Afya Limited (Nasdaq: AFYA) (“Afya” or the
“Company”), the leading medical education group in Brazil, today
reported financial and operating results for the three-month period
ended March 31, 2020. Financial results are expressed in Brazilian
Reais and are presented in accordance with International Financial
Reporting Standards (IFRS).
First quarter 2020 main
highlights
- Pro forma Net Revenue grew by 27.2% year over year (YoY),
reaching R$272.3 million. Pro forma Net Revenue excluding
UniRedentor grew 20.1%.
- Pro forma Adjusted EBITDA increased 36.0% YoY reaching R$140.6
million, with EBITDA margin of 51.6%, increasing 330 basis points
(bps). Pro forma Adjusted EBITDA excluding UniRedentor grew 33.3%,
with EBITDA margin expanding 530 bps.
- Adjusted Net Income of R$124.0 million, up 131.7% YoY.
- Cash conversion of 80.7% with a solid cash position of R$1,299
million at quarter-end.
- Intake process for the 2H20 have already captured more
candidates than medical seats available, ensuring 100%
occupancy
- Considering the consolidation of UniSL figures, a 22% growth is
projected in medical student base for 2H20 when compared to 1Q20,
reaching 9,718 medical students.
- 16,008 monthly active users of Afya Digital in the end of March
2020.
Table 1: Financial Highlights |
First
Quarter |
|
Considering the adoption of IFRS 16 |
(in thousand
of R$) |
2020 |
|
2019 |
|
% Chg |
|
2020 ex-Uniredentor |
2019 |
|
% Chg ex-Uniredentor |
(a) Net Revenue |
272,304 |
|
144,578 |
|
88.3% |
|
|
257,088 |
|
144,578 |
|
77.8% |
|
(b) Pro forma Net Revenue¹ |
272,304 |
|
214,095 |
|
27.2% |
|
|
257,088 |
|
214,095 |
|
20.1% |
|
(c) Adjusted EBITDA² |
140,644 |
|
74,730 |
|
88.2% |
|
|
137,794 |
|
74,730 |
|
84.4% |
|
(d) = (c )/(a) Adjusted EBITDA Margin² |
51.6% |
|
51.7% |
|
-10 b.p |
|
|
53.6% |
|
51.7% |
|
+190 b.p |
|
(g) Pro forma Adjusted EBITDA¹ ² |
140,644 |
|
103,409 |
|
36.0% |
|
|
137,794 |
|
103,409 |
|
33.3% |
|
(h) = (e)/(b) Pro forma Adjusted EBITDA¹ ² Margin |
51.6% |
|
48.3% |
|
+330 b.p |
|
|
53.6% |
|
48.3% |
|
+530 b.p |
|
(i) Adjusted Net Income |
124,011 |
|
53,531 |
|
131.7% |
|
|
121,964 |
|
53,531 |
|
127.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Includes the
pro-forma results of Medcel, IPEMED and FASA, as if the acquisition
had been consummated on January 1, 2019. |
2. See more
information on "Non-GAAP Financial Measures" (Item 10). |
Message from Management
Virgilio Gibbon, Afya’s CEO,
stated: “This was an eventful and historical quarter. We are living
and operating our business in an unprecedented time and we want to
take a moment to acknowledge the challenges that the world is
facing. We are fortunate that, as a business, we are able to help
by providing free courses at this time to assist hospitals, medical
schools, physicians and nurses to deal with the rapid spread of
COVID-19.
I also want to thank our employees and
professors who made it possible, within one week, to move 100% of
the on-site classes onto our online platform. The feedback from
students, professors and physicians could not be better – they are
all very satisfied with the effectiveness of the platform. While
the environment continues to evolve quickly, our teams are managing
our priorities and business well. I am extremely proud of Afya’s
team and glad to report that we and our families are safe and
healthy – our first priority.
First quarter results grew significantly on the
back of the positive dynamics and a very strong intake process
concluded by the end of this quarter. Afya had already
completed the enrollment process with a 100% occupancy that
maintained, as expected, our highly predictable topline growth even
during these challenging times. Our business is tracking in line
with our first half 2020 expectations as we are successfully
executing our long-term strategy and showing the resilience of our
business model during this unprecedented crisis. It is worth
mentioning that our collection process by end of April is
performing even better results when compared to the same period
last year, signaling that Afya’s strong cash flow generation will
continue even during the crisis. Considering the next intake cycle
and the additional medical students added after UniSL acquisition,
we are expecting to grow 22% our medical student base in 2H20
when compared to 1Q20 reported figures, reaching 9,718 students,
attesting the resilience of our business and ability to keep 100%
of occupancy rate even during this crisis.
In March, as we started to see the Covid-19
outbreak in Brazil, we prioritized the well-being of our students
and professors by quickly moving campus classes to our online
platform. Most of our corporate staff started to work from home and
are keeping all activities up and running. We are also providing a
full package of social and health assistance to our employees and
families to help them during the pandemic, including all HR
initiatives such as online yoga classes, free psychological care,
launch of corporate courses platform, free lectures, support for
family professional placement, among others.
At Afya, we’re highly aware that we are
privileged to have a service that is even more meaningful to
students and health care professionals in this uncertain time. To
help students in the last two years of graduation we released
temporary free access to our digital platform, in parallel we
launched the 2nd season of our webseries “Residência Médica”, and
to the general medical professional public we released several free
courses and webinars to enhance their knowledge process during
these challenging moments.
These actions brought a significant number of
new students, physicians and medical schools to our platforms and
positively changed the dynamic of our continuing medical education
business unit. The monthly active users (MaU) of our platforms in
the end of March has soared to more than 16.0 thousand, from 13.6
thousand in the end of January, attesting the potential to
accelerate our market penetration and to offer to these users new
programs and services to support their life long educational
journey. And we expect a higher MaU in the second quarter due to
other Covid initiatives. This is completely in sync with our
strategy to combine quality medical education with intensive use of
technology that will sprawl through their medical careers.
