Q1 2021 Afya Ltd Earnings Call
Before.
Thank you Hannah and thanks, everyone for joining us today I'm very pleased to report a strong first quarter 2031 results continue the positive trends of 2020.
And also reflecting the successful execution of our strategic initiatives.
We continue to deliver the combination of our strong and predictable growth with high profitability and have cash generation.
But before we go through our financial highlights from the pay off our squad I.
I would like to present, our last acquisition.
We are very excited and honored to announce let me get on here physician influenza definitely on the Houston real estate.
This acquisition is a milestone for us considering the 308 seats from 1 of your heel will reach 1159 seats acquired in less than 2 years.
Delivering our guidance released during the IPO.
After concluding 14th deals.
This 308 authorized at seed sales.
Late in 2280 student debt maturity, we presented on embedded growth of 25% considering the current medical student base of $1.8 thousands a day.
Including when he got here our total net good student debt maturity is expected to reach 18.4 to 8000 students represents a CAGR of 9% from 2020 to 2026.
Health science related costs are important share of their business as well with more than $5.7000 students.
To enhance average continued education offering.
806 health related graduate students will be integrated to our student base.
I would also like to highlight the prestigious brands and their great academic quality of the institution.
What are you going to heal as the highest quality score among all 4 profit to universities and the University centers in the state of the engineers.
Our solid AGC continues of 316.
Moving to the next slide to talk about synergies in this transaction.
So they are really going to heal has won 8 how the medical students what represent on embedded growth.
95% and 22.2000 medical students at maturity.
And we will share 100% of occupancy.
These large health ecosystem is a per tie opportunity to offer offers digital medical services and <unk>.
Cross sell continuing medical education program.
During the lifetime value of each student.
The cost activities will be granted to our shared service center.
Korea plan and medical curriculum, we will also be implemented generating synergies already approved in past acquisitions.
When are you going on here is also our distance learning expertise.
79 distance learning centers and maximum quality score evaluation.
All of this footprint and capabilities will be applied to improve margins of Rguest ex house on the grant courses.
In on campus traditional students to a more hybrid learning process.
In terms of net revenues, let me get on here reported 263 million in 2020 of which 49% cash from medical cost and 60 also consider health related products.
At maturity in 2023 net revenue is expected to reach 300 reported <unk> is <unk>.
71% in medical cost and 85% and health related products.
<unk> cell maturation. This transaction is very accretive even expected EBITDA of 4.1 times.
The aggregate purchase price is 700 million NII with payment structure as follows.
60% paid in cash upon closing of the transaction.
The remaining 40% is payable in cash for <unk> through 2024, others for CDI rates there.
There are 82 additional stevens still pending approval.
It will result in a potential earn out is structured as follows.
1.1 million high expertise if the approval is granted in the first year after acquisition.
$1 million per seat.
The approval is granted in the second year after acquisition and 900000 eyes. If approval is granted in the third year after acquisition.
To get more information about this acquisition and I invite you all to see the presentation in our Investor Relations website.
Now moving to the next page, we will discuss the highlights for this quarter.
First I would like to reinforce that we will start in this quarter from segregate our results in 3 business units.
Undergrad, but he used to call <unk> comprised of under graduate Medical Barnes Health Science and other products.
Second continuing education comprise of ex facilitation and graduate courses.
<unk>.
Digital services.
It includes all services and products that compose the 6 pillars that our strategy is based on.
Content and technology from Edification clinical decision softer Frac day management tool and electronic medical record.
<unk> based on relationship telemedicine and diesel prescription.
I am pleased that we have concluded another 2 acquisition, we enhanced our destocking at the end of January we closed the acquisition of by cleaning our practice management software. These.
This acquisition consolidates, our position in the practice of medicine, so telemedicine and diesel prescription pillar.
At the end of the quarter, we also announced the acquisition of <unk> Tonight.
Health care technology company that specializes in healthcare payments and financial strength.
Moving on to <unk>, we will highlight our results.
Starting with our top line.
Adjusted net revenue grew 48% year over year, reaching 403 million on the EIS and the puts water due to the consolidation of acquire company maturation of medical school seats and expansion of digital services active paying users.
Adjusted EBITDA also increased 48% the same period.
Flattening definitive distracted from this segment.
Adjusted net income was up 22% year over year reached $160 million.
Total growth was partially offset by lower financial results due to the 3 reasons.
The increase in lower than financing in 530 million higher.
Exchange rate depreciation between Brazil, and U S dollars or 11% from December 2000 planning in March 2021, combined with plenty of 9% exchange depreciation rate between Brazil.
In U S dollars from December 2019, and March 2000 per se.
On the grid the financial result at the time due to our position in U S dollars and lag.
Lower income from financial investments due to the increase of Brazilian interest rates.
And lower cash position.
Cash conversion reached 103% on the first quarter of 2021 with a solid cash position of my $106.6 million.
Likely lower than 2000 planning due to the payments to selling shareholders.
Work to recognize our collection process debt, even considering the more flexible renegotiation of policy adopted in 2020 because of Covid. Our cash conversion ratio was mainly 2 percentage points above last year. Thank you.
