Afya Limited Announces Second-Quarter and First-Half 2024 Financial Results

Afya Limited (Nasdaq: AFYA; B3: A2FY34) (“Afya” or the “Company”), the leading medical education group and medical practice solutions provider in Brazil, reported today financial and operating results for the three and six-month period, which ended on June 30, 2024 (second quarter 2024). Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

Second Quarter 2024 Highlights

• 2Q24 Net Revenue increased 13.7% YoY to R$809.9 million.

• 2Q24 Adjusted EBITDA increased 28.2% YoY reaching R$343.8 million, with an Adjusted EBITDA Margin of 42.5%. Adjusted EBITDA Margin increased 490 bps YoY.
• 2Q24 Net Income increased 85.3% YoY, reaching R$162.2 million, and Adjusted Net Income increased 59.5% YoY, reaching R$210.3 million. Adjusted EPS growth was 61.8% in the same period.

First Half 2024 Highlights

• 1H24 Net Revenue increased 13.5% YoY to R$1,614.1 million.
• 1H24 Adjusted EBITDA increased 23.9% YoY reaching R$741.7 million, with an Adjusted EBITDA Margin of 45.9%. Adjusted EBITDA Margin increased 380 bps YoY.
• 1H24 Net Income increased 80.5% YoY, reaching R$370.5 million, and Adjusted Net Income increased 54.7% YoY, reaching R$461.3 million. Adjusted EPS growth was 56.9% in the same period.
• Operating Cash Conversion ratio of 94.3%, with a solid cash position of R$ 723.4 million.
• ~320 thousand users in Afya’s ecosystem.

Message from Management

With great satisfaction, I proudly present another quarter of exceptional operational and financial performance for Afya. Once again, we have demonstrated the resilience of our business, the successful execution of our strategy, the dedication of our team members, and the consistency of our business model. This quarter was marked by a growth in gross margin, primarily led by the Undergrad segments, an increase in Adjusted EBITDA margin in our consolidated figures, combined with solid cash generation, and robust EPS growth, reflecting our consistent business expansion.

A significant part of our margin expansion resulted from the complete integration of UNIMA and FCM Jaboatão, the ramp-up of the four Mais Médicos campuses that began operations in 3Q22, the operational restructuring efforts in the Continuing Education and Medical Practice Solutions segments, and more efficiency in Selling, General and Administrative expenses

We are pleased to announce the growth of our Undergrad offering with the authorization of an additional 80 seats at UNIMA Alagoas in the city of Maceió, bringing our total approved seats to 3,583. Additionally, we closed the acquisition of Unidom in July, with 300 seats in Salvador-BA. These actions underscore our commitment to providing quality medical education and our role as Brazil's leading medical education group.

We also saw a recovery in B2B Net Revenue from our Medical Practice Solutions segment. In the first quarter of 2024, some of the invoices were postponed, but now, we are glad to see a growth of 20% in comparison to the six-month period of the prior year in B2B Net Revenue

With another round of solid and sustainable growth, we have exceeded our expectations for what we had planned for Organic Growth and Margin Expansion in the first semester of 2024. In addition to the closing of Unidom and the seats expansion in UNIMA our guidance for 2024 was revised incorporating our growth in revenue and margin beyond expected, as well our latest acquisition and authorized seat expansion.

Our mission remains steadfast: to provide an ecosystem that integrates education and medical practice solutions for the entire medical journey, enhancing the development, updating, accuracy, and productivity of health professionals. We are very proud of our business and our achievements so far, and we are excited about our future plans.

1. Key Events in the Quarter:

• On May 2, 2024, Afya Participações announced that it has entered into a share purchase agreement for the acquisition of 100% of the total share capital of Unidom Participações S.A. (“Unidom”) which encompasses Unidompedro and Faculdade Dom Luiz, both located in the State of Bahia with operations in the cities of Salvador, Luis Eduardo Magalhães, Barreiras and Ribeira do Pombal. The acquisition contributes 300 operational medical school seats to Afya in Salvador, one of Brazil's largest cities. The aggregate purchase price (enterprise value) was R$ 660.0 million, and the estimated Net Debt was deducted from the down payment.

The price and payment conditions are:

• R$ 347.8 million, deducted from the estimated Net Debt, was paid in cash at closing.
• R$ 312.2 million will be paid in up to 10 annual installments of R$31.2 million, adjusted by the CDI (Interbank Certificate of Deposit) rate.

Afya expects an EV/EBITDA of 4.2x at maturity and post-synergies (2027). With the acquisition, Afya achieved 3,503 total approved seats at the time of the transaction.

2. Subsequent Event

• Afya announced on July 1, 2024, the closing of its acquisition of Unidom on the previously disclosed terms.
• On July 12, 2024, the Secretary of Regulation and Supervision of Higher Education of the Ministry of Education (“MEC”) authorized the increase of 80 medical school seats of UNIMA, located in the city of Maceió, State of Alagoas, which will result in an additional payment of R$ 1.25 million per increased medical school seat, updated by IPCA since January 2, 2023 until the payment date to the selling shareholders of DelRey. With this authorization, Afya reaches 220 medical school seats on this campus, and 3,583 total approved medical school seats.
• On August 7, 2024, Afya Participações announced that entered into a loan agreement with International Finance Corporation ("IFC") to finance its expansion program, through acquisitions. The financing is IFC’s first sustainability-linked loan based on social targets in the education sector. The pricing of IFC’s loan will be linked to Afya reaching performance target levels in selected social key performance indicators encompassing free medical consultations for the community and quality of education according to Brazil’s Ministry of Education criteria (“Sustainability KPIs”). According to the financing terms, IFC will loan up to R$500.0 million, which shall be repaid in seven equal semi-annual installments starting in April 2027. The interest rate is the Brazilian CDI rate plus 1.2%, and it may be reduced by 15 bps if the Sustainability KPIs are achieved. The disbursement is subject to customary closing conditions

3. 2024 Guidance

Following the acquisition of Unidom, the authorization of 80 seats in UNIMA Alagoas and the performance of the first semester, the company is adjusting its guidance upward for FY2024.

4. 2Q24 Overview

Segment Information

The Company has three reportable segments as follows:

Undergrad, which provides educational services through undergraduate courses related to medical school, undergraduate health science and other ex-health undergraduate programs;

Continuing education, which provides medical education (including residency preparation programs, specialization test preparation and other medical capabilities), specialization and graduate courses in medicine, delivered through digital and in-person content; and

Medical Practice solutions, which provides clinical decision, clinical management and doctor-patient relationships for physicians and provide access, demand and efficiency for the healthcare players.

Key Revenue Drivers – Undergraduate Programs

Key Revenue Drivers – Continuing Education

Key Revenue – Medical Practice Solutions

Key Operational Drivers – Users Positively Impacted by Afya

Users Positively Impacted by Afya represents the total number of medical students from the Undergrad Segment, students from the Continuing Education and users from Medical Practice Solutions. For the second quarter of 2024, Afya’s ecosystem reached 320,237 users, in line with the same period of the prior year.

Seasonality of Operations

Undergrad tuition revenues are related to the intake process, and monthly tuition fees charged to students and do not significantly fluctuate during each semester.

Continuing education revenues are mostly related to: (i) monthly intakes and tuition fees on medical education, which do not have a considerable concentration in any period; (ii) Medcel’s revenue, derived from e-books transferred at a point of time, which are concentrated at in the first and last quarter of the year due to the enrollments; and (iii) Além da Medicina and Afya Papers revenues, which are sold in the last and first quarter of the year due to the timeline of exams and recognized mainly over time.

Medical Practice Solutions are comprised mainly of Afya Whitebook and Afya iClinic revenues, which do not have significant fluctuations regarding seasonality.

Net Revenue

Net Revenue for the first quarter of 2024 was R$809.9 million, an increase of 13.7% over the same period in the prior year. For the six-month period ended June 30, 2024, Net Revenue was R$1,614.1 million, reflecting a 13.5% increase over the same period of last year. The revenue increase was mainly due to higher tickets in Medicine courses by 5.4%, maturation of medical seats, the 40 seats expansion in Guanambi campus, the Continuing Education intake performance and Medical Practice Solutions execution.

Adjusted EBITDA

Adjusted EBITDA for the three-month period ended June 30, 2024, increased by 28.2% to R$343.8 million, up from R$268.2 million in the same period of the prior year, with the Adjusted EBITDA Margin rising by 490 basis points to 42.5%. For the six-month period ended June 30, 2024, Adjusted EBITDA was R$741.7 million, an increase of 23.9% over the same period of the prior year, accompanied by an Adjusted EBITDA Margin increase of 380 basis points in the same period.

The Adjusted EBITDA Margin expansion is primarily attributable to: (a) gross margin expansion lead by Undergrad business; (b) completion of UNIMA and Afya Jaboatão integration process in November 2023; (c) the ramp up of the four Mais Médicos campuses that started operation in 3Q22; (d) operational restructuring efforts in Continuing Education and Medical Practice Solutions segments; and (e) More efficiency in Selling, General and Administrative expenses.

Adjusted Net Income

Net Income for the three-month period of the second quarter of 2024 was R$162.2 million, an increase of 85.3% over the same period of the prior year. Adjusted Net Income was R$210.3 million, which resulted in an increase of 59.5% over the same period from the previous year. For the six-month period, Afya achieved a Net Income of R$370.5 million, 80.5% higher than the same period of 2023, and an Adjusted Net Income of R$ 461.3 million which was 54.7% higher than the previous period. This performance was mainly due to: (a) enhancement of operational results (details above); (b) reduction in finance expenses due to a decrease in Net Debt (excluding IFRS 16) in R$ 544.8 million and lower interest rates; and (c) lower effective tax rates than last year.

Adjusted EPS reached R$2.29 per share for the second quarter of 2024, an increase of 61.8% YoY, reflecting the increase in Net Income and capital allocation discipline.

Cash and Debt Position

On June 30, 2024, Cash and Cash Equivalents were R$723.4 million, an increase of 30.8% over December 31, 2023. The Net Debt, excluding the effect of IFRS 16, totaled R$1,458.8 million compared to December 31, 2023, Afya reduced its Net Debt by R$355.8 million due to solid Operating Cashflow generation.

For the six-month period ended June 30, 2024, Afya reported Cash Flow from Operating Activities of R$683.4 million, up from R$566.5 million in the same period of the previous year, an increase of 20.6% YoY, boosted by the solid operational results. Operating Cash Conversion Ratio achieved 94.3%.

The following table shows more information regarding the cost of debt for in the first half of 2024, considering loans and financing, capital market and accounts payable to selling shareholders. Afya’s capital structure remains solid with a conservative leveraging position and a low cost of debt. Considering Unidom’s acquisition and the updated mid guidance Afya’s Net Debt (excluding the effect of IFRS16) divided by the Adjusted EBITDA would be 1.49x.

CAPEX

Capital expenditures consist of the purchase of property and equipment and intangible assets, including expenditures mainly related to the expansion and maintenance of Afya’s campuses and headquarters, leasehold improvements, and the development of new solutions in the Medical Practice Solutions segment, among others.

For the six-months period ending June 30, 2024, CAPEX was R$137.1 million an increase of 34.2% over the same period of the prior year, representing 8.5% of Afya’s Net Revenue. However, there was a one-off effect in the first quarter of R$ 49.6 million regarding the Earnout of FIP Guanambi, due to the expansion of 40 seats as disclosed to the market in January 2024. By disregarding this impact, the CAPEX/Net Revenue ratio would be 5.4%.

ESG Metrics

ESG commitment is an important part of Afya’s strategy and permeates the Company’s core values. Afya has been advancing year after year on its core pillars and, since 2021, ESG metrics have been disclosed in the Company’s quarterly financial results in three key metrics, Governance and Employee Management, Environmental and Social.

The 2023 Sustainability Report can be found at: https://ir.afya.com.br/annual-report/

5. Conference Call and Webcast Information

OR

Dial-in:

Brazil: +55 11 4680 6788 or +55 11 4700 9668 or +55 21 3958 7888 or +55 11 4632 2236 or +55 11 4632 2237

United States: +1 929 205 6099 or +1 253 205 0468 or +1 253 215 8782 or +1 301 715 8592 or +1 305 224 1968 or

+1 309 205 3325 or +1 312 626 6799 or +1 346 248 7799 or +1 360 209 5623 or +1 386 347 5053 or +1 507 473 4847 or +1 564 217 2000 or +1 646 931 3860 or +1 669 444 9171 or +1 669 900 6833 or +1 689 278 1000 or +1 719 359 4580

Webinar ID: 992 6536 9988

Other Numbers: https://afya.zoom.us/u/acUEtLR3J9

6. About Afya Limited (Nasdaq: AFYA; B3: A2FY34)

Afya is a leading medical education group in Brazil based on the number of medical school seats, delivering an end-to-end physician-centric ecosystem that serves and empowers students and physicians to transform their ambitions into rewarding lifelong experiences from the moment they join us as medical students through their medical residency preparation, graduation program, continuing medical education activities and offering medical practice solutions to help doctors enhance their healthcare services through their whole career. 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, and include 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 students and professors; 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 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 are included in the 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 presents Adjusted EBITDA, Operating Cash Conversion Ratio, Adjusted Net Income and Adjusted EPS, which are non-GAAP financial measures, for the convenience of investors. A non-GAAP financial measure is generally defined as one that intends to measure financial performance but excludes or includes amounts that would not be equally adjusted in the most comparable GAAP measure.

Afya calculates Adjusted EBITDA as net income plus/minus net financial result, plus income taxes expense, plus depreciation and amortization, plus interest received on late payments of monthly tuition fees, plus share-based compensation, plus/minus income share associate, plus/minus non-recurring expenses/income. Operating Cash Conversion Ratio is calculated as the Cash flow from Operating Activities plus income taxes paid, minus/plus non-recurring expenses/income divided by Adjusted EBITDA. The calculation of Adjusted Net Income is the Net Income plus amortization of customer relationships and trademark, plus share-based compensation, plus/minus non-recurring expenses/income. The calculation of Adjusted EPS is the Adjusted Net Income minus the non-controlling interests divided by the Weighted average number of outstanding shares.

The non-GAAP supplemental financial measures are provided with the intend to help investors in assessing the overall performance of Afya’s business regarding its core operations, cash generation and profitability. The non-GAAP financial measures described in this prospectus are not substitutes for the IFRS measures. In addition, the calculations of Adjusted EBITDA, Operating Cash Conversion Ratio, Adjusted Net Income and Adjusted EPS are not standardized financial measures and may differ 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. Investor Relations Contact

E-mail: [email protected]

10. Financial Tables

Unaudited interim condensed consolidated statements of income and comprehensive income
For the three and six-month periods ended June 30, 2024 and 2023
(In thousands of Brazilian reais, except earnings per share information)

Unaudited interim condensed consolidated statements of financial position
As of June 30, 2024, and December 31, 2023
(In thousands of Brazilian reais)

Unaudited interim condensed consolidated statements of cash flow
For the six-month periods ended June 30, 2024 and 2023
(In thousands of Brazilian reais)

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