Afya : Announces Q3 2020 Financial Results

Afya Limited Announces Third Quarter and Nine Months 2020 Financial Results

Tracking in Line to Meet 2H20 Guidance

Expands Digital Health Product Offering with Three Strategic Acquisitions

Nova Lima, Brazil, December 3, 2020 - Afya Limited (Nasdaq: AFYA) ("Afya" or the "Company"), the leading medical education group in Brazil, today reported financial and operating results for the three and nine-monthperiods ended September 30, 2020 (third quarter 2020, 3Q20 and 9M20, respectively). Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

Third Quarter 2020 Highlights

• Adjusted Net Revenue in 3Q20, which includes the impact of R$3.9 million due to mandatory temporary discounts in tuition fees related to COVID 19 on site classes restrictions, increased 51.6% year over year (YoY) to R$313.3 million. Additionally, during the period the Company recognized previously deferred revenue of R$14.4 million related to the postponement of on-site activities due to COVID-19 to 3Q20 that impacted first half results. Adjusted Net Revenue excluding UniRedentor, UniSL and PEBMED, grew 15.7%, reaching R$239.1 million.
• Adjusted EBITDA in 3Q20 increased 63.3% YoY reaching R$149.3 million, benefitting from medical school maturation, successful M&As execution and integration and the recognition of deferred revenue mentioned above. Adjusted EBITDA margin of 47.6%, expanded 340 basis points (bps). Adjusted EBITDA excluding UniRedentor, UniSL and PEBMED grew 31.9% reaching R$ 120.6 million, with Adjusted EBITDA margin of 50.4%.
• Adjusted Net Income in 3Q20 of R$101.2 million was 46.7% higher than 3Q19.

Nine Months 2020 Highlights

• 9M20 Adjusted Net Revenue of R$859.8 Adjusted Net Revenue increased 35.0%

million, up 62.3% YoY. Excluding UniRedentor, UniSL and PEBMED, 9M20 YoY reaching R$715.0 million.

• Adjusted EBITDA through September 30, 2020 increased 76.7% YoY reaching R$408.1 million, with Adjusted EBITDA margin of 47.5%, expanding 390 bps. Adjusted EBITDA excluding UniRedentor, UniSL and PEBMED increased 54.4% YoY, reaching R$356.5 million, with Adjusted EBITDA margin of 49.9%.
• Adjusted Net Income in 9M20 of R$307.8 million was 98.2% higher than 9M19.
• Cash conversion of 85.6% with a solid cash position of R$1.1 billion at quarter-end.
• Total medical students increased 49.8% YoY and operating seats were up 24.1%

Key Events in the Quarter:

• At the end of July, closing of PEBMED acquisition, an web and mobile app that offers content and clinical decision applications aiming a better performance of the healthcare professional, marking Afya's entrance into the digital health services.
• At the end of August, the acquisitions of FCMPB - Faculdade Ciências Médicas da Paraíba, adding 157 medical seats, and FESAR - Faculdade de Ensino Superior da Amazônia Reunida, adding 120 medical seats. Both transactions were closed in the beginning of November.

Subsequent Events in the Quarter:

• Entrance into a purchase agreement for the acquisition of UNIFIPMoc and Fip Guanambi, in the states of Minas Gerais and Bahia, adding another 160 medical seats.
• Entrance into a purchase agreement for the acquisition of iClinic - leading practice management software for physicians in Brazil, expanding Afya's end-to-end digital health services.
• Closing of MedPhone acquisition - the number two medical App in Brazil behind WhiteBook - a PEBMED company.
• Authorization to operate the undergraduate medicine course in Santa Inês in the State of Maranhão, under Mais Médicos II program, adding 50 medical seats.

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• Loan with Banco Itaú Unibanco S.A. in the amount of R$ 500 million 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.

Table 1: Financial Highlights
		For the three months period ended September 30,			For the nine months period ended September 30,
		2020 Ex			% Chg Ex		2020 Ex			% Chg Ex
	2020	Uniredentor,	2019	% Chg	Uniredentor,	2020	Uniredentor,	2019	% Chg	Uniredentor,
	UniSL and	UniSL and	UniSL and	UniSL and
(in thousand of R$)		PEBMED			PEBMED		PEBMED			PEBMED
(a) Net Revenue (1)	309,410	236,413	206,713	49.7%	14.4%	855,925	712,224	529,784	61.6%	34.4%
(b) Adjusted Net Revenue (1) (4)	313,324	239,147	206,713	51.6%	15.7%	859,839	714,958	529,784	62.3%	35.0%
(c) Pro forma Adjusted Net Revenue (1) (2)	313,324	239,147	206,713	51.6%	15.7%	859,839	714,958	608,984	41.2%	17.4%
(d) Adjusted EBITDA (3)	149,270	120,624	91,424	63.3%	31.9%	408,066	356,490	230,915	76.7%	54.4%
(e) = (d)/(b) Adjusted EBITDA Margin (2)	47.6%	50.4%	44.2%	340 bps	620 bps	47.5%	49.9%	43.6%	390 bps	630 bps
(f) Pro forma Adjusted EBITDA (1) (2)	149,270	120,624	91,424	63.3%	31.9%	408,066	356,490	241,785	68.8%	47.4%
(g) = (e)/(c) Pro forma Adjusted EBITDA Margin (1) (2)	47.6%	50.4%	44.2%	340 bps	620 bps	47.5%	49.9%	39.7%	780 bps	1020 bps
(h) Adjusted Net Income (3)	101,224	81,469	68,997	46.7%	18.1%	307,793	272,122	155,290	98.2%	75.2%

1. Due to the interruption of pratical classes during the pandemic R$ 14.4 million of 1H2020 revenue was recognized in 3Q2020.
2. Includes the pro-forma results of Medcel, IPEMED and FASA, as if the acquisition had been consummated on January 1, 2019.
3. See more information on "Non-GAAP Financial Measures" (Item 7).
4. Includes mandatory discounts in tuition fees granted by state decrees and individual and collective legal proceedings due COVID 19 on site classes restriction.

Message from Management

Virgilio Gibbon, Afya's CEO, stated:

"I hope that you and your families are continuing to stay safe and healthy. Although we are still in the midst of a pandemic, we have been able to successfully adapt to and navigate through the COVID related challenges and continue to deliver solid financial results. Our performance this quarter reflects the resilience of our students, faculty and team members. From the start of this pandemic, we had to adapt with the speed and agility needed to stay focused on providing the high-quality educational experience that our students had come to expect from us while at the same time executing on our long-term strategic plan. During the quarter, we strategically enhanced our business and completed several acquisitions to support our platform for future growth and to solidify our market position.

I am pleased to report third quarter results, which were in line with expectations and the guidance we had provided. Earlier in the year, we had pivoted to leverage our online and virtual technology capabilities and adjust offerings for the Brazilian medical ecosystem. I am pleased that during the past quarter, across our medical schools, on site clinical classes are back. In turn, we were able to deliver H1 postponed classes and recognize the deferred revenue in the quarter. Additionally, our medical school maturation, successful integrations and execution, contributed to a 63% year over year increase in Adjusted EBITDA. Our liquidity was another highlight with a strong balance sheet to support acquisitions. We ended the quarter with R$1.1 billion in cash.

Even during challenging times, we were able to execute our strategy. We acquired FCMPB and FESAR adding 277 medical seats during the quarter. Afya's total medical students reached 9,567, a 50% increase over the same period of the prior year, with operating seats increasing 24% and approved seats 19% higher. Subsequent to quarter-end we announced the acquisition of UNIFIPMoc and Fip Guanambi, located in the states of Minas Gerais and Bahia, adding another 160 medical seats and putting us at 85% of our IPO three-year goal of 1,000 seats as a result of the 8 acquisitions accomplished since we become public last year. Importantly, our team continues to do an amazing job in integrating the acquired companies and generating synergies. The medical school industry remains highly fragmented, and we believe that the current environment is hastening the trends that favor larger, better capitalized companies. In turn, we have been very active in recent months with acquiring companies, pipeline development and continue to engage with a number of attractive targets in our core markets.

At the same time, we remain committed to delivering innovation to our students, physicians and other health care professionals. COVID-19 has significantly accelerated demand for online/digital solutions and has sped up our strategies as well, including our move into digital. When we identified the critical need to find a virtual solution for our students, faculty and other health care professionals, we acted quickly and made our first acquisition in this area - PEBMED. We are continuously looking for ways to enhance our product and service offerings and in October we acquired iClinic, a practice management software company which includes services such as electronic medical records, clinical management system, telemedicine and a complete physicians' marketplace that connects doctors and patients to schedule consultations. And, subsequent to quarter-end, we announced the acquisition of MedPhone, the number two medical App in Brazil behind WhiteBook - a PEBMED company. The integration of MedPhone's clinical decision software with PEBMED will create significant synergy and allow us to offer both products through the same platform. Importantly,

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the founders of these acquired companies will join Afya's management team and will be an integral part of the team driving our growth in the healthtech services.

With these three acquisitions, Afya is taking another step to become the one stop shop for physicians in Brazil. Along with medical and health education courses and a clinical decisions app, we enter in a new segment that can help physicians manage their clinics and provide a better service to their patients. To date, we have over 200,000 health care professionals who use PEBMED, Medphone and iClinic. There are 500,000 doctors in Brazil, and our goal is to serve them all within our ecosystem.

The investments that we have made in our technology platform enabled us to ensure that we were supporting our students, faculty and other health care professionals with what is so important to them, community and ease of access to critical data and information which is more critical now than ever and is also a key lever for both member acquisition and retention. We are seeing positive traction from our digital solutions. Additionally, our investments in digital are opening new business and revenue opportunities for us. Further, we expect demand for telehealth services to remain elevated over the long-term. As such, we are focused on further developing our existing digital capabilities to ensure the continued success of our students and other health care professionals. The iClinic acquisition was transformational for us, and we are still actively looking for other digital health transactions to strengthen Afya's position in the market.

I am proud to share with you that we have just refreshed our brand. After entering in all this new services offerings, we are the only complete medical education platform serving every stage of the doctor´s carrer providing solutions and methodologies for a personalized experience . And when company awareness grows, its brand also does. We launched our new logo that reflects our DNA and will support gradually every service brand and local medical education institutions.

I am also very pleased to share that Afya was ranked as the winner in the Education sector in the Época Negócios 360 survey. This award, which has been held annually for 7 years, is one of the most significant in the Communications industry and recognizes companies that are market leaders across six different categories including Financials, Corporate Governance & Sustainability, Vision and Human Resources. Considering that Afya is a very young company, we are very honored to be already be distinguished with this award. We also have won the Golden Tombstone in the Equity category. This award is valuated by IBEF SP and recognizes Equity Operations in aspects such as complexity of the transaction, innovation, pricing and others, and Afya's award was due to our succefull IPO in 2019.

Our financial performance to date has kept us on track for the year, and we are reaffirming our guidance at this time. Our team has been able to rapidly adapt to a very dynamic situation, and I sincerely appreciate their ongoing efforts to deliver a quality education to our students. We have a multitude of opportunities ahead of us to continuously create value by delivering against our financial targets, strengthening our balance sheet, implementing our strategic priorities including investments in growth.

1. Second Half 2020 Guidance

The Company is reaffirming its guidance for 2H20 which takes into account the successfully concluded medicine students intake for the second half of 2020 and assuming a certain degree of potential impacts of COVID-19 into the business during the period.

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

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

Guidance for 2H20

Important considerations

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

2. Overview of 3Q20

Operational Review

Afya is the only company offering technological solutions to support physicians across every stage of the medical career, from undergraduate students in its medical school years through medical residency preparatory courses, medical specialization programs and continuing medical education. Since the PEBMED acquisition, Afya´s has entered into the digital health services, providing content and clinical decision applications.

The Company operates two distinct business units. The first (Business Unit 1 or BU1), is comprised of Undergraduate - medical schools, other health care programs and ex-health degrees. Revenue is generated from the monthly tuition fees the Company charges students enrolled in the undergraduate programs. The Company also offers Residency Preparatory, Specialization Programs and Digital Health Services (Business Unit 2 or BU2). Revenue is comprised of fees from these programs and other revenues from digital services offered.

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Table 2: Key Revenue Drivers	Nine months ended September 30,
	2020	2019	% Chg
Business Unit 1: Educational Services Segment (1)
MEDICAL SCHOOL
Approved Seats (2)	1,866	1,572	18.7%
Operating Seats	1,516	1,222	24.1%
Total Students	9,567	6,388	49.8%
Total Students (ex-UniSL and ex- Uniredentor)	7,667	6,388	20.0%
Tuition Fees (ex- UniSL and ex- Uniredentor - R$MM)	555,705	394,621	40.8%
Tuition Fees (Total - R$MM)	648,065	394,621	64.2%
Medical School Avg, Ticket (ex- UniSL and ex- Uniredentor - R$/month)	8,053	6,864	17.3%
UNDERGRADUATE HEALTH SCIENCE
Total Students	10,768	6,494	65.8%
Total Students (ex-UniSL and ex- Uniredentor)	5,186	6,494	-20.1%
Tuition Fees (ex- UniSL and ex- Uniredentor - R$MM)	76,462	75,827	0.8%
Tuition Fees (Total - R$MM)	110,447	75,827	45.7%
OTHER UNDERGRADUATE
Total Students	12,689	10,878	16.6%
Total Students (ex-UniSL and ex- Uniredentor)	6,303	10,878	-42.1%
Tuition Fees (ex- UniSL and ex- Uniredentor - R$MM)	84,215	104,673	-19.5%
Tuition Fees (Total - R$MM)	124,919	104,673	19.3%
Business Unit 2: Prep Courses & CME, Medical Specialization and Digital Health Services
Active Paying Students
Prep Courses & CME - B2C	11,684	9,854	18.6%
Prep Courses & CME - B2B	2,154	1,291	66.8%
Medical Specialization & Others	4,181	1,803	131.9%
Medical Specialization & Others (ex-Uniredentor)	2,026	1,803	12.4%
PEBMED Active Subscribers	95,099	-	-
Revenue from courses (ex- Uniredentor and PEBMED - R$MM) (3)	123,420	56,033	120.3%
Revenue from courses (Total - R$MM) (3)	137,127	56,033	144.7%

1. Uniredentor average tuition fee for medical school in 9M2020 was R$ 9,625 and for UniSl was R$7,010.
2. This number does not includes FCMPB and FESAR that had the closing of the operation in November, 2020 and contribute

1. seats to Afya.

1. As Medcel and Ipemed were acquired on March 31, 2019 and on May 9, 2019 respectively, revenue from courses for BU2 were not accounted for in 1Q19. The number of students is disclosed to contribute with investors analysis.

Along with the active paying students, 10,052 medical students from public and private medical schools are still accessing the Company's Digital platform with a temporary free access during the pandemic crisis.

MaU represents the number of unique individuals that consumed Afya's digital content in the last 30 days. Total monthly active users (MaU) were 165,035 in the new PEBMED app. Considering only the MaU of Medcel, the user base decreased 10.3% due to COVID related courses that were offered in the 2Q20, which temporarily inflated MaU in that quarter. Afya's offers to its MaU a significant amount of learning assets, comprised of e-books, videos, podcasts and question/answer documents.

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