The number of magically students was up 62% due to the consolidation of acquisitions and maturation of medical seats.
Without considering acquisition the number of medical students was up 22%, reflecting only the maturation of currencies.
Moving to the next page, we will discuss the guidance issued for the first half of 2021.
During our last earnings results for the full year 2000 spanning the issue guidance on net revenue and EBITDA margin for the first semester of 2021.
Net revenue is expected to be between $740 million and 780 million AI and EBITDA margin is expected to be between 46 and 48%.
Excluding acquisition debt may be concluded application of this guidance.
Clinton weighted Mark is not being considered we expect to conclude this operation on June 2021.
We are on track to achieve our guidance with the first quarter results.
Reported net revenue per the quarter was 403 million hacks, achieving 53 per center of the middle guidance.
In terms of adjusted EBITDA on we achieved 60% of the middle guidance, keeping adjusted EBITDA margin of 52% per day 1.
These are strong results stem from a combination of medical school seats and average 6 maturation with.
Distribution of digital services to our ecosystem and successful concluded acquisitions.
I'll now turn the call over to Lee, who will detail our financial results.
Think of it Sheila and good morning, everyone.
To the next slide to discuss the financial highlights of the first quarter 2021.
I'm pleased to present the growth track records that we were able to achieve in the last 3 years. Since 2019, we saw a strong trend in all key metrics.
Adjusted net revenues for the year was up 48% year over year to 403 million reais, reflecting acquisitions and organic growth excludes index day issues net revenue grew by 11% year over year, reaching 301 million Reais.
Such increase was primarily driven by maturation of medical school seats and an increase in the average ticket.
In terms of adjusted EBITDA, we almost tripled our result in just 2 years, reaching 208 medium reais representing.
48% growth year over year.
The margin remains flat comparing to the first quarter of last year, reflecting higher EBITDA margins of integrated companies that were offset by lower margins of recently acquired companies.
Net income was up 22% year over year, reaching 160 meter reais, partially offsets by the reasons from diesel by this year.
Our EPS has an increase of 6%, reaching 1 Rio in 16 cents per share.
Cash flow generation remains strong in the 3 months spirit, increasing 81% to 194 million Reais, which resulted in a cash conversion ratio of 103% compared to 81% in the same period of 2020.
Moving on to next page for a discussion of key metrics by business unit.
Starting with underground.
Radian medical seats increased 25% year over year to $1.9000 operates on seats net because students were up 62%, reaching a base of almost 13000 students, reflecting medical seats Maturations and acquisitions.
On average monthly medical tuition fees were up 6% compared to the first quarter 2020, reaching 8.7000, excluding acquisitions.
This reflects a combination of new students enrolling with a higher tuition rates combine it with students graduating with a lower tuition rates.
Talking about revenue mix, 80% of our combined net tuition fees other EBITDA from medical school.
Up from 77% from the same period of the prior year in terms of total attrition fees. We've reached at 414 need on Reais up from 252 million re is an increase of 64% year over year.
On the next page I will present continue education metrics, we saw a 30% decrease in net revenue due to a reduction in page students primarily driving by.
Critical programs that are not being offered since August 2020, and.
<unk> represents the impact of $7.90 metre and re IC net revenues.
And physician decision to postpone the intake in its facilitation courses due to the COVID-19 pandemic.
Although with the combination of opening of 6 new campuses in 2021, and expand index facilitation portfolio. We have a strong intake process that started in the second quarter <unk>, reaching 1.8000 students neighbor 2021.
Going to the next slide I will discuss these 2 service metrics on.
On the first graphic you can see our achieve paying users back Peter.
Those are active subscribers that generates revenue.
Net sales active students grew 50% year over year clinical.
Clinical management dues reported the subscriber base of more than 13000 users and clinical decision factor of more than a 110000 active users we have.
Have a great opportunity here to distribute our products.
Ecosystem.
These results reflected 40.
48% increase in digital service net revenue.
The last graph on the page shows that the monthly active users. That's reached 221000 students and physicians all over Brazil is accounts for approximately 30% of the market of medical students and doctors in Brazil.
Moving to the next page I will discuss in more of the deals that <unk> revenue and EBITDA growth.
We saw a 48% increase net revenue year over year of which 78% are coming from the consolidations of acquired companies.
On the right side of the page we show the bridge of adjusted EBITDA for the first quarter 2021.
During this period adjusted EBITDA also increased 48% year over year to 208 million Reais with.
High margin as we presented in the past few years, 75% of the increase is coming from acquisitions and the other 25 is coming from the synergies extracted from a quiet confidence that we have integrated into our shared service centers and increased patient of net green seats to 1.
100% and implementations of our career plan and integrated curriculum moving.
Moving next to discuss cash and net debt position.
Cash and cash equivalents of 966 million reais at the quarter and were 8% lower than 2020, reflecting the payment of acquired companies.
This cash position does not consider the closing our Softbank Corporation, which was closed in the quarter.
The total net debt was 230 medium reais.
<unk> first quarter 2021 up from $106.7 million Reais in 2000 and Hawaii.