M&A remains a key growth strategy for us and
we continue to evaluate opportunities to deploy capital into
strategic acquisitions. Given that we are ahead of schedule in
terms of acquisitions –we have already reached more than 40% of our
target to acquire at least 1,000 medical school seats within three
years after our IPO - we are taking this time to reevaluate all
assets we have under Memorandum of Understandings (MoU), which
currently represents more than 500 seats. We are also looking for
assets and digital platforms that can add services to medical
professionals, thus maximizing our product offering. Importantly,
our financial soundness and cash flow generation capabilities
allows us flexibility, and we intend to remain opportunistic. Last,
but not least, integration continued running smoothly and even
during the pandemic we were able to conclude IPEMED’s integration
and we are very close to conclude MedCel and Uninovafapi’s
integration process (expected by the third quarter of 2020),
extracting all sizable synergies we identified when acquiring these
businesses. It is worth mentioning that in the beginning of this
month we closed the UniSL acquisition in Rondônia entering another
important State in northern region.
Afya is also proud of its engagement with
society. All of our initiatives and beliefs are detailed in our
first Sustainability Report, released in the beginning of May. In
this report we detail our initiatives and strategy that contributed
to us achieving 12 of the 17 UN Sustainable Development Goals
(SDGs). We also became a signatory of the UN Global Compact, with
my personal commitment, and support from the Board, to meet
fundamental responsibilities in four areas: human rights, labor,
environment and anti-corruption.
We are operating in truly extraordinary times,
times of great challenges, but also times in which we see many key
opportunities ahead for Afya.”
1. COVID-19
Update
COVID-19 did not have an impact on the Company’s
1Q20 financial results. As a matter of fact, Afya’s collection rate
is 400 bps higher from January to April, when compared to the same
period last year and a 100% occupancy in Medical School seats is
maintained. However, taking into consideration the interruption of
on-campus activities and that a significant portion of
non-practical educational activities being temporarily offered
through the Company’s online platform, Afya is expecting that some
practical classes will have to be replaced during the 2H2020
postponing the revenue recognition proportionally. Those effects
were already considered in the Company’s 1H20 guidance indicated by
the Net Revenue guidance range, which already contemplated that a
certain amount of practical classes would be delivered in the
2H2020. Aside from this, Afya does not expect other meaningful
impacts on its 2Q20 results.
Afya understands the importance of its unique
positioning in the medical community and therefore has played an
important role in sharing knowledge with other institutions,
physicians, students and patients through the initiatives
below:
- Temporary access to Afya’s digital platform – MedCel –
free of charge for other medical education institutions
through the duration of the pandemic. With this initiative, Afya
aims to help other public and private medical schools to minimize
the impact of the pandemic on their students. Over 9,000 medical
students at 32 public and private schools are already accessing
Medcel’s platform;
- Development and launch of a free course of “Conducts
for Emergencies in COVID-19” for hospitals, medical
associations, medical schools and other interested professionals
and students. The course focuses on mechanical ventilation,
respiratory emergencies and imaging diagnosis. The online training
is provided by two pulmonologists and a cardiologist from Afya and
also selected guest specialists, which has had more than 23,000
participants and 34 institutions enrolled;
- Launch of the free course “Therapeutic Update in the
Era of Telemedicine”. This course aims to update doctors
of several specialties on how to make routine emergency care and
when is it really necessary to refer the patient to a specific
specialist. It also teaches when and how telemedicine could be
used, reducing the risk exposure of health professionals and
patients and also relieving the burden on the health system. The
course is composed of 60 study units, including 426 video lessons,
59 podcasts, 177 questions resolution, among others, with 1,572
users accessing the platform.
- Promotion of a Free Webinar Week to discuss the
“Impacts of Covid in the World’s Health Systems”
together with iHeed, a world-class medical online education
platform, with renowned physicians and health professionals from
the US, UK, Ireland, Germany, South Korea, India and Singapore
focusing on good practices to combat the pandemic and identify the
lasting changes in the medical industry. Several themes such as
technology, changes in medical education, welfare of doctors, among
others were discussed, with an attendance of 5,800
participants.
- Donation of masks, gloves and other safety equipment to health
departments and hospitals to the 13 cities where Afya’s medical
courses are located.
2. First Half 2020 Guidance Reaffirmed
The Company is reaffirming its previously issued
guidance for 1H20 including the successfully concluded admissions
of new students for the first semester of 2020 and assuming a
certain degree of potential impacts of COVID-19 into the business
during 1H20. The impacts contemplated in the guidance below take
into consideration the interruption of on-campus activities, with a
significant portion of non-practical educational activities being
temporarily offered through the Company’s online platform (rather
than on-site) and the calendar of the practical educational
activities being rescheduled to when authorities allow on-campus
activities to resume.
Under these assumptions, Afya expects to
partially mitigate the potential impact over the academic calendar
and to its business results in 1H20. This timing effect was already
contemplated within the Net Revenue´s guidance range provided and
it will not change the tuition payment schedule for the
1H20.
The global Coronavirus outbreak is an
unprecedented and rapidly evolving situation. When considering
Afya’s guidance for 1H20, it is paramount that shareholders and the
market in general be advised that the COVID-19 pandemic is still
evolving in Brazil, some state authorities may maintain a lockdown
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 1H20 is defined
in the following table.
Guidance for 1H20 |
Important considerations |
Net Revenues is expected to be between R$475 million – R$510
million |
- Includes UniRedentor starting February 1st, 2020
- Excludes any acquisition that may be concluded after the
issuance of the guidance; for instance does not include UniSaoLucas
that was concluded on May 5, 2020.
|
Adjusted EBITDA margin is expected to be between 45-46.5% |
- Includes UniRedentor starting February 1st, 2020
- Excludes any acquisition that may be concluded after the
issuance of the guidance; for instance does not include UniSaoLucas
that was concluded on May 5, 2020.
- Includes the impact of the adoption of IFRS 16
|
3. Overview of
1Q20
Operational Review
Afya is the only company offering technological
solutions to support students across every stage of the medical
career, from undergraduate students in its medical school years
through medical residency preparatory courses, medical
specialization programs and continuing medical education.
The Company operates two distinct business
units. The first (Business Unit 1 or BU1), is
comprised of Undergraduate – medical schools, other healthcare
programs and ex-health degrees. Revenue is generated from the
monthly tuition fees the Company charges students enrolled in the
undergraduate programs. The Company also offers Residency
Preparatory and Specialization Programs (Business Unit 2 or
BU2). Revenue is comprised of fees from these
programs.
|
|
|
|
Table 2: Key Revenue Drivers |
First Quarter |
|
2020 |
2019 |
% Chg |
Business Unit 1: Educational Services Segment
¹ |
|
|
|
MEDICAL SCHOOL |
|
|
|
Approved Seats² |
1,866 |
1,267 |
47.3 |
% |
Operating Seats |
1,516 |
917 |
65.3 |
% |
Total Students |
7,956 |
5,011 |
58.8 |
% |
Total Students (ex-Uniredentor) |
7,339 |
5,011 |
46.5 |
% |
Tuition Fees (ex- Uniredentor - R$MM) |
181,308 |
114,188 |
58.8 |
% |
Medical School Average Ticket (ex- Uniredentor -
R$/month) |
8,235 |
7,596 |
8.4 |
% |
UNDERGRADUATE HEALTH SCIENCE |
|
|
|
Total Students |
7,596 |
6,425 |
18.2 |
% |
Total Students (ex-Uniredentor) |
6,544 |
6,425 |
1.9 |
% |
Tuition Fees (ex- Uniredentor - R$MM) |
25,860 |
22,565 |
14.6 |
% |
OTHER UNDERGRADUATE |
|
|
|
Total Students |
10,617 |
7,985 |
33.0 |
% |
Total Students (ex-Uniredentor) |
8,744 |
7,985 |
9.5 |
% |
Tuition Fees (ex- Uniredentor - R$MM) |
27,031 |
22,390 |
20.7 |
% |
Business Unit 2: Prep Courses & CME and Medical
Specialization |
|
|
Active Paying Students |
|
|
|
Prep Courses & CME - B2C |
9,375 |
7,249 |
29.3 |
% |
Prep Courses & CME - B2B |
890 |
732 |
21.6 |
% |
Medical Specialization & Others |
4,187 |
1,722 |
143.1 |
% |
Medical Specialization & Others (ex-Uniredentor) |
1,542 |
1,722 |
-10.5 |
% |
Revenue from courses (ex- Uniredentor - R$MM) ³ |
57,894 |
- |
- |
|
|
|
|
|
1. As Uniredentor tuition fees consolidates only two months of
operation in the 1Q20, tuition fees of this table do not consider
Uniredentor results. Uniredentor average tuition fee for medical
school in February and March was R$10,222. |
2. This number includes UniSl that was acquired in May 5, 2020 and
contribute 182 seats to Afya. |
|
3. As Medcel and Ipemed were acquired on March 31, 2019 and on May
9, 2019 respectively, revenue from courses for BU2 were not
accounted for in 1Q19. The number of students is disclosed to
contribute with investors analysis. |
Besides the active paying students, 9,000 medical students from
32 public and private medical schools are accessing our digital
platform with a temporary free access during the crisis.
Total monthly active users (MaU) grew at 17.5% increase from
January to March, reaching 16,008 user at the end of March. MaU
represents the number of unique individuals that consumed Afya’s
digital content in the last 30 days. Afya’s offers to its MaU a
great number of learning assets, that can be e-books, videos,
podcasts and questions. In the last quarter, MaU’s average
consumption of learning assets were 54, increasing 26% the
engagement of Afya’s digital users since January to March.
Table 3: Key Operational Drivers for BU2 |
First
Quarter |
|
January |
February |
March |
|
|
|
|
Total Monthly Active Users (MaU) |
13,624 |
14,602 |
16,008 |
Average Learning Assets Consumption |
46 |
59 |
58 |
Seasonality
Afya’s two businesses are impacted by
seasonality but at different time periods. The first is associated
with the concentration of prep course revenues in the first and
fourth quarters of each year, when new content (books and e-books)
is delivered and revenues are recognized. The second is associated
with the maturation of several medical schools, which leads to a
higher enrollment base in the second half of each year. As a
result, in a typical year, the first quarter is normally the
strongest. The fourth quarter is normally the second strongest,
followed by the third and second quarters, respectively. Finally,
the second half of the year is normally stronger than the first
half.
Revenue
Pro forma Net Revenue, which considers results
of Medcel, IPEMED and FASA as if they were acquired on January 1st,
2019, for the three-months ended March 31, 2020, was up 27.2% over
the same period of last year, to R$272.3 million. Excluding the
acquisition of UniRedentor, which closed in the end of January
2020, Pro Forma Net Revenue grew by 20.1% YoY, reaching R$257.1
million.
Total Net Revenue for the three-months ended
March 31, 2020 was R$272.3 million, an increase of 88.3% over the
same period of last year. Excluding the acquisition of UniRedentor
Net Revenue grew 77.8% in the quarter, with a contribution of 75%
from Medcel, IPEMED, FASA and IPEC acquisitions and 25% from
organic growth, which is comprised of the maturation of medical
school seats and average ticket.
Table 3: Revenue & Revenue Mix |
|
|
|
(in thousand
of R$) |
First Quarter |
|
2020 |
2019 |
% Chg |
Net Revenue Mix |
|
|
|
Business Unit-1 |
211,784 |
144,578 |
46.5 |
% |
Business Unit-2 |
61,497 |
- |
|
Inter-segment transactions |
-977 |
|
|
Total Reported Net Revenue |
272,304 |
144,578 |
88.3 |
% |
Total Pro Forma Net Revenue¹ |
272,304 |
214,095 |
27.2 |
% |
1. Includes the
pro-forma results of Medcel, IPEMED and FASA, as if the acquisition
had been consummated on January 1, 2019. |
Adjusted EBITDA and Pro forma Adjusted
EBITDA
Pro forma Adjusted EBITDA was R$140.6 million in
three-months ended March 31, 2020, up 36.0%, from R$103.4 million
in the three-months ended March 31, 2019. Pro forma Adjusted EBITDA
margin increased 330 basis points to 51.6% in the three-months
ended March 31, 2020, from 48.3% in the same period of the prior
year reflecting the operational leverage, synergies obtained from
recent acquisitions and other improvements. Excluding the
consolidation of UniRedentor, Pro forma Adjusted EBITDA increased
33.3% year over year to R$137.8 million from R$103.4 million and
Pro forma Adjusted EBITDA margin increased 530 basis points, to
53.6% from 48.3%.
Adjusted EBITDA in three-months ended March 31,
2020 increased 88.2% to R$140.6 million, from R$74.7 million in the
three-months ended March 31, 2019, Adjusted EBITDA margin of 51.6%
was generally in line with the 51.7% reported in the three-months
ended March 31, 2019, reflecting the consolidation of UniRedentor.
Excluding this effect, Adjusted EBITDA increased 84.4% to R$137.8
million and Adjusted EBITDA margin expanded 190 basis points to
53.6% from 51.7%. Of this growth 75% came from consolidating
acquisitions and 25% from maturation of the medical schools
combined with synergies from acquisitions.
Upon closing and being included in the financial
results for the first time, UniRedentor had a negative impact on
the Adjusted EBITDA Margin in the quarter. However, with a proven
track record of successfully integrating acquisitions, Afya expects
that the full integration of this business will result in synergies
that will converge to similar margin gains as the integration
process progresses.
Table 4: Adjusted EBITDA |
First
Quarter |
|
(in thousand
of R$) |
Considering the adoption of IFRS 16 |
|
|
2020 |
|
2019 |
|
% Chg |
2020 ex-Uniredentor |
2019 |
|
% Chg |
|
Adjusted EBITDA |
140,644 |
|
74,730 |
|
88.2% |
|
137,794 |
|
74,730 |
|
84.4% |
|
|
% Margin |
51.6% |
|
51.7% |
|
-10 b.p |
|
53.6% |
|
51.7% |
|
+190 b.p |
|
|
Proforma Adjusted EBITDA¹ |
140,644 |
|
103,409 |
|
36.0% |
|
137,794 |
|
103,409 |
|
33.3% |
|
|
% Margin |
51.6% |
|
48.3% |
|
+330 b.p |
|
53.6% |
|
48.3% |
|
+530 b.p |
|
|
1. Includes the pro-forma results of Medcel, IPEMED and FASA, as if
the acquisition had been consummated on January 1, 2019. |
|
Net Income
During the three-months ended March 31, 2020,
the Company reported Adjusted Net Income of R$124.0 million,
compared to an Adjusted Net Income of R$53.5 million in the
three-months ended March 31, 2019, an increase of 131.7%, mainly
reflecting the revenue contribution, synergies captured and margin
expansion from the consolidation of acquisitions.
Balance Sheet and Cash Flow
Cash and cash equivalents, including restricted
cash of R$16.0 million, at March 31, 2020 were R$1,299.3 million,
compared to R$960.1 million at December 31, 2019, and primarily
reflects the proceeds from the 2019 IPO and 2020 Follow On
offering.
For the three-month period ended March 31, 2020,
Afya reported an Adjusted Cash Flow from Operations of R$107.4
million compared to R$59.0 million in 1Q19, an 82.0% increase.
Operating Cash Conversion Ratio for 1Q20
decreased to 80.7% from 82.7% in 1Q19, mainly due to the
consolidation of Medcel results in 1Q20 figures. Since the prep
course’s revenues are recognized mainly in the first and fourth
quarters of each year, but collection is mostly stable during the
year, Medcel’s negatively affects cash conversion in the first and
fourth quarters.
Excluding Medcel consolidation for comparison
purposes, operating cash conversion in 1Q20 would be 91.6%,
representing an 890 bps increase, when compared with 1Q19.
Table 5: Operating Cash Conversion Ratio
Reconciliation |
First
Quarter |
(in thousand
of R$) |
Considering the adoption of IFRS 16 |
|
2020 |
|
2019 |
|
% Chg |
(a) Cash flow from operations |
101,396 |
|
57,732 |
|
75.6% |
|
(b) Income taxes paid |
6,057 |
|
1,297 |
|
367.0% |
|
(c) = (a) + (b) Adjusted cash flow from
operations |
107,453 |
|
59,029 |
|
82.0% |
|
|
|
|
|
(d) Adjusted EBITDA |
140,644 |
|
74,730 |
|
88.2% |
|
(e) Non-recurring expenses: |
|
|
|
- Integration of new companies (1) |
3,120 |
|
1,000 |
|
212.0% |
|
- M&A advisory and due diligence (2) |
2,750 |
|
140 |
|
1864.3% |
|
- Expansion projects (3) |
783 |
|
305 |
|
156.7% |
|
- Restructuring Expenses (4) |
816 |
|
1,911 |
|
-57.3% |
|
(f) = (d) - (e) Adjusted EBITDA ex- non-recurring
expenses |
133,175 |
|
71,374 |
|
86.6% |
|
(g) = (a) / (f) Operating cash conversion
ratio |
80.7% |
|
82.7% |
|
-200 b.p |
|
(1) Consists of expenses related to the integration of newly
acquired companies. |
|
|
(2) Consists of expenses related to professional and consultant
fees in connection with due diligence services for M&A
transactions. |
(3) Consists of expenses related to professional and consultant
fees in connection with the opening of new campuses. |
|
(4) Consists of expenses related to the employee redundancies in
connection with the organizational restructuring of acquired
companies. |
4. Subsequent Events
Closing of UniSL
On May 5, 2020, the Company announced that it
had closed on the previously announced acquisition of Centro
Universitário São Lucas, or UniSL, a post-secondary education
institution that offers on-campus, undergraduate courses in
medicine in the State of Rondônia. In 2019, UniSL reported gross
revenue of R$227.5 million with approximately 65% of its gross
revenue derived from health-related programs.
The purchase price was R$341.6 million,
including the assumption of an estimated total net debt of R$140.1
million, of which 70% of the purchase price was paid in cash on
closing and 30% is payable in three equal installments through
2023, adjusted by the CDI rate.
