Afya Limited Price & Performance (AFYA)

Now let me now turn the call over to Vigile Gibbon, Office starting the next slide.

Thank you, Henata, and welcome to our financial conference call of 2024. We're excited to present another year of exceptional operational and financial performance for AFFE. Once again, we have demonstrated the differentials of our business the successful implementation of our strategy and the reliability of our business model. In this presentation, I will cover key strategic topics including our performance highlights, the success on business execution across our three segments, the guidance for 2024, and the new goals for 2025. And finally, Louis Blanc will provide an in-depth look of our financial and operational performance. Now turning to page number three. Let's begin by highlighting our performance Initially, our net revenue increased by 14.9% reaching ZAR3104.3 million accompanied by a growth in adjusted EBITDA of 25% year over year, [indiscernible] With a margin of 44.1%. Furthermore, we are pleased to report a record on cash flow generation from operating activities. Concluding the year with 1,453,200.0000 HLS reflecting a 34% increase compared to the previous year. With a cash conversion rate of 102%. With consistent momentum throughout the year, our net income reached BRL648.9 million in 2020 marking over 6% growth year over year with an EPS of 7.1% of L. A remarkable 62.9% increase compared This underscore our disciplined capital allocation on buyback programs M and A and an efficient capital structure.

Transition to our operational updates for the year. We have expanded to 3,593 approved seats witnessing a year over year increase of over 13%. By the acquisition of Unidog in July of twenty twenty four. In addition, our number of undergrad med school students has reached more than 24,000 students. Representing a 13% growth compared to 2023. Furthermore, we increased the net average ticket of medical school by 4.6%, reached 8849p. Additionally, in the continued education segment, continue to see a significant growth presenting a net revenue increase of 8% year over year peer organically, reaching BRL255.4 million. Our MedcoPlex solution revenue marked another great result with a 15% increase compared to $20.23 year organically. Reaching a net revenue of MXN161.8 million, This outcome underscore the vast opportunity in medical product solutions, driven by the ramp up in B2B engagements, securing new contracts with pharmaceutical industry companies and the continuous expansion in B2B contracts. Lastly, our ecosystem has 313,000 active users, simplifying substantial penetration among physician and medical students in Brazil. In the next slide, we will discuss our robust business performance across the three business segments. Beginning for our core business, the undergrad segment, observed significant growth in the net average tickets of medicine.

Represented a growth of 4.6% year over year. Gross margin expansion driven by the integration of Oneema and that same as Joaoato, completed in fourth quarter twenty twenty. And the ramp up of the Formice Medical campuses launched in third quarter twenty twenty two. Also, the closing of Unidom Pedro acquisition and the approval of 103 new medical seats 80 of them additional at Unima, 40 additional at Wannabe, and the reconsideration of 10 seats in Onigrani. Fotina Education was marked by gross margin extension driven by an operational restructuring which resulted in a growth in B2B students posted by our Residency Journey offerings. Additionally, we are pleased to see and expand four of them being cross units in the undergrad segment, and one standalone campus. Lastly, in our Medical Products Solutions segment, ended the quarter with over 6% increase in active payers, driven by 5% growth in clinical decision and almost 13% growth in clinical managed This result reinforced the opportunity ahead [indiscernible] And it's explained by the ramp up in B2B engagements that boosted net revenues in drill almost 30% with new contracts with the pharma industry and the continuous ramp up business to physician contracts. Now transitioning to the Slide number five.

We take immense pride not only in our financial and operational achievements, but also in the significant social impact generated by Ather's investments. This commitment led us to calculate our social return on investment as right, using robust globally recognized methodologies. Our study applies the value of statistical life deeply adopted by institutions such as OECD and World Bank. Which confides the financial impact of mortality reduction. In Brazil, this value is estimated to be at BRL4.2 million, reflecting the value on preventing single death. By leveraging these metrics, we quantify the social impact of preventive deaths in the study municipalities. Reaching a next ordinary BRL14.5 billion. [indiscernible] This demonstrates that AFFA's effort in Magic Education and the presence of students in these communities not only enhance healthcare access, but also generate significant economic and social returns. According to our social return on investment, as Roy studied, everyone how we invested resulted in R3.58 dollars in social benefits, the population and the municipality analyzed. [indiscernible] This reflects reduced mortality, increased life expectancy and positive economic impacts such as wage growth and local financial activities. Based on these results, ARF is strongly reinforced its commitment [indiscernible] only of creating value for its shareholders, while also maintaining a high social impact in the regions.

Where we operate. [indiscernible] moving to Slide number six, [indiscernible] We are thrilled to share some exciting news. Thanks to AFFO's robust cash generation disciplined financial management, we are pleased to announce that we will distribute the first dividends to our shareholders. And at the same time, staying fully committed to our ambitions growth plans. The Board of Directors has approved a cash dividend payout of 20% of 2024 net income. The dividend will be payable on April 4, 2025, to shareholders of record as of the close of business on March 26. This decision underscores our dedication to deliver long term value and sharing the results of our solid financial performance with our shareholders. Now on Slide number seven, [indiscernible] we will present our 2024 guidance achievement and introduce our new guidance for 2025. Atlas 2024 net revenue was more than four times higher than in 2019. The year of our IPO. [indiscernible] reaching BRL3104.3 million surpassing our mid guidance for 2024 adjusted net revenue of $3,000,000,000 Furthermore, 2024 adjusted EBITDA was $1,455,600,000.0, followed by an adjusted EBITDA margin of 44.1%, also surpassing our EBITDA mid guidance of BRL1.42525 billion. These outstanding results reflect AFFE's consistent growth and operation excellence.

This consistency added to another strong intake site paved the foundation for our 2025 guidance. Net revenue is expected to range between BRL360 million and BRL3.700 $7.00. While adjusted EBITDA is expected to be between MXN1620 million and MXN1720 million. Excluding any acquisition that may be concluded after the issuance of these guidance. Once again, we are guiding another strong round and improving Ather's resilience and abilities to keep delivering solid results with a high predictive Furthermore, showing the chart our CapEx for 2025 expects to be between $250,000,000 and MXN290 million. In my last slide, I would like to welcome Doctor. Gustavo Morales as the Chief Medical Officer of AFI. Reaffirming our mission of transforming healthcare through education and technology. One of his top priorities will be driving innovation evolving our products and strengthening relationships within the health industry. Doctor. Amerales has a proven track record in leadership, research and consultancy. Focusing on transformative change in healthcare. Welcome aboard. And now, I will be turning the call over to Luis Blanco, AFFO's CFO, to provide more insights into the financial and operational metrics. Thank you. Thank you, Vigilio. And good evening, everyone. Starting with Slide nine, for discussions of key operational metrics by business unit.

Starting with the undergrad programs. Our number of medical students grew 13% year over year reaching more than 24,000 students. And the proved medical seats increased 13% yearly. Our medical school net average ticket excluding the Unidom acquisitions, increased by 4.6% for the twelve months. Reaching BRL8.849. We achieved R896 million in net revenues. Up from BRL2511 million. From the prior year. An increase over 15% Regarding the revenue mix, 86% was derived from medical school students and 94% from health related courses. On the next page, I will present our continuing education map We approach continued education through three main journeys: starting with the residence journey, we saw a 35% increase reaching 16,381 students. By the end of the period. In the graduate journey, students' number grew 10%, reaching 8,527 students. Primarily driven by students graduations. Lastly, other courses and B2B offerings decreased by 6% over the same twelve month period of the prior year. Overall, this effort pushed educational net revenues to BRL255 million, in the twelve month period of 2024. Up from BRL236 million in the twelve months of 2023. Reflecting a growth over 8%. This includes a 10% increase in B2B revenue and 11% decrease in B2B.

Moving to Slide 11, I'll discuss the Medical Practice Solutions operational metrics. The first graph shows our total active payers. Representing revenues generated in the business to physicians, B2B. Following a steady growth trend, the number of paying users rose to over 195,000. A 6% increase over the same quarter last year. The second graph highlights our monthly active users which accounts for 238,000 slightly lower than the 248,000 record last year. This change is primarily due to the transactions from the PABMed portal to the Afya portal. Lastly, the third graph shows the net revenues from our Medical Practice Solutions segment. Which grew 15% year over year.

Reaching BRL162 million. Of this total BRL135 million was generated by B2B, showing an increase of 13%. While B2B contributed in BRL26 million. Growing almost 30% in the twelve month period. In the next slide, we also present AFFE Ecosystem. We're pleased to highlight Afia's substantial contributions to the Brazilian healthcare community. By the end of the fourth quarter of twenty twenty four, our ecosystem ECOMPASS three and thirteen thousand physicians and medical students using our service and products. Moving forward to Page 14, I want to discuss our financial overview for the fourth quarter of twenty twenty four. With great satisfactions, I present another strong quarterly Net revenue for the fourth quarter of twenty twenty four reached BRL849 million. Representing a 16% increase compared to the last year. Net revenue totally [indiscernible] For the twelve months period, up 15% year over year. The yearly revenue increase was mainly due to higher tickets in medicine courses, the maturations of medical school seats, the additions of 40 seats at Guanabie and 80 seats at the Onima There were consideration of 10 seats in Unigranil Rio de Janeiro. The acquisitions of Unigranil, and the advancement of Medical Practice Solutions and Continuing Education segments.

In fourth quarter twenty twenty four, adjusted EBITDA rose by reaching BRL366 million. With adjusted EBITDA margins of 43.1% again, of three basis points compared to the fourth quarter twenty twenty three. For the twelve month period, adjusted EBITDA amounted to BRL1456 million. An increase of 25% year over year. With an adjusted EBITDA margin of 44.1%. Representing a three sixty basis points increase over the same period. Expansion in adjusted EBITDA margin is largely attributed to gross margin expansions in undergrad and continuing education segments. Compression of Onima and Afishava Town integration process in November 2023. [indiscernible] that started operations in third quarter twenty twenty two. Operation restructuring efforts in continued education and medical product solutions segments and more efficiency in selling, general and administrative expenses. Moving to the next slide, The year's cash flow from operating activities rose by 34%, reaching 14,000,000. Reflecting a strong operational performance. The operational cash conversions ratio was 102% in 2024. Net income for the fourth quarter of twenty twenty four came at BRL154 million. Marking an increase of 51% from the same period in 2023. And adjusted net income was BRL194 million, an 18% increase. For the twelve month period ending December 2024, net income totaled BRL649 million, representing an increase of 60.1%.

While adjusted net income amounted to BRL820 million up 39% year over year. This performance is mainly due to enhancement of our operational results and lower effective tax rates compared to the last year.

Regarding EPS, we've reached R1.66 dollars in the fourth quarter a 52% growth compared to the prior year. With BRL7.0.01 per share in the twelve month period, representing a 63% increase. And now moving to my last two slides, I will discuss our cash and net debt positions. Also giving more color on our cost of debt. This slide is a table detailing our gross debt compositions and total cost of debt. Covering our primary obligations. The SoftBank transactions, debentures, other financial liabilities, the IFC financing and accounts payables to selling shareholders. AFIA's net debt structure remains solid with a conservative leverage position and low cost of debt. Afiet's net debt excluding the effect of IFRS 16, divided by the 2024 adjusted EBITDA was 1.25x. On the next page, we can look closely at our net debt variation. As of fourth quarter twenty twenty four, our net debt stood at BRL1.815 billion. Stable when compared to the end of twenty twenty three. Even accounting for [indiscernible] BRL157 million earn out payments regarding the additional seats for Gannabe and Donima and the €660,000,000 regarding the acquisitions of Unidom, we are able to reduce our net debt to adjusted EBITDA thanks to our strong cash flow from operating activities in the twelve month period.

This concludes our prepared remarks. We are proud of our accomplishments and robust performance across all areas. Our commitment to advancing in a magical journey through an integrated educational system and magical practice solutions remain strong, supporting healthcare professionals' growth. Continuous learning accuracy, and productivity. As we look ahead, we are enthusiastic about the opportunities that lies before us. I will now open the conference for the Q and A section. Thank you.

So if you want to ask the The first question comes from Andres Taddis from UBS. Andres, you may now go. [indiscernible] I have two questions on my end here. The first one is regarding the vision of the company on capital allocation. Can we expect the dividend levels to be sustainable ahead? Or you see the dividends that you disclose as a more opportunistic due to the specific points in 2024? And my second question is regarding the top line guidance. What are the drivers that you think are important for us to monitor in order for you to reach the bottom part of the guidance? That's it. Thank you. Hi, Andreas. Blanca speaking. Thank you for your questions. Regarding [indiscernible] these dividends for these years. We did not establish a formal policy for going ahead But our capital allocation mind didn't change. We want to keep our capturing our organic and inorganic opportunity in organic opportunities of course, we see the management industry opportunities and inorganic step, we we continue to see opportunities of growing, acquiring two zero six per year. So did not change these minds, capturing this growth according our long term view. And with this executing this long term view, we saw these opportunities to establish our first payments of dividends equivalent of 20% of our consolidated net income of 2024.

Regarding the guidance for 2025, for the last years, we've been providing yearly guidance and we'll be in all of this year we've been achieving it. So that's the same view we provide the guidance for 2025. We are pretty confident that we're going to deliver that. During the year.

Got it. Thank you. [indiscernible] Next question comes from Flavio Cede from Bank of America Merrill Lynch. Flavio, may now go.

Hi.

Hi, Virgilio Blanco, Renata Congrats on the results. I have two questions on my side. The first one is on the M and A pipeline. So given that you guys are now distributing dividends how should we think about the M and A pipeline following this announcement? And if you could share some update on the pipeline, if you guys are seeing a high offering [indiscernible] What are your expectations for M and A for 2025? And also related to prices as well? And then my second question is on tuition fees. We noticed that you guys increased tuitions by 5% And if you guys are seeing any trouble to to pass through a higher level because if I'm not wrong, historically, you guys managed to pass through a higher level than inflation. So if you guys are seeing some difficulties to increase prices, to newcomers or to upper class men. If you could share some details, I would appreciate that. Thanks.

Hi, Flavio, Rodrigo. Thanks for your question. So regarding M and A and capital allocation here, so we are not changing our long term guidance here in terms of inorganic growth.

We see we saw the opportunity here also to start being a comment that will pay dividend for the at least a minimum rate for our shareholders in the long term and keeping our commitment to keep acquiring the company. Remember that we have a milestone this year in the first semester of this year. This is the MICE Medical three that depending on the result, we will have additional CapEx here. So this is a variable that will demand more capital this year, but we will continue to deliver the inorganic growth as expect on our guidance for the long term guidance.

So regarding tuition, so we keep also our commitment here to pass at least inflation in a consistent way. We are seeing a very healthy intake process for this first semester. Here, we have more than seven candidates around Brazil, around all of our offerings here in Brazil.

So what we are seeing here, it's good opportunity. We saw that our brand, our differentiation is getting even higher in most of the regions. So we are seeing a sustainable way to pass at least inflation as we are doing since since the IPO. So about the opportunities also on the pipeline on M and A, yes, so the pipeline, it's hot. We are seeing many institutions that because of the injections, they also don't have good condition to start. It's operation.

But we have been very selective in terms of assets, the quality, and also region, where we are going to apply and allocate our capital.

Acquire at least 200 fixed grade. [indiscernible] when you said that we used to pass more price in the past than what we are correcting right now. We all you guys always need to remember that when we pass prices really above inflation is when we do acquisitions and the assets underpriced. So in the past, the deal acquisitions, they were more representative. In our results, and now they are not that representative anymore. And some of the times those assets are already well priced. So that's the difference. I wouldn't say that the difference here is because of the market dynamics.

And Flavia, just to add more additional color on the M and A pipeline, with these new assets that come to the markets. [indiscernible] in cherry picking, the locations that we we see opportunities to operate. And with these new new assets that are in place What we see then is we have good opportunities on on doing good negotiations regarding the price proceeds. So we can see the next years be more likely that like with the one that we signed in December was in Compassion that was FONIQ. That we are right now between signing and closing. These assets should be with a lower size, more similar with compared with sixty seats.

All right. Great. Thanks, guys.

Next question comes from Jessica from JPMorgan. Jessica, you may now go. Hi. Good evening, Rosilio, Blanco, Renata. Thank you for taking my question.

I want to know about the continued education. Should we continue to see this segment expanding in 2025? What is the outlook for this segment? Thank you.

Yes, Jessica. Yes, we can expect we have a large cohort of students graduating this second semester, but the intake level that started at kicked off on October, November was quite high. So expecting a little bit, even higher than what we are seeing for 2024, in 02/2025 and continue meds education. Okay?

Thank you.

And next question, comes from Gustavo Miele from Goldman Sachs.

Good evening, Virgilio BlancoGenata. Thanks for the presentation. I have two questions. The first one, I just want to bounce back here to the guidance discussion more on the profitability front. So if we consider the mid of the range for both revenues and EBITDA, we have an adjusted EBITDA margin expanding 80 bps versus 2024. So I just want to reconcile the main drivers for search expansion or if this is related to purely G and A dilution or if there's any other line in cost here that you would highlight as one of the main drivers for such movement. This is the first one And on a second note here, I would like to ask you to provide a bit more of content and details on how do you guys saw the Mezematka's three preliminary result announced a couple of weeks ago. How did you view competition and what are the expectations for the final outcome to be announced at Ome? Thank you.

Gustavo. Blanco speaking. Thank you for your questions. I'll take the first one and Giulio will take the [indiscernible] you just make the calculations between the midpoint of EBITDA with the midpoint of the revenues compared to 2024, The expectations come in increasing level of efficiency that we got from 400 grants We expected to do the integrations of Unidom Pedro in the first semester as So we're going to have a positive impact on that. And keep getting some efficient opportunities that we have in the undergrad segment. In digital and [indiscernible] medical practice solutions and continued educationals what we're seeing is that it's operational leverage has we're expanding these segments with higher growth what we see then, we can capture the operational lever increasing the margins that we have in these segments. And on top of that, we are always capturing opportunities on holding and shared service opportunities. Implemented two or three years ago. Our zero budget methodology that's helped us a lot during 2024 to increase margins and we see some opportunity to capture this in 2025. We are pretty confident that we'll have this opportunity for 2025 and capturing once again this guidance that we are providing to the market.

Gustavo, just just adding here the first question yet.

So it's [indiscernible] On the grad, it's major part of the business, we still have maturation on our Mysimagios campuses, the Mysimagios two campuses.

And also we still have more students to come on only Don Pieter. It's a very large operation. And with a huge impact on the overall operational margin. And both the other segments, continuing education and also digital media prepared. So they are leveraging their growing. It's operation. We launched many new campuses also on continuing education.

So we have opportunity here to dilute fixed costs and so [indiscernible] the source where the margin improvements will come in 2025. [indiscernible] we like it, the results. So it's just the first phase.

Where we had been recognized and able to participate in all 23 cities that we send our our proposal So the likelihood here is quite positive. We have in some areas we have more competition, models, it's a low competition. We are quite excited here with the opportunity, but still early in the process. I wouldn't like to give any bad year what is a bit the number that we're expecting but we are very short in the process here, but maybe some weeks, we'll have the final results about that.

So it's 23 new opportunities [indiscernible] repeat for nine, we've won seven, now we are bidding for 23, the competition is much higher. We are also much better prepared So that's great. I think it's better.

That's clear. Thank you.

Next question comes from Utes Nagano from Morgan Stanley.

Hey, good evening. Giulio, Luis, Penata. Thanks for the space here. We have two questions. The first question is related to the intake. You mentioned the intake process was successful, but more competitive. It would be interesting to hear from you how this expansion of seats is manifesting, maybe if you have examples of regions that are more competitive or commercial offers you're observing?

And what steps you took to offset this pressure? And the second question is related to regulation. So what are your thoughts on the recent comments from Pablo Santana about monitoring prices in medical schools as he suggested they might be too high. And also, share your thoughts on the proposal in the Senate about a proficiency exam for physicians similar as the AUBE for lawyers. Thanks.

Lucas, can you ask can you repeat your last part of the second question?

Yes. Yes. It was about the there's a proposal in the Senate about a proficiency exam for physicians. Who are graduating, which is similar to the OAB exams. For lawyers. How this would impact the sector Okay, Lucas. Thank you for your question. So about intake, think it's a very good message here. We have a very successful intake in 2025 first semester when compared to 2024 that was even better in terms of candidate ratio that we have. So and that was spread, that was must dependent on on the [indiscernible] region in Brazil.

I visited four campuses. Two of them was from my semagipals and the other two, it was a traditional medical school. In all of four campuses, they had more than six and seven candidates per ratio. One of them almost 20. And it was from a very small city on North Of Barai State.

So depending on what the competition, the local competition was too far, so we have very successful intake on that. So we are seeing that brand of Afya is I think it's helping us a lot to be recognized, the awareness that we have from physician. On our ecosystem is also much higher than we have last year and last two years at Alamo Aker was not known in the segment. So this is helping us on the commercial cycle overall.

About regulation, I mean, that's the second part here, the proficiency exam here.

This is, I think everything that put the bar higher here terms of quality in the market. We are supportive. So I think that would be another differential here. Remember that we are helping physician here to get prepared for residency that's a very high competition here. So it's a quite good opportunity also to help students to get prepared for this type of bar exam here.

And above the the the the recent communication, I think it's too soon in the process to set about any regulation. So higher education is something very stable in terms of [indiscernible] based on a federal law since 1999. The lowest three three eight seven zero, if I'm not wrong here. So this is that we have for all cohorts of all new students that we have to enroll, we have no pricing control. We just have to follow our internal inflation, internal cost inflation to follow the contract until the student graduates on our campus. So I think it's too soon to understand what is come from this speech, the recent speech.

Okay.

Super helpful, Vijay. Thanks.

Welcome.

Next question comes from Luca Machezzini from Itau.

Hey, good evening everyone and thank you for taking our question.

Just one question considering the capital allocation strategy of company and looking at the Medical Practice Solutions segment, should we expect the company to engage in M and A activities in this vertical? And if so, is there a specific solution that the company should be focused on? Or going forward we should only expect organic growth on this segment? Would be helpful. Thank you.

Thank you, Luca, and thank you for your questions. Regarding M and A opportunities, we are always chase opportunities in the three segments, okay? And we are very strict regarding capital allocations and the one of the business combinations independently if comes from undergrads, medical practice solutions or the continued So we are always looking for opportunities. We don't chase any specific functionality on it, but we are always looking forward for great entrepreneurs and great solutions that we can add to our ecosystem major is in the medical prep product solution. So just to make clear, totally clear, the guidance for twenty twenty five do not include any kind of business combination all needs. So if it come we're pretty sure that will be very accretive and very positive for the ecosystem. As we are very strict in our capital allocation.

Very clear. Thank you.

Of course.

The next question comes from Hernan Prata from SIT. Hernan, you may now go.

Ivan, thank you for taking the question and for this, Pete. Just a very quick question here, just clarify. So regarding the 2025 guidance, looking at the CapEx, I mean, do you have any anticipated like expenditure relating to the MICE magical trees embedded on the guidance? Or I mean, it should more it be more back loaded to 2026 Hi, Hernan. It's Luca speaking. We don't [indiscernible] CapEx guidance for 2025. The management could see because we don't know yet how many cities that we're going to want among the 23 that we are participating on the bids. So when we put that when we receive that, you can use as a proxy €25,000,000 per each one of the locations that we are competing to. So management industry is not included in the CapEx guidance.

Okay. That's very helpful. Thank you very much.

Of course.

So we don't have any other questions. Just want to make sure that you guys know that if you want to ask anything else, you can reach us in our Investor Relations department. We are going to be happy to help you guys. You, and have a good night.