Considering digital acquisitions batch work close subsequent to the quarter ends and when it would hit the Mark and on your current view acquisitions debt.
We're already signed but not closed our pro forma net debt will reach 1.3 billion reais.
Now we'll open the conference for the Q&A session. Thank you.
Okay.
And total hauling.
No.
By fast.
So that the economy on cash.
2 more items.
Joe on do you hear me well.
Yes.
Hello, and a area net asset.
Cash.
Okay. Thank you very much for call.
We have 2 questions here regarding when you got you.
So the first 1 is regarding their distance learning.
Turning operation, which is very robust as you point out.
We would like to see what's your plan.
On this business now in terms of.
How can you instruct the synergies on perhaps a increased and the amount of distance learning on Euro No health operations.
Based on their expertise.
The first question and the second question is regarding the potential for tickets increased mainly Raphael.
Uh huh.
How do you see that on which level of CSR Nowadays and.
Also issue of St. Jude.
And creating new chapters units on the ground zero level, which are related to the only true tremendous sales.
So these are our questions. Thank you.
Hi, Gabriela this is really a thanks for your question our motto first 1 regardless of learning.
We are going to apply all the expertise coming from when he growth yield as our asked yes distance learning platform and used to leverage all on Campbell's sold me great on campus ex health programs.
This platform.
So there's a huge opportunity for us to GAAP, our house operation for this programs and also leverage margins for the recent acquisitions and for.
The following acquisitions debt can.
Common also be great <unk> and integration strategy since he is on a faster Oh.
After a new medical school acquisition debt comes with additional products.
On the tickets are the day average tuition from when you get out here today is around 8.
8008, 5000 highs on medical problems, they still have maturation on enrollments and also on tuition debt.
First year students debt wishes around 10000 high so we have a separate.
The opportunity to match rates.
The cohort of this higher tuitions are through the next 3 to 5 years, so still have opportunities for tickets improvements considering the cohorts maturation.
About.
The campuses locations are we have 2 main campuses trimming campuses wanting book is cashier Vista, our largest 1 the second 1 is in northern Russell and a third in Bahar debt Zilkha, where we have a 100% the house operation with the numerous medical school that has 2 maturation so maturing.
Ah, we're still analyze and making a go to market are all fights all campuses. We now have another campuses in the north of the states are debt.
Debt, maybe it's an opportunity close to campus is because there's a very small operation and migrate their on campus.
Providence 2 a.
This is Lenny platform. So it's too early to on our lives that we are doing but yes, it's on opportunities to manage.
The location of those campuses.
Thank you version of Virkler.
Thank you Gabrielle.
So our next question is from Kyle.
Now lagging Sally.
Hi, Good morning. So can you can you guys hear me, yes, yes.
Yeah. So great. So my question is regarding the expected margin at maturity, which would be around 50% is it really feasible to arrive at those margins, especially in a very competitive market like huge unaided that test.
Big players. So I was wondering what are the drivers.
That should lead to the fed does very strong margin expansion.
Hi, Kai it's Luis speaking when we make these projections for EBITDA heel, where with a rich oh on the Maturations portions of Spa med seen revenues to the total coming around 70%.
A 15% of that's coming from other health programs.
If we compare this kind of profile we are far institution stats are.
We we have on our portfolio depth have the same air profiles are we we are confident that we can achieve just kind of margins and even though that severe competitive markets are most of the revenues controlling profit from the mezzanine pieces.
Our on the Maturations.
And we see that we can have.
<unk> chicken like this you just subtle hold us up from 10000 Reais approximately as that you could fall from new students. So we are pretty constant stats on implementing now the playbook off see niches that we have in place that's on 2002 thousand.
3 we can reach these kind of margins yes.
If I may may add here, Kyle we have our.
More mature schools operate in a very much higher margins than the system on the contribution margin on this.
Medical schools.
Operating above 55, and some of them about 60% of contribution margin. So when you compare to make on internal benchmark.
<unk> of the book to follow for 80% and maturation coming from house application more than 60 coming from medical problems.
We'll have a very good view, where we can reach in terms of March so 50%.
In a city like readers on arrow with 1 of the highest tuition debt, we have innoxious on senior debt the.
The new students by enrolling almost 10000 eyes is the frustration.
We are very confident to reach it.
This contribution margin underground EU.
In 3 years.
Alright. Thank you guys appreciate it.
Okay next question on kind of found at <unk> Dot Com Goldman Sachs.
The thing on victim.
Thank you and thank you all for taking our questions. So on.
Our first question would be what do you believe could be the main challenges in integrating such a large asset.
On Rio on.
If you anticipate any potential friction and rolling out asset curriculum, ensuring the Grand Maria and our second question also related share on ground rear if ladder debt equity initial quick change that bulk was off our overall M&A strategy, namely if you are now more likely at least in the near.
Our term share focus more on smaller targets are on digital solutions.
Sure.
Ivy throat. Thanks for your question.
In terms of M&A for sure it would be the the most complex acquisition in terms of integration.
So have the full integration.
Between 12 to 80 miles from now after after closing the deal with spectrