on the closing dates of the acquisitions.

9 Investment in associate

In connection with the corporate reorganization, described in Note 1 regarding the merger with BR Health, the Company acquired a 30% interest in UEPC, a medical school located in the Federal District, that offers higher education and post-graduate courses, both in person and long-distance learning. The Company's interest in UEPC is accounted for using the equity method. The following table illustrates the summarized financial information of the Company's investment in UEPC:

March 31, 2022 December 31, 2021
(unaudited)
Current assets 27,231 33,976
Non-current assets 112,769 109,805
Current liabilities (21,917) (35,049)
Non-current liabilities (91,483) (91,086)
Equity 26,600 17,646
Company's share in equity - 30% 7,980 5,294
Goodwill 43,183 43,183
Carrying amount of the investment 51,163 48,477
March 31, 2022 March 31, 2021
(unaudited) (unaudited)
Net revenue 34,462 30,544
Cost of services (11,763) (10,813)
General and administrative expenses (6,919) (7,782)
Finance result (962) (1,049)
Income before income taxes 14,818 10,900
Income taxes expenses (684) (103)
Net income for the period 14,134 10,797
Company's share of income for the period 4,240 3,239
March 31, 2022 March 31, 2021
(unaudited) (unaudited)
Opening balance 48,477 51,410
Dividends received (1,554) (5,770)
Share of income 4,240 3,239
Closing balance 51,163 48,879
F-18

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

10 Property and equipment
Cost Building Machinery and equipment Lands Vehicles Furniture and fixtures IT equipment Library books Leasehold improvements Construction in progress Total
As of December 31, 2020 25,919 68,503 13,401 1,215 29,131 28,511 21,624 122,005 3,706 314,015
Additions - 2,127 - - 1,722 2,636 332 3,576 12,663 23,056
Business combinations - 214 - - 20 453 - - - 687
Disposals - - - (178) - - - - - (178)
As of March 31, 2021 (unaudited) 25,919 70,844 13,401 1,037 30,873 31,600 21,956 125,581 16,369 337,580
As of December 31, 2021 52,433 77,371 18,852 1,467 69,834 53,184 30,072 152,976 31,786 487,975
Additions - 3,737 - 639 5,074 2,396 43 884 17,897 30,670
Business combinations - 37 - - - - - - - 37
Disposals - (124) - (87) (254) (59) - - - (524)
Transfer 11,963 2 - - 100 417 - 8,266 (20,338) 410
As of March 31, 2022 (unaudited) 64,396 81,023 18,852 2,019 74,754 55,938 30,115 162,126 29,345 518,568
Depreciation
As of December 31, 2020 - (19,322) - (171) (8,089) (10,851) (10,817) (4,384) - (53,634)
Depreciation - (1,657) - (14) (775) (1,429) (671) (1,553) - (6,099)
Disposals - - - 152 - - - - - 152
As of March 31, 2021 (unaudited) - (20,979) - (33) (8,864) (12,280) (11,488) (5,937) - (59,581)
As of December 31, 2021 (1,673) (16,391) - (220) (12,496) (14,922) (13,600) (8,865) - (68,167)
Depreciation (660) (2,236) - (56) (1,858) (2,789) (907) (1,907) - (10,413)
Disposals - 52 - - - 153 - - - 205
As of March 31, 2022 (unaudited) (2,333) (18,575) - (276) (14,354) (17,558) (14,507) (10,772) - (78,375)
Net book value
As of March 31, 2022 (unaudited) 62,063 62,448 18,852 1,743 60,400 38,380 15,608 151,354 29,345 440,193
As of December 31, 2021 50,760 60,980 18,852 1,247 57,338 38,262 16,472 144,111 31,786 419,808

The Company assesses, at each reporting date, whether there is an indication that a property and equipment asset may be impaired. If any indication exists, the Company estimates the asset's recoverable amount. There were no indications of impairment of property and equipment as of and for the three-months periods ended March 31, 2022 and 2021.

F-19

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

11 Intangible assets and goodwill
Goodwill Licenses with indefinite useful life (i) Trademarks Customer relationships Software Education content Developed technology Educational platform Software in progress Total
Cost
As of December 31, 2020 810,656 1,451,270 75,014 283,539 16,221 17,305 355 27,902 2,297 2,684,559
Additions - - - - 1,469 - - 6,004 2,393 9,866
Business combinations 101,068 - 45,944 28,251 1,346 - 15,512 - - 192,121
As of March 31, 2021 (unaudited) 911,724 1,451,270 120,958 311,790 19,036 17,305 15,867 33,906 4,690 2,886,546
As of December 31, 2021 1,184,336 2,165,406 133,369 431,277 21,759 17,305 34,397 76,444 28,847 4,093,140
Additions - 24,408 - 9 722 - 483 12,788 7,678 46,088
Disposals - - - - - - - (3,476) - (3,476)
Transfer - - - - 7,306 - - 2,780 (10,496) (410)
Business combinations 17,232 - 13,671 512 33 1,535 152 - - 33,135
As of March 31, 2022 (unaudited) 1,201,568 2,189,814 147,040 431,798 29,820 18,840 35,032 88,536 26,029 4,168,477
Amortization
As of December 31, 2020 - - (3,502) (85,832) (6,256) (7,692) (32) (8,235) - (111,549)
Amortization - - (1,846) (12,471) (705) (1,651) (15) (64) - (16,752)
As of March 31, 2021 (unaudited) - - (5,348) (98,303) (6,961) (9,343) (47) (8,299) - (128,301)
As of December 31, 2021 - - (8,529) (142,270) (12,699) (16,672) (657) (11,478) - (192,305)
Amortization - - (1,326) (17,898) (1,487) (433) (652) (2,505) - (24,301)
Disposals - - - - - - - 582 - 582
As of March 31, 2022 (unaudited) - - (9,855) (160,168) (14,186) (17,105) (1,309) (13,401) - (216,024)
Net book value
As of March 31, 2022 (unaudited) 1,201,568 2,189,814 137,185 271,630 15,634 1,735 33,723 75,135 26,029 3,952,453
As of December 31, 2021 1,184,336 2,165,406 124,840 289,007 9,060 633 33,740 64,966 28,847 3,900,835

(i) On March 18, 2022, Afya announced that MEC authorized the increase of 28 seats of Centro Universitário São Lucas, in Ji-Parana located in the state of Rondônia. The earn-out related to the seats approval is R$800 per seat, adjusted by the CDI rate from the closing until the payment date.

Impairment testing of goodwill and intangible assets with indefinite lives

The Company performed its annual impairment test in December and when circumstances indicated that the carrying value may be impaired. The Company's impairment test for goodwill and intangible assets with indefinite lives is based on value-in-use calculations. The key assumptions used to determine the recoverable amount for the different cash generating units were disclosed in the annual consolidated financial statements for the year ended December 31, 2021. There were no indications of impairment of goodwill and intangible assets with indefinite lives for the three-month period ended March 31, 2022.

Intangible assets with definite lives

For the three-month period ended March 31, 2022, there were no indicatives that the Company's intangible assets with finite useful lives might be impaired.

F-20

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

12 Financial assets and financial liabilities
12.1 Financial assets
Financial assets March 31, 2022 December 31, 2021
At amortized cost (unaudited)
Cash and cash equivalents 789,435 748,562
Trade receivables 393,091 405,793
Total 1,182,526 1,154,355
Current 1,154,136 1,126,913
Non-current 28,390 27,442

Financial instruments at amortized cost include trade receivables and cash and cash equivalents.

12.2 Financial liabilities
Financial liabilities March 31, 2022 December 31, 2021
At amortized cost (unaudited)
Trade payables 57,066 59,098
Loans and financing 1,388,841 1,374,876
Lease liabilities 733,420 714,085
Accounts payable to selling shareholders 698,413 679,826
Notes payable 70,880 72,726
Advances from customers 111,541 114,585
Total 3,060,161 3,015,196
Current 618,837 581,685
Non-current 2,441,324 2,433,511
12.2.1 Loans and financing
Financial institution Currency Interest rate Maturity March 31, 2022 December 31, 2021
(unaudited)
Banco Itaú Unibanco S.A. (a) Brazilian real CDI + 1.62% p.y. 2023 525,467 510,972
FINEP (b) Brazilian real TJLP p.y. 2027 9,702 10,145
Softbank (d) Brazilian real 6.5% p.y. 2026 822,828 822,560
Banco Itaú Unibanco S.A. (c) Brazilian real CDI + 1.75% p.y. 2024 30,844 31,199
1,388,841 1,374,876
Current 142,654 128,720
Non-current 1,246,187 1,246,156

(a) On October 1, 2020, Afya Brazil entered into a loan with Banco Itaú Unibanco S.A. in the amount of R$ 500,000 adjusted by the CDI rate plus an interest rate of 1.62% per year and is repayable in three installments in October 2022, April 2023 and October 2023.

(b) On July 23, 2019, Medcel entered into a loan of R$ 16,153 with Financiadora de Estudos e Projetos ("FINEP"), a governmental agency focused on financing investments on R&D, which has an interest rate based on TJLP (Long term interest rate), and maturity in 2027. The first and second tranches of R$6,734 and R$4,130, respectively, were drawdown in October 2019 and December 2020, respectively, in order to develop the Medical web series and other digital content. There is no financial covenant related to this agreement. The total balance is guaranteed by a bank warranty.

(c) On October 28, 2020, UNIFIPmoc entered into a loan with Banco Itaú Unibanco S.A. in the amount of R$ 30,000. On June 30, 2021 this agreement was amended and is now adjusted by the CDI rate plus an interest rate of 1.75% per year and is repayable in three installments in July 2023, January 2024 and July 2024.

F-21

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

(d) On April 26, 2021, the Company issued and sold 150,000 shares of perpetual convertible preferred shares designated as Series A perpetual convertible preferred shares, with a par value of U.S.$0.00005 per share of the Company for US$150,000 thousands, equivalent to R$ 821,805 on the issuance date. The Series A perpetual convertible preferred shares is a class of equity security that ranks senior to the common shares with respect to dividend rights or rights upon liquidation.

Each Series A perpetual convertible preferred share is entitled to a cash dividend of 6.5% per annum and is convertible, at the holder's discretion, into the Company's Class A common shares at an initial conversion price of US$25.35. The Company may require the conversion of any or all of the Series A perpetual convertible preferred shares at any time on or after the three-year anniversary of the original issuance date if certain conditions set forth in the certificate of designation are met (if for 20 out of 30 consecutive trading days prior, Afya's stock price is equal or above 150% of the conversion rate). The Company may also redeem any or all of the Series A perpetual convertible preferred shares for cash, shares of its common shares or a combination thereof at its election, at any time on or after the seven-year anniversary of the original issuance date as determined in the certificate of designation. On or after the five-year anniversary of the original issuance date, the holders of the Series A convertible perpetual preferred shares shall have the right to redeem all of the outstanding Series A convertible perpetual preferred shares for cash, the Company's common shares or a combination thereof (at the Company's election, subject to certain conditions) to be determined in the certificate of designation. Upon the occurrence of a change of control, the holders will have the right to redeem their Series A convertible perpetual preferred shares for cash at a price set forth in the certificate of designation.

The Series A convertible perpetual preferred shares will be entitled with the same voting rights of the common shares only when converted into it.

The Company determined that the Series A perpetual convertible preferred shares should be classified as financial liability at amortized cost upon their issuance since is redeemable primarily according to the decision of the holder and there is a contractual obligation to deliver assets (cash, shares of its common shares or a combination thereof) that could not be avoided by the Company in an event of redemption. The financial liability is denominated in Brazilian Reais and thus not subject to foreign exchange changes.

In addition, as the entire instrument is classified as a liability, the embedded put option to redeem the Series A perpetual convertible preferred shares for cash is an embedded derivative. The embedded derivative will not be treated separately once the exercise price of the option is closely related to the host contract.

The initial transaction costs that are directly attributable to the issuance of Series A perpetual convertible preferred shares were measured at fair value together with the financial liability on initial measurement. The transaction costs totaled R$13,030, including legal counsels and advisors.

12.2.2 Leases

The Company has lease contracts for properties. The lease contracts generally have maturities in the lease terms between 5 and 30 years. There are no sublease or variable payments in-substance lease agreements in the period.

F-22

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

The carrying amounts of right-of-use assets and lease liabilities as of March 31, 2022 and December 31, 2021 and the movements during the three-month periods ended March 31, 2021 and 2022, are described below:

Right-of-use assets Lease liabilities
As of January 1, 2021 419,074 447,703
Additions 77 77
Remeasurement 26,931 26,931
Business combinations 88 88
Depreciation expense (8,800) -
Interest expense - 13,120
Payments of lease liabilities - (17,509)
Disposals (4,206) (4,206)
As of March 31, 2021 (unaudited) 433,164 466,204
As of January 1, 2022 663,686 714,085
Additions 26,076 26,076
Remeasurement 7,020 7,020
Depreciation expense (13,673) -
Interest expense - 20,641
Payments of lease liabilities - (27,476)
Disposals (6,707) (6,926)
As of March 31, 2022 (unaudited) 676,402 733,420
As of December 31, 2021
Current - 24,955
Non-current 663,686 689,130
As of March 31, 2022 (unaudited)
Current - 27,750
Non-current 676,402 705,670

The Company recognized lease expense from short-term leases and low-value assets of R$3,698 for the three-month period ended March 31, 2022 (R$ 853 for the three-month period ended March 31, 2021).

12.2.3 Accounts payable to selling shareholders
March 31, 2022 December 31, 2021
(unaudited)
Acquisition of FASA (a) 42,655 41,581
Acquisition of IPEMED (b) 20,649 30,233
Acquisition of UniRedentor (c) 65,684 85,506
Acquisition of UniSãoLucas (d) 68,115 42,672
Acquisition of FCMPB (e) 152,792 149,175
Acquisition of Medicinae (f) 1,994 3,887
Acquisition of Medical Harbour (g) 6,988 6,801
Acquisition of Cliquefarma (h) 3,124 3,050
Acquisition of Shosp (i) 2,180 2,141
Acquisition of Unigranrio (j) 256,213 249,979
Acquisition of RXPRO (k) 11,067 10,245
Acquisition of Guaranhuns (l) 55,878 54,556
Acquisition of Além da Medicina (m) 11,074 -
698,413 679,826
Current 264,520 239,849
Non-current 433,893 439,977
F-23

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

March 31, 2022 March 31, 2021
(unaudited) (unaudited)
Opening balance 679,826 518,240
Cash flows (33,250) (27,135)
Additions (Earn-out Ji-Parana and Além da Medicina) 35,482 -
Interest 16,355 5,053
Installments on Business combinations - 3,151
Closing balance 698,413 499,309

(a) On April 3, 2019, Afya Brazil acquired 90% of FASA and R$ 39,695 was paid in April 2020, R$ 29,770 was paid in April, 2021, and R$ 29,770 was paid in April 2022; each installment adjusted by the IPCA rate + 4.1% per year.

(b) On May 9, 2019, Afya Brazil acquired 100% of IPEMED and R$ 45,303 is payable in five equal installments of R$ 9,061, adjusted by the CDI rate, and due annually in February 2020, 2021, 2022, 2023 and 2024.

(c) On January 31, 2020, Afya Brazil acquired 100% of UniRedentor and R$100,000 is payable in five equal installments from January 2021 through July 2024, adjusted by the CDI rate. The purchase consideration was adjusted by R$4,503 and such amount was deducted from the first installment paid in February 2021.

(d) On May 5, 2020, Afya Brazil acquired 100% of UniSL and R$ 60,456 is payable in three equal installments through May 2023, adjusted by the CDI rate. The purchase consideration was adjusted by R$7,816 and such amount was deducted from the first installment paid on May 5, 2021.

On March 18, 2022, Afya announced that MEC authorized the increase of 28 seats of Centro Universitário São Lucas, in Ji-Parana located in the state of Rondônia. The earn-out related to the seats approval is R$800 per seat, adjusted by the CDI rate from the closing until the payment date, of which: (i) 50% was paid in April 2022, and (ii) 50% is payable in cash in two equal installments through 2024.

(e) On November 9, 2020, Afya Brazil acquired 100% of FCMPB and R$ 188,894 is payable in four installments through November 2024, adjusted by the CDI rate.

(f) On March 25, 2021, Afya Brazil acquired 100% of Medicinae and an earn-out ("contingent consideration") of up of R$ 4,400 is payable in connection with product development goals for 2021 and revenue achievements for 2022. The contingent consideration of R$1,994 is based on the present value of the obligation considering the facts and circumstances at the acquisition date, and no relevant impacts were identified by management from the acquisition date.

(g) On April 8, 2021, Afya Brazil acquired 100% of Medical Harbour and an earn-out of R$ 9,000 is payable in relation to product development goals for 2021 and 2022 and revenue achievements for 2023. The contingent consideration of R$6,988 is based on the present value of the obligation considering the facts and circumstances at the acquisition date, and no relevant impacts were identified by management from the acquisition date.

(h) On April 16, 2021, Afya Brazil acquired 100% of Cliquefarma and an earn-out of R$ 3,000, adjusted by the CDI rate, is payable in relation to product development. The contingent consideration of R$3,124 is based on the present value of the obligation considering the facts and circumstances at the acquisition date, and no relevant impacts were identified by management from the acquisition date.

F-24

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

(i) On May 13, 2021, Afya Brazil acquired 100% of Shosp and R$ 454 will be paid, and an earn-out of up to R$ 1,793 is payable in relation to product development. The contingent consideration of R$2,180 is based on the present value of the obligation considering the facts and circumstances at the acquisition date, and no relevant impacts were identified by management from the acquisition date.

(j) On August 4, 2021, Afya Brazil acquired 100% of Unigranrio. The adjusted aggregate purchase price is R$ 618,956 of which 60% was paid in cash on the transaction closing date, and 40% is payable in cash in four equal installments from 2022 to 2025, adjusted by the CDI rate.

(k) On October 01, 2021, Afya Brazil acquired 100% of RXPRO and an earn-out of up to R$ 21,000 is payable in relation to revenue achievements until 2024. The contingent consideration of R$11,067 is based on the present value of the obligation considering the facts and circumstances at the acquisition date, and no relevant impacts were identified by management from the acquisition date.

(l) On November 05, 2021, Afya Brazil concluded the acquisition of 100% of ITPAC Garanhuns and R$54,000 was paid in cash on the transaction closing date, and (ii) R$54,000 is payable in two equal installments, adjusted by the CDI rate, and due annually at the end of the first and the second year from the transaction closing date.

(m) On March 4, 2022, Afya Brazil acquired 100% of Além da Medicina and an earn-out of up to R$19,200 is payable in relation to product development. The contingent consideration of R$11,074 is based on the present value of the obligation considering the facts and circumstances at the acquisition date, and no relevant impacts were identified by management from the acquisition date.

12.2.4 Notes payable

With the acquisition of UniSL, Afya Brazil assumed notes payable regarding the previous acquisition of a portion of the operations of Universidade Luterana do Brasil (ULBRA) by UniSL in auction by the end of 2018. Two of the UniSL campuses, located in the cities of Ji-Paraná and Porto Velho in the State of Rondônia, were acquired in such transaction. As of March 31, 2022, the notes payable of R$70,880, has a final maturity in 2023 and is adjusted by 100% of IPCA-E.

Set out below are the carrying amount of notes payable and the movements during the three-month periods:

Notes payable
As of January 1, 2021 76,181
Payments (2,628)
Monetary indexation 1,776
As of March 31, 2021 (unaudited) 75,329
As of January 1, 2022 72,726
Payments (3,614)
Monetary indexation 1,768
As of March 31, 2022 (unaudited) 70,880
As of December 31, 2021
Current liabilities 14,478
Non-current liabilities 58,248
As of March 31, 2022 (unaudited)
Current liabilities 15,306
Non-current liabilities 55,574
F-25

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

12.3 Fair values

The table below is a comparison of the carrying amounts and fair values of the Company's financial instruments, other than those carrying amounts that are reasonable approximation of fair values:

March 31, 2022 December 31, 2021
(unaudited)
Carrying amount Fair value Carrying amount Fair value
Financial assets
Trade receivables (non-current) 28,390 28,390 27,442 27,442
Total 28,390 28,390 27,442 27,442
Financial liabilities
Loans and financing 1,388,841 1,399,115 1,374,876 1,387,136
Lease liabilities 733,420 733,420 714,085 714,085
Accounts payable to selling shareholders 698,413 698,413 679,826 679,826
Notes payable 70,880 70,880 72,726 72,726
Total 2,891,554 2,901,828 2,841,513 2,853,773

The Company assessed that the fair values of cash and cash equivalents, current trade receivables and other current assets, trade payables, advances from customers and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

The fair value of interest-bearing borrowings and loans are determined by using the DCF method using discount rate that reflects the issuer's borrowing rate as of the end of the reporting period. The own non-performance risk at March 31, 2022 was assessed to be insignificant.

12.4 Financial instruments risk management objectives and policies

The Company's principal financial liabilities comprise loans and financing, lease liabilities, accounts payable to selling shareholders, notes payable, trade payables and advances from customers. The main purpose of these financial liabilities is to finance the Company's operations. The Company's principal financial assets include trade receivables and cash and cash equivalents.

The Company is exposed to market risk, credit risk and liquidity risk. The Company monitors market, credit and liquidity risks in line with the objectives in capital management and counts with the support, monitoring and oversight of the Board of Directors in decisions related to capital management and its alignment with the objectives and risks. The Company's policy is that no trading of derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees with policies for managing each of these risks, which are summarized below.

12.4.1 Financial instruments risk management objectives and policies

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company's exposure to market risk is related to interest rate risk and foreign currency risk.

The sensitivity analysis in the following sections relate to the position as of March 31, 2022.

F-26

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

(i) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company's exposure to the risk of changes in market interest rates relates primarily to the Company's cash equivalents, loans and financing, accounts payable to selling shareholders and notes payable, with floating interest rates.

Sensitivity analysis

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on cash equivalents, loans and financing and accounts payable to selling shareholders and notes payable. With all variables held constant, the Company's income before income taxes is affected through the impact on floating interest rates, as follows:

Increase / decrease in basis points
March 31, 2022 Index - % per year Base rate +75 -75 +150 -150
(unaudited)
Cash equivalents 745,105 100.17 CDI% 86,954 5,588 (5,588) 11,176 (11,176)
Loans and financing (525,467) CDI + 1.62% (69,729) (3,941) 3,941 (7,882) 7,882
Loans and financing (30,844) CDI + 1.75% (4,133) (231) 231 (462) 462
Loans and financing (9,702) TJLP (1,287) (73) 73 (146) 146
Accounts payable to selling shareholders (619,331) CDI (72,152) (4,645) 4,645 (9,290) 9,290
Accounts payable to selling shareholders (42,655) IPCA + 4.1% (2,440) (320) 320 (640) 640
Notes payable (70,880) IPCA (1,148) (532) 532 (1,064) 1,064

(ii) Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of exposure will fluctuate because of changes in foreign exchange rates. The Company's exposure to the risk of changes in foreign exchange rates relates to cash and cash equivalents denominated in U.S. dollars in the amount of R$1,683 as of March 31, 2022 (December 31, 2021: R$23,228).

Foreign currency sensitivity

The following table demonstrates the sensitivity in the Company's income before income taxes of a 10% change in the U.S. dollar exchange rate (R$4.7372 to U.S. dollar 1.00) as of March 31, 2022, with all other variables held constant.

Exposure +10% -10%
As of March 31, 2022
Cash equivalents 1,683 168 (168)
12.4.2 Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including cash and cash equivalents.

Customer credit risk is managed by the Company based on the established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored. See Note 6 for additional information on the Company's trade receivables.

F-27

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

Credit risk from balances with banks and financial institutions is managed by the Company's treasury department in accordance with the Company's policy. Investments of surplus funds are made only with approved counterparties and within limits assigned to each counterparty.

The Company's maximum exposure to credit risk for the components of the statements of financial position on March 31, 2022 and December 31, 2021 is the carrying amounts of its financial assets.

12.4.3 Liquidity risk

The Company's Management has responsibility for monitor liquidity risk. In order to achieve the Company's objective, Management regularly reviews the risk and maintains appropriate reserves, including bank credit facilities with first tier financial institutions. Management also continuously monitors projected and actual cash flows and the combination of the maturity profiles of the financial assets and liabilities.

The main requirements for financial resources used by the Company arise from the need to make payments for suppliers, operating expenses, labor and social obligations, loans and financing and accounts payable to selling shareholders.

The tables below summarize the maturity profile of the Company's financial liabilities based on contractual undiscounted amounts:

As of March 31, 2022 (unaudited) Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total
Trade payables 57,066 - - - 57,066
Loans and financing 218,878 588,365 935,419 753 1,743,415
Lease liabilities 108,959 223,077 211,349 1,112,675 1,656,060
Accounts payable to selling shareholders 235,949 469,355 96,486 - 801,790
Notes payable 16,363 67,222 - - 83,585
Advances from customers 111,541 - - - 111,541
748,756 1,348,019 1,243,254 1,113,428 4,453,457
As of December 31, 2021 Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total
Trade payables 59,098 - - - 59,098
Loans and financing 217,903 585,686 948,503 1,212 1,753,304
Lease liabilities 103,003 211,894 204,744 1,108,555 1,628,196
Accounts payable to selling shareholders 246,059 445,066 88,989 - 780,114
Notes payable 15,644 74,306 - - 89,950
Advances from customers 114,585 - - - 114,585
756,292 1,316,952 1,242,236 1,109,767 4,425,247
F-28

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

12.5 Changes in liabilities arising from financing activities
January 1, 2022 Payments Additions Interest Business combinations Other March 31, 2022
(unaudited)
Loans and financing 1,374,876 (14,494) - 27,983 - 476 1,388,841
Lease liabilities 714,085 (27,476) 33,096 20,641 (6,926) 733,420
Dividends payable - (4,669) 4,669 - - - -
Total 2,088,961 (46,639) 37,765 48,624 - (6,450) 2,122,261
January 1, 2021 Payments Additions Interest Business combinations Other March 31, 2021
(unaudited)
Loans and financing 617,485 (2,010) - 5,457 - (4) 620,928
Lease liabilities 447,703 (17,509) 27,008 13,120 88 (4,206) 466,204
Dividends payable - (5,258) 5,258 - - - -
Total 1,065,188 (24,777) 32,266 18,577 88 (4,210) 1,087,132
13 Fair value measurement

The following table provides the fair value measurement hierarchy of the Company's assets and liabilities as of March 31, 2022 and December 31, 2021.

Fair value measurement
Total Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3)
March 31, 2022 (unaudited)
Assets for which fair values are disclosed
Trade receivables (non-current) 28,390 - 28,390 -
Liabilities for which fair values are disclosed
Loans and financing (1,399,115) - (1,399,115) -
Lease liabilities (733,420) - (733,420) -
Accounts payable to selling shareholders (698,413) - (698,413) -
Notes payable (70,880) - (70,880) -
December 31, 2021
Assets for which fair values are disclosed
Trade receivables (non-current) 27,442 - 27,442 -
Liabilities for which fair values are disclosed
Loans and financing (1,387,136) - (1,387,136) -
Lease liabilities (714,085) - (714,085) -
Accounts payable to selling shareholders (679,826) - (679,826) -
Notes payable (72,726) - (72,726) -

There were no transfers between Levels during the period or year presented.

14 Capital management

For the purposes of the Company's capital management, capital considers total equity. The primary objective of the Company's capital management is to maximize the shareholder value.

No changes were made in the objectives, policies or processes for managing capital during the three-month period ended March 31, 2022.

F-29

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

15 Labor and social obligations

a) Variable compensation (bonuses)

The Company recorded bonuses related to variable compensation of employees and management in cost of services and general and administrative expenses of R$6,519 and R$3,733 in the three-month periods ended March 31, 2022 and 2021, respectively.

b) Afya Limited share-based compensation plan

The stock options plan approved on August 30, 2019 as a result of the IPO will govern the issuance of equity incentive awards with respect to Company's Class A common shares. The fair value of the stock options was estimated at the grant date using the Binomial pricing model, taking into account the terms and conditions on which the stock options were granted. The Company accounts for the stock options plan as an equity-settled plan.

On July 29, 2020, the board of directors approved a change in the strike price of the current share-based compensation plan. The strike price is now measured in Brazilian Reais (where the Company's operations are located and valuated) adjusted by CDI rate instead of U.S. dollar adjusted by T-Bond. Furthermore, the first tranche had its vesting period extended from May 2020 to May 2021, including one year lock-up period after the vesting period. This change was assessed as a modification by the Company and was accounted in accordance with IFRS 2.

As result, the expense related to the share-based payment of the Company reflects the cost of the original award at grant date over the vesting period plus the incremental fair value of the repriced options at modification date over the vesting period of the options.

No additional stock options were granted in the three-month period ended March 31, 2022.

The following table illustrates the number and movements in stock options during the period:

Weighted average exercise price (in Reais) Number of stock options
2022 2021
Outstanding at January 1 92.33 3,086,728 2,510,983
Granted - - 610,000
Forfeited 103.13 (267,485) -
Outstanding at March 31 94.81 2,819,243 3,120,983

The share-based compensation expense recognized in general and administrative expenses in the interim statement of income for the three-month period ended March 31, 2022 was R$2,929 (March 31, 2021: R$14,009).

16 Equity

a) Share capital

As of March 31, 2022, the Company's share capital was R$ 17 (R$ 17 as of December 31, 2021) represented by 93,722,831 shares comprised by 47,920,068 class A common shares and 45,802,763 class B common shares.

F-30

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

b) Dividends

In the three-month period ended March 31, 2021, CCSI approved the payment of interim dividends of R$11,673, which R$7,004 was distributed to Afya and R$4,669 to non-controlling shareholders.

c) Buy-back program

On December 23, 2020, the Company announced that its Board of Directors has approved a share buy-back program. Under the share buyback program, Afya may repurchase up to 1,015,844 of its outstanding Class A common shares in the open market, based on prevailing market prices, over a period beginning on December 24, 2020 continuing until the earlier of the completion of the repurchase or December 31, 2021, depending upon market conditions.

On October 27, 2021, the Company's board of directors approved a new share repurchase program. Afya may repurchase up to 1,383,108 of its outstanding Class A common shares in the open market, based on prevailing market prices, beginning on October 28, 2021 until the earlier of the completion of the repurchase or December 31, 2022, depending upon market conditions.

The share buy-back program takes place in accordance with the conditions established by the Board of Directors. Afya intends to repurchase the shares to execute the Stock Option Program for the executives of the Company. This program was concluded on October 21, 2021.

On January 27, 2022, the Company's board of directors approved a new share repurchase program. Afya may repurchase up to 1,874,457 of its outstanding Class A common shares in the open market, based on prevailing market prices, beginning on January 27, 2022 until the earlier of the completion of the repurchase or December 31, 2022, depending upon market conditions.

The following table illustrates the number and movements in treasury shares during the three-month periods ended March 31, 2022 and 2021:

Number of shares Average price (in Brazilian Reais)
Outstanding at January 1, 2021 - -
Repurchased 521,117 124.26
Outstanding at March 31, 2021 521,117 124.26
Outstanding at January 1, 2022 1,654,927 92.23
Repurchased 1,204,424 73.70
Outstanding at March 31, 2022 2,859,351 84.78
17 Earnings per share (EPS)

Basic EPS is calculated by dividing net income attributable to the equity holders of the Company by the weighted average number of common shares outstanding during the period.

Diluted EPS is calculated by dividing net income attributable to the equity holders of the parent by the weighted average number of common shares outstanding during the period plus the weighted average number of shares that would be issued on conversion of all potential shares with dilutive effects.

Diluted earnings per share are computed including stock options granted to key management using the treasury shares method when the effect is dilutive. The Company has the stock option plan in the category of potentially dilutive shares.

F-31

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

The following table reflects the net income and share data used in the basic and diluted EPS calculations:

March 31, 2022 March 31, 2021
Numerator (unaudited) (unaudited)
Net income attributable to equity holders of the parent 129,610 108,090
Denominator
Weighted average number of outstanding shares 91,341,924 93,344,455
Effects of dilution from stock options - 883,263
Weighted average number of outstanding shares adjusted for the effect of dilution 91,341,924 94,227,718
Basic earnings per share (R$) 1.42 1.16
Diluted earnings per share (R$) 1.42 1.15
18 Revenue
March 31, 2022 March 31, 2021
(unaudited) (unaudited)
Tuition fees 696,197 444,129
Other 53,682 57,086
Deductions
Granted discounts (65,528) (35,136)
Early payment discounts (20,864) (11,965)
Returns (20,839) (5,719)
Taxes (24,325) (17,483)
PROUNI (51,999) (36,561)
Net revenue from contracts with customers 566,324 394,351
Timing of revenue recognition of net revenue from contracts with customers
Tuition, digital content and app subscription fees - Transferred over time 541,566 353,980
Other - Transferred at a point in time 24,758 40,371

The Company`s revenue from contracts with customers are all in Brazil. The Company is not subject to the payment of the social integration program tax (Programa de Integração Social, or PIS) and the social contribution on revenues tax (Contribuição para o Financiamento da Seguridade Social, or COFINS) on the revenue from under graduation degrees under the PROUNI program.

F-32

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

The following table presents statements of income for the Company's operating segments for three-month periods ended March 31, 2022 and 2021:

Revenue by segment Undergrad Continuing Education Digital Services Elimination (inter-segment transactions) March 31, 2022
(unaudited)
Types of services or goods 495,395 23,851 47,477 (399) 566,324
Tuition fees 491,521 23,851 - - 515,372
Other 3,874 - 47,477 (399) 50,952
Timing of revenue recognition 495,395 23,851 47,477 (399) 566,324
Transferred over time 491,521 23,851 26,194 - 541,566
Transferred at a point in time 3,874 - 21,283 (399) 24,758
Revenue by segment Undergrad Continuing Education Digital Services Elimination (inter-segment transactions) March 31, 2021
(unaudited)
Types of services or goods 321,852 19,288 53,538 (327) 394,351
Tuition fees 319,619 19,285 1,056 - 339,960
Other 2,233 3 52,482 (327) 54,391
Timing of revenue recognition 321,852 19,288 53,538 (327) 394,351
Transferred over time 319,619 19,288 15,073 - 353,980
Transferred at a point in time 2,233 - 38,465 (327) 40,371
19 Expenses and costs by nature
March 31, 2022 March 31, 2021
(unaudited) (unaudited)
Cost of services (186,730) (126,492)
General and administrative expenses (178,514) (130,404)
Total (365,244) (256,896)
Payroll (194,912) (130,448)
Hospital and medical agreements (12,433) (9,140)
Depreciation and amortization (48,387) (31,651)
Lease expenses (2,319) (853)
Utilities (3,992) (1,802)
Maintenance (15,442) (8,715)
Share-based compensation (2,929) (14,009)
Tax expenses (1,650) (2,853)
Pedagogical services (13,989) (7,615)
Sales and marketing (12,814) (8,063)
Allowance for doubtful accounts (14,983) (11,065)
Travel expenses (2,655) (923)
Consulting fees (5,704) (6,901)
Other (33,035) (22,858)
Total (365,244) (256,896)
F-33

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

20 Finance result
March 31, 2022 March 31, 2021
(unaudited) (unaudited)
Income from financial investments 14,990 3,768
Interest received 7,687 5,037
Foreign exchange differences - 3,988
Other 1,892 1,022
Finance income 24,569 13,815
Interest expense (46,106) (12,285)
Interest expense on lease liabilities (20,641) (13,120)
Financial discounts granted (7,682) (3,585)
Bank fees (2,121) (1,912)
Foreign exchange differences (126) -
IOF taxes (taxes on financial transactions) (139) (95)
Other (4,476) (2,675)
Finance expenses (81,291) (33,672)
Finance result (56,722) (19,857)
21 Income taxes

Income taxes are comprised of taxation over operations in Brazil, related to Corporate Income Tax ("IRPJ") and Social Contribution on Net Profit ("CSLL"). According to Brazilian tax legislation, income taxes and social contribution are assessed and paid by legal entity and not on a consolidated basis.

Reconciliation of income taxes expense

The following is a reconciliation of income tax expense to profit (loss) for the period, calculated by applying the combined Brazilian statutory rates at 34% for the three-months periods ended March 31, 2022 and 2021:

March 31, 2022 March 31, 2021
(unaudited) (unaudited)
Income before income taxes 148,289 122,022
Combined statutory income taxes rate - % 34% 34%
Income taxes at statutory rates (50,418) (41,487)
Reconciliation adjustments:
Tax effect on loss from entities not subject to taxation (6,592) (4,699)
PROUNI - Fiscal Incentive (a) 72,470 48,160
Unrecognized deferred tax assets (29,627) (13,597)
Presumed profit income tax regime effect (b) (40) 2,057
Permanent adjustments (103) (108)
Other 963 1,000
Income taxes expense - current (13,347) (8,674)
Effective rate 9.0% 7.1%

(a) The Company adhered to PROUNI, established by Law 11,096 / 2005, which is a federal program that exempt companies of paying income taxes and social contribution.

(b) Brazilian tax law establishes that companies that generate gross revenues of up to R$ 78,000 in the prior fiscal year may calculate income taxes as a percentage of gross revenue, using the presumed profit income tax regime. The effect of the presumed profit of certain subsidiaries represents the difference between the taxation based on this method and the amount that would be due based on the statutory rate applied to the taxable profit of the subsidiaries.

F-34

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

Deferred income taxes

As of March 31, 2022, the Company had unrecognized deferred income tax assets on temporary differences and tax losses in the amount of R$521,739 (tax-basis) (R$ 432,226 (tax-basis) as of December 31, 2021) which does not have any tax planning opportunities available that could support the recognition of these temporary differences as deferred tax assets. Accordingly, the Company did not recognize deferred tax assets.

22 Insurance contracts and contingencies

a) Insurance contracts

The Company and its subsidiaries have a risk management program with the purpose of delimiting the risks, seeking in the market coverage compatible with its size and operations.

b) Legal proceedings and contingencies

The provisions related to labor, civil and taxes proceedings whose likelihood of loss is assessed as probable are as follows:

Labor Civil Taxes Total
Balances as of December 31, 2020 4,519 13,280 35,340 53,139
Business combinations - - 1,252 1,252
Additions 2,759 807 2,668 6,234
Balances as of March 31, 2021 (unaudited) 7,278 14,087 39,260 60,625
Balances as of December 31, 2021 25,490 22,928 99,869 148,287
Additions 256 3,755 2,281 6,292
Reversals (657) (692) (1,124) (2,473)
Balances as of March 31, 2022 (unaudited) 25,089 25,991 101,026 152,106

There are other civil, labor, taxes and social security proceedings assessed by Management and its legal counsels as possible risk of loss, for which no provisions are recognized, as follows:

March 31, 2022 December 31, 2021
(unaudited)
Labor 5,421 5,098
Civil 56,099 56,501
Taxes and social security 4,836 4,459
Total 66,356 66,058

The Company has judicial deposits recorded in other assets (non-current) in the amount of R$19,171 as of March 31, 2022 (December 31, 2021: R$ 18,825).

Under the terms of the Share Purchase and Sale Agreements ("Agreements") between the Company and the selling shareholders of the subsidiaries acquired, the Company assesses that the selling shareholders are exclusively responsible for any provisions (including labor, tax and civil), which are or will be the subject of a claim by any third party, arising from the act or fact occurred, by action or omission, prior to or on the closing dates of the acquisitions.

F-35

Afya Limited

Notes to the consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

Accordingly, and considering that the provisions for legal proceedings recorded by the Company that result from causes arising from events occurring prior to the closing dates of the acquisitions, any liability for the amounts to be disbursed, in case of their effective materialization in loss, belongs exclusively to the selling shareholders. In this context, the Agreements state that the Company and its subsidiaries are indemnified and therefore exempt from any liability related to said contingent liabilities and, therefore, the provision amounts related to such contingencies are presented in the non-current liabilities and the correspondent amount of R$136,089 (December 31, 2021: R$ 135,355) is presented in non-current other assets.

23 Non-cash transactions

During the three-month periods ended March 31, 2022 and 2021, the Company carried out non-cash transactions which are not reflected in the statement of cash flows. The main non-cash transactions in 2022 were additions and remeasurements of right-of-use assets and lease liabilities. The main non-cash transactions in 2021 were the issuance of shares for the acquisition of iClinic, addition of the provision for legal proceedings with corresponding indemnification assets, additions and remeasurements of right-of-use assets and lease liabilities.

24 Subsequent events

a) Acquisition of CardioPapers

On April 5, 2022, Afya Brazil announced the acquisition of 100% of the total share capital of Cardiopapers Soluções Digitais Ltda. ("CardioPapers").

CardioPapers is the main medical content and education platform in the Cardiology field, offering courses and books developed by physicians and for physicians, covering all phases of the medical career, aligned with Afya's overall business strategy.

The aggregate purchase price was R$35,000 paid in cash. An earn-out of up to R$15,000 can be paid related to gross revenue achievements for 2023 and 2024.

The acquisition date fair value of each major class of consideration, including the allocation of the purchase price has not been completed by the Company as of the issuance date of these interim financial statements. The impact on revenue and profit or loss of the combined entity for the current reporting period as if the acquisition date had been as of the beginning of the reporting period is not available as the Company did not conclude this acquisition by March 31, 2022. Therefore, these financial statements do not include this information. The transaction costs to date amounted to R$248. Any goodwill generated in the transaction is not expected to be deductible for tax purposes.

b) Bertelsmann Completes Increase of Stake in Afya

On May 5, 2022, Afya was notified of the closing of the transaction where Bertelsmann SE& Co. KGaA, or "Bertelsmann" acquired 6,000,000 Class B common shares of Afya at the purchase price of US$26.90 per share, from Nicolau Carvalho Esteves, Rosângela de Oliveira Tavares Esteves and NRE Capital Ventures Ltd (together with Nicolau Carvalho Esteves and Rosângela de Oliveira Tavares Esteves, the "Esteves Family"). As a result of the closing of the transaction, Bertelsmann and the Esteves family will beneficially own ~57.5% and ~33.0% voting interest, and ~31.0% and ~18.0% of the total shares, respectively, in Afya.

c) Acquisition of Glic

On May 23, 2022, Afya Brazil announced the acquisition of 100% of the total share capital of Quasar Telemedicina Desenvolvimento de Sistemas Computacionais Ltda. ("Glic").

Glic is a free diabetes care and management app solution for physicians and patients that uses technology to improve diabetes education and daily routine practices, connecting users, devices and health providers.

The aggregate purchase price was R$22,000 paid in cash. An earn-out of up to R$12,000 can be paid related to revenue achievements for 2023 and 2024 and product development goals.

The acquisition date fair value of each major class of consideration, including the allocation of the purchase price has not been completed by the Company as of the issuance date of these interim financial statements. The impact on revenue and profit or loss of the combined entity for the current reporting period as if the acquisition date had been as of the beginning of the reporting period is not available as the Company did not conclude this acquisition by March 31, 2022. Therefore, these financial statements do not include this information. The transaction costs to date amounted to R$218. Any goodwill generated in the transaction is not expected to be deductible for tax purposes.

***

F-36

Disclaimer

Afya Ltd. published this content on 23 May 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 May 2022 20:37:11 UTC.


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Net income 2022 333 M 61,1 M 61,1 M
Net Debt 2022 1 333 M 245 M 245 M
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Managers and Directors
Virgílio Deloy Capobianco Gibbon Chief Executive Officer
Luis André Carpintero Blanco Chief Financial Officer
Nicolau Carvalho Esteves Co-Chairman
Kay Christian Krafft Co-Chairman
Anibal Sousa Legal & Compliance Officer