This acquisition will contribute 182 medical
school seats to Afya, with a potential upside of 100 additional
seats pending approval by the Ministry of Education that, if
approved, could result in an additional payment of up to R$80
million, adjusted by the CDI rate.
5. Conference Call
and Webcast Information
When: May 29, 2020 at 11:00
a.m. ET.
Who: |
Mr. Virgilio Gibbon, Chief Executive OfficerMr. Luis André Blanco,
Chief Financial OfficerMs. Renata Costa Couto, Head of Investor
Relations |
Dial-in: +1-877- 591-8865 (U.S. Toll-Free);
+1-336-698-3012 (International). Conference ID: 2699538
Webcast: ir.afya.com.br
Replay: Available between May
29, 2020 until June 4, 2020, by dialing +1-855-859-2056 (U.S.
domestic) or +1-404-537-3406 (International), conference ID:
2699538.
6. About Afya
Limited (Nasdaq: AFYA)
Afya is the leading medical education group in
Brazil based on number of medical school seats, delivering an
end-to-end physician-centric ecosystem that serves and empowers
students to be lifelong medical learners from the moment they
enroll as medical students through their medical residency
preparation, graduation program, and continuing medical education
activities. For more information, please visit www.afya.com.br.
7. Forward –
Looking Statements
This press release contains forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995, which statements involve substantial risks and
uncertainties. All statements other than statements of historical
fact, could be deemed forward looking, including risks and
uncertainties related to statements about our competition; our
ability to attract, upsell and retain students; our ability to
increase tuition prices and prep course fees; our ability to
anticipate and meet the evolving needs of student and teachers; our
ability to source and successfully integrate acquisitions; general
market, political, economic, and business conditions, and our
financial targets such as revenue, share count and IFRS and
non-IFRS financial measures including gross margin, operating
margin, net income (loss) per diluted share, and free cash flow.
Forward-looking statements by their nature address matters that
are, to different degrees, uncertain, such as statements about the
potential impacts of the COVID-19 pandemic on our business
operations, financial results and financial position and on the
Brazilian economy.
The Company undertakes no obligation to update
any forward-looking statements made in this press release to
reflect events or circumstances after the date of this press
release or to reflect new information or the occurrence of
unanticipated events, except as required by law. The achievement or
success of the matters covered by such forward-looking statements
involves known and unknown risks, uncertainties and assumptions. If
any such risks or uncertainties materialize or if any of the
assumptions prove incorrect, our results could differ materially
from the results expressed or implied by the forward-looking
statements we make. Readers should not rely upon forward-looking
statements as predictions of future events. Forward-looking
statements represent management’s beliefs and assumptions only as
of the date such statements are made. Further information on these
and other factors that could affect the Company’s financial results
is included in filings made with the United States Securities and
Exchange Commission (SEC) from time to time, including the section
titled “Risk Factors” in the most recent Rule 434(b) prospectus.
These documents are available on the SEC Filings section of the
investor relations section of our website at:
https://ir.afya.com.br/.
8. Non-GAAP
Financial Measures
To supplement the Company's consolidated
financial statements, which are prepared and presented in
accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board—IASB, Afya
uses Proforma Revenue, Adjusted EBITDA, Pro Forma Adjusted EBITDA,
Pro Forma Adjusted Net Income and Operating Cash Conversion Ratio
information for the convenience of investors, which are non-GAAP
financial measures. A non-GAAP financial measure is generally
defined as one that purports to measure financial performance but
excludes or includes amounts that would not be so adjusted in the
most comparable GAAP measure.
Afya calculates Adjusted EBITDA ex IFRS- 16 as
net income plus/minus net financial result plus income taxes
expense plus depreciation and amortization plus interest received
on late payments of monthly tuition fees, minus payment of lease
liabilities, plus share-based compensation plus/minus non-recurring
expenses. Pro Forma Adjusted EBITDA is calculated as pro forma net
income plus/minus net financial result plus income taxes expense
plus depreciation and amortization plus interest received on late
payments of monthly tuition fees, minus payment of lease
liabilities plus share-based compensation plus/minus non-recurring
expenses. The calculation for Adjusted Net Income ex- IFRS16 is net
income plus amortization of customer relationships and trademark,
plus depreciation of right-of-use of assets plus interest expense
of lease liabilities, minus payment of lease liabilities plus/minus
tax effect, plus shared based compensation.
Afya calculates Adjusted EBITDA considering
IFRS- 16 as net income plus/minus net financial result plus income
taxes expense plus depreciation and amortization plus interest
received on late payments of monthly tuition fees, plus
share-based compensation plus/minus non-recurring expenses. Pro
Forma Adjusted EBITDA is calculated as pro forma net income
plus/minus net financial result plus income taxes expense plus
depreciation and amortization plus interest received on late
payments of monthly tuition fees, plus share-based compensation
plus/minus non-recurring expenses. The calculation for Adjusted Net
Income considering IFRS 16 is net income plus amortization of
customer relationships and trademark, plus shared based
compensation. We calculate Operating Cash Conversion Ratio as the
cash flows from operations, divided by Adjusted EBITDA plus/minus
non-recurring expenses.
Management presents Adjusted EBITDA, Pro Forma
Adjusted EBITDA and Pro Forma Adjusted Net Income because it
believes these measures provide investors with a supplemental
measure of the financial performance of the core operations that
facilitates period-to-period comparisons on a consistent basis.
Afya also presents Operating Cash Conversion Ratio because it
believes this measure provides investors with a measure of how
efficiently the Company converts EBITDA into cash. The non-GAAP
financial measures described in this prospectus are not a
substitute for the IFRS measures of earnings. Additionally,
calculations of Adjusted EBITDA, Pro Forma Adjusted EBITDA, Pro
Forma Adjusted Net Income and Operating Cash Conversion Ratio may
be different from the calculations used by other companies,
including competitors in the education services industry, and
therefore, Afya’s measures may not be comparable to those of other
companies.
9. Unaudited Pro
Forma Condensed Consolidated Financial Information
The unaudited interim pro forma condensed
consolidated statement of income for the three months ended March
31, 2019 is based on the historical unaudited interim consolidated
financial statements of Afya, and gives effect of the acquisition
of Medcel, IPEMED and FASA by Afya Brazil as if it had been
consummated on January 1, 2019. Pro forma adjustments were made to
reflect the acquisition of Medcel, IPEMED and FASA by Afya
Brazil.
10. Investor
Relations Contact
Renata Couto, Head of Investor Relations Phone: +55 31
3515.7564 | +55 31 98463.3341
E-mail: renata.couto@afya.com.br
11. Financial
Tables
Interim condensed consolidated
statements of income and comprehensive income
For the three-months periods ended March
31, 2020 and 2019
(In thousands of Brazilian Reais, except
earnings per share)
|
March 31, 2020 |
|
March 31, 2019 |
|
(unaudited) |
|
(unaudited) |
|
|
|
|
Net revenue |
272,304 |
|
|
144,578 |
|
Cost of services |
(89,251 |
) |
|
(54,364 |
) |
Gross
profit |
183,053 |
|
|
90,214 |
|
|
|
|
|
General and administrative expenses |
(86,723 |
) |
|
(31,234 |
) |
Other expenses, net |
(59 |
) |
|
(206 |
) |
|
|
|
|
Operating
income |
96,271 |
|
|
58,774 |
|
|
|
|
|
Finance income |
30,013 |
|
|
5,167 |
|
Finance expenses |
(18,859 |
) |
|
(12,236 |
) |
Finance result |
11,154 |
|
|
(7,069 |
) |
|
|
|
|
Share of income of
associate |
2,302 |
|
|
- |
|
|
|
|
|
Income before income
taxes |
109,727 |
|
|
51,705 |
|
|
|
|
|
Income taxes expense |
(6,057 |
) |
|
(2,229 |
) |
|
|
|
|
Net
income |
103,670 |
|
|
49,476 |
|
|
|
|
|
Other comprehensive
income |
- |
|
|
- |
|
Total comprehensive
income |
103,670 |
|
|
49,476 |
|
|
|
|
|
Income attributable to |
|
|
|
Equity holders of the parent |
99,816 |
|
|
41,535 |
|
Non-controlling interests |
3,854 |
|
|
7,941 |
|
|
103,670 |
|
|
49,476 |
|
Basic earnings per
share |
|
|
|
Per common share |
1.09 |
|
|
0.72 |
|
Diluted earnings per
share |
|
|
|
Per common share |
1.09 |
|
|
0.71 |
|
Interim condensed consolidated statements of financial
position
As of March 31, 2020, and March 31,
2019
(In thousands of Brazilian
Reais)
|
|
March 31, 2020 |
|
December 31, 2019 |
Assets |
|
(unaudited) |
|
|
Current
assets |
|
|
|
|
Cash and cash equivalents |
|
1,283,109 |
|
943,209 |
Restricted cash |
|
14,137 |
|
14,788 |
Trade receivables |
|
156,308 |
|
125,439 |
Inventories |
|
5,580 |
|
3,932 |
Recoverable taxes |
|
11,103 |
|
6,485 |
Derivatives |
|
13,299 |
|
- |
Other assets |
|
15,923 |
|
17,912 |
Total current assets |
|
1,499,459 |
|
1,111,765 |
|
|
|
|
|
Non-current
assets |
|
|
|
|
Restricted cash |
|
2,053 |
|
2,053 |
Trade receivables |
|
12,964 |
|
9,801 |
Other assets |
|
23,219 |
|
17,267 |
Property and equipment |
|
157,297 |
|
139,320 |
Investment in associate |
|
47,936 |
|
45,634 |
Right-of-use assets |
|
334,221 |
|
274,275 |
Intangible assets |
|
1,524,985 |
|
1,312,338 |
Total non-current assets |
|
2,102,675 |
|
1,800,688 |
|
|
|
|
|
Total
assets |
|
3,602,134 |
|
2,912,453 |
Liabilities |
|
|
|
|
Current
liabilities |
|
|
|
|
Trade payables |
|
22,853 |
|
17,628 |
Loans and financing |
|
74,078 |
|
53,607 |
Derivatives |
|
- |
|
757 |
Lease liabilities |
|
29,420 |
|
22,693 |
Accounts payable to selling shareholders |
|
154,774 |
|
131,883 |
Advances from customers |
|
33,738 |
|
36,860 |
Labor and social obligations |
|
58,246 |
|
46,770 |
Taxes payable |
|
24,248 |
|
19,442 |
Income taxes payable |
|
2,522 |
|
3,213 |
Other liabilities |
|
192 |
|
376 |
Total current liabilities |
|
400,071 |
|
333,229 |
|
|
|
|
|
Non-current
liabilities |
|
|
|
|
Loans and financing |
|
16,724 |
|
6,750 |
Lease liabilities |
|
319,159 |
|
261,822 |
Accounts payable to selling shareholders |
|
241,166 |
|
168,354 |
Taxes payable |
|
21,222 |
|
21,304 |
Provision for legal proceedings |
|
6,795 |
|
5,269 |
Other liabilities |
|
3,295 |
|
1,999 |
Total non-current liabilities |
|
608,361 |
|
465,498 |
Total
liabilities |
|
1,008,432 |
|
798,727 |
|
|
|
|
|
Equity |
|
|
|
|
Share capital |
|
17 |
|
17 |
Additional paid-in capital |
|
2,300,513 |
|
1,931,047 |
Share-based compensation reserve |
|
26,554 |
|
18,114 |
Retained earnings |
|
215,732 |
|
115,916 |
Equity attributable to
equity holders of the parent |
|
2,542,816 |
|
2,065,094 |
Non-controlling interests |
|
50,886 |
|
48,632 |
Total
equity |
|
2,593,702 |
|
2,113,726 |
Total liabilities and
equity |
|
3,602,134 |
|
2,912,453 |
Interim condensed consolidated
statements of cash flows
For the three-months periods ended March
31, 2020 and 2019
(In thousands of Brazilian
Reais)
|
March 31, 2020 |
|
March 31, 2019 |
|
(unaudited) |
|
(unaudited) |
Operating
activities |
|
|
|
|
Income before
income taxes |
109,727 |
|
|
51,705 |
|
|
|
Adjustments to
reconcile income before income taxes |
|
|
|
|
|
|
Depreciation and
amortization |
24,947 |
|
|
9,054 |
|
|
|
|
Allowance for doubtful
accounts |
6,332 |
|
|
3,803 |
|
|
|
|
Share-based compensation
expense |
8,440 |
|
|
1,041 |
|
|
|
|
Net foreign exchange
differences |
(1,201 |
) |
|
(1,115 |
) |
|
|
|
Net (gain) loss on
derivatives |
(14,055 |
) |
|
1,966 |
|
|
|
|
Accrued interest |
5,781 |
|
|
334 |
|
|
|
|
Accrued lease interest |
9,900 |
|
|
6,418 |
|
|
|
|
Share of income of associate |
(2,302 |
) |
|
- |
|
|
|
|
Provision for legal
proceedings |
816 |
|
|
(874 |
) |
Changes in assets
and liabilities |
|
|
|
|
Trade
receivables |
(35,564 |
) |
|
(8,710 |
) |
|
Inventories |
(1,648 |
) |
|
(92 |
) |
|
Recoverable
taxes |
(4,615 |
) |
|
(632 |
) |
|
Other assets |
(767 |
) |
|
(14,830 |
) |
|
Trade payables |
4,479 |
|
|
6,833 |
|
|
Taxes payables |
3,183 |
|
|
3,824 |
|
|
Advances from
customers |
(14,116 |
) |
|
1,479 |
|
|
Labor and social
obligations |
7,005 |
|
|
3,585 |
|
|
Other
liabilities |
1,111 |
|
|
(4,760 |
) |
|
|
|
|
|
|
Income taxes
paid |
(6,057 |
) |
|
(1,297 |
) |
|
Net cash
flows from operating activities |
101,396 |
|
|
57,732 |
|
|
|
|
|
|
|
|
Investing
activities |
|
|
|
|
Acquisition of
property and equipment |
(17,676 |
) |
|
(8,815 |
) |
|
Acquisition of
intangibles assets |
(3,172 |
) |
|
(832 |
) |
|
Restricted cash |
651 |
|
|
- |
|
|
Payments of accounts
payable to selling shareholders |
(9,458 |
) |
|
(8,759 |
) |
|
Acquisition of
subsidiaries, net of cash acquired |
(102,811 |
) |
|
1,548 |
|
|
Loans to related
parties |
- |
|
|
(140 |
) |
|
Net cash
flows used in investing activities |
(132,466 |
) |
|
(16,998 |
) |
Financing activities |
|
|
|
|
Payments of loans and
financing |
(1,316 |
) |
|
- |
|
|
Issuance of loans and
financing |
911 |
|
|
- |
|
|
Payments of lease
liabilities |
(11,735 |
) |
|
(7,670 |
) |
|
Capital increase |
- |
|
|
150,000 |
|
|
Proceeds from
issuance of common shares |
389,170 |
|
|
- |
|
|
Shares issuance
cost |
(19,704 |
) |
|
- |
|
|
Dividends paid to
non-controlling interests |
(1,600 |
) |
|
- |
|
|
Net cash
flows from financing activities |
355,726 |
|
|
142,330 |
|
|
Net foreign
exchange differences |
15,244 |
|
|
- |
|
|
Net
increase in cash and cash equivalents |
339,900 |
|
|
183,064 |
|
|
Cash and cash
equivalents at the beginning of the period |
943,209 |
|
|
62,260 |
|
|
Cash and cash
equivalents at the end of the period |
1,283,109 |
|
|
245,324 |
|
Reconciliation between Net Income and Adjusted Net
Income
(in thousand
of R$) |
|
|
|
|
|
|
|
|
Considering the adoption of IFRS 16 |
Excluding the adoption of IFRS 16 |
|
|
2020 |
|
2019 |
|
% Chg |
2020 |
|
2019 |
|
% Chg |
|
Net income |
103,670 |
|
49,476 |
|
109.5 |
% |
103,670 |
|
49,476 |
|
109.5 |
% |
|
Amortization of customer relationships and trademark (1) |
11,901 |
|
3,014 |
|
2.95 |
|
11,901 |
|
3,014 |
|
294.9 |
% |
|
Depreciation of right-of-use of assets (2) |
- |
|
- |
|
- |
|
5,953 |
|
3,383 |
|
76.0 |
% |
|
Interest expense of lease liabilities (3) |
- |
|
- |
|
- |
|
9,900 |
|
6,418 |
|
54.3 |
% |
|
Payment of lease liabilities (4) |
- |
|
- |
|
- |
|
-11,735 |
|
-7,670 |
|
53.0 |
% |
|
Share-based compensation |
8,440 |
|
1,041 |
|
710.8 |
% |
8,440 |
|
1,041 |
|
710.8 |
% |
|
Adjusted Net Income |
124,011 |
|
53,531 |
|
131.7 |
% |
128,129 |
|
55,662 |
|
130.2 |
% |
|
|
|
|
|
|
|
|
|
(1) Consists of amortization of customer relationships and
trademark recorded under business combinations. |
|
|
|
|
(2) Consists of depreciation of right-of-use of assets recorded
under IFRS 16 as from January 1, 2019. |
|
|
|
|
|
(3) Consists of interest expenses of lease liabilities recorded
under IFRS 16 as from January 1, 2019. |
|
|
|
|
|
(4) Consists of payment of lease liabilities recorded under IFRS 16
as from January 1, 2019. |
|
|
|
|
|
Reconciliation between Net Income and Adjusted
EBITDA
Reconciliation between Adjusted EBITDA and Net Income;
Proforma Adjusted EBITDA |
|
|
|
|
|
(in thousand
of R$) |
First
Quarter |
|
|
Considering the adoption of IFRS 16 |
Excluding the adoption of IFRS 16 |
|
|
2020 |
|
2019 |
|
% Chg |
2020 |
|
2019 |
|
% Chg |
|
Net income |
103,670 |
|
49,476 |
|
109.5% |
|
103,670 |
|
49,476 |
|
109.5% |
|
|
Net financial result |
-11,154 |
|
7,069 |
|
- |
|
-11,154 |
|
7,069 |
|
- |
|
|
Income taxes expense |
6,057 |
|
2,229 |
|
171.7% |
|
6,057 |
|
2,229 |
|
171.7% |
|
|
Depreciation and amortization |
24,947 |
|
9,054 |
|
175.5% |
|
24,947 |
|
9,054 |
|
175.5% |
|
|
Interest received (1) |
3,517 |
|
2,505 |
|
40.4% |
|
3,517 |
|
2,505 |
|
40.4% |
|
|
Payment of lease liabilities (2) |
- |
|
- |
|
- |
|
-11,735 |
|
-7,670 |
|
53.0% |
|
|
Share-based compensation |
8,440 |
|
1,041 |
|
710.8% |
|
8,440 |
|
1,041 |
|
710.8% |
|
|
Income share associate |
-2,302 |
|
0 |
|
- |
|
-2,302 |
|
0 |
|
- |
|
|
Non-recurring expenses: |
7,469 |
|
3,356 |
|
122.6% |
|
7,469 |
|
3,356 |
|
122.6% |
|
|
- Integration of new companies (3) |
3,120 |
|
1,000 |
|
212.0% |
|
3,120 |
|
1,000 |
|
212.0% |
|
|
- M&A advisory and due diligence (4) |
2,750 |
|
140 |
|
1864.3% |
|
2,750 |
|
140 |
|
1864.3% |
|
|
- Expansion projects (5) |
783 |
|
305 |
|
156.7% |
|
783 |
|
305 |
|
156.7% |
|
|
- Restructuring expenses (6) |
816 |
|
1,911 |
|
-57.3 |
% |
816 |
|
1,911 |
|
-57.3% |
|
|
Adjusted EBITDA |
140,644 |
|
74,730 |
|
88.2% |
|
128,909 |
|
67,060 |
|
92.2% |
|
|
Adjusted EBITDA Margin |
51.6% |
|
51.7% |
|
-10 b.p |
|
47.3% |
|
46.4% |
|
+90 b.p |
|
|
Pro
Forma Adjusted EBITDA (7) |
140,644 |
|
103,409 |
|
36.0% |
|
128,909 |
|
94,342 |
|
36.6% |
|
|
Pro Forma Adjusted EBITDA Margin (7) |
51.6% |
|
48.3% |
|
+330 b.p |
|
47.3% |
|
44.1% |
|
+260 b.p |
|
|
|
|
|
|
|
|
|
|
(1) Represents the interest received on late payments of monthly
tuition fees. |
|
|
|
|
|
|
(2) Consists of payment of lease liabilities recorded under IFRS 16
as from January 1, 2019. |
|
|
|
|
|
(3) Consists of expenses related to the integration of newly
acquired companies. |
|
|
|
|
|
|
(4) Consists of expenses related to professional and consultant
fees in connection with due diligence services for our M&A
transactions. |
|
|
|
(5) Consists of expenses related to professional and consultant
fees in connection with the opening of new campuses. |
|
|
|
|
(6) Consists of
expenses related to the employee redundancies in connection with
the organizational restructuring of our acquired companies. |
|
|
(7) See Pro Forma Adjusted EBITDA Reconciliation to Proforma Net
Income. |
|
|
|
|
|
|
Reconciliation between Net Income and Pro Forma Adjusted
EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
|
First quarter |
|
(in thousand
of R$) |
2019 |
2019 |
|
|
2019 |
|
|
Afya Brazil Historical (1) |
Medcel (2) |
Pro Forma Adjustments |
FASA + IPEMED EBITDA Pre Acq. |
Afya Brazil Pro Forma |
|
Net income |
49,476 |
20,044 |
- 5,315 |
- |
64,205 |
|
Net financial result |
7,069 |
65 |
- |
- |
7,134 |
|
Income taxes expense |
2,229 |
1,409 |
- |
- |
3,638 |
|
Depreciation and amortization |
9,054 |
1,726 |
5,315 |
- |
16,095 |
|
Interest received (3) |
2,505 |
- |
- |
- |
2,505 |
|
Payment of lease liabilities (4) |
- |
- |
- |
- |
0 |
|
Share-based compensation |
1,041 |
70 |
- |
- |
1,111 |
|
Non-recurring expenses: |
3,356 |
- |
- |
- |
3,356 |
|
Integration of new companies (5) |
1,000 |
- |
- |
- |
1,000 |
|
M&A advisory and due diligence (6) |
140 |
- |
- |
- |
140 |
|
Expansion projects (7) |
305 |
- |
- |
- |
305 |
|
Restructuring expenses (8) |
1,911 |
- |
- |
- |
1,911 |
|
Adjusted EBITDA |
74,730 |
23,314 |
- |
5,365 |
|
|
Pro Forma Adjusted EBITDA |
|
|
|
|
103,409 |
|
|
|
|
|
|
|
|
(1) Represents the historical consolidated statement of income of
Afya Brazil for the six months ended June 30, 2019. |
|
|
|
(2) Represents the historical consolidated statement of income of
Medcel for the period from January 1, 2019 to March 28, 2019. |
|
|
(3) Represents the interest received on late payments of monthly
tuition fees. |
|
|
|
|
(4) Consists of payment of lease liabilities recorded under IFRS 16
as from January 1, 2019. |
|
|
|
|
(5) Consists of expenses related to the integration of newly
acquired companies. |
|
|
|
|
(6) Consists of expenses related to professional and consultant
fees in connection with due diligence services for our M&A
transactions. |
|
|
(7) Consists of expenses related to professional and consultant
fees in connection with the opening of new campuses. |
|
|
|
(8) Consists of expenses related to the employee redundancies in
connection with the organizational restructuring of our acquired
companies. |
|
A downloadable PDF copy of this news release's financial
statements can be found
here: http://ml.globenewswire.com/Resource/Download/bb4f5cfb-1c49-474f-ba98-e587a333ad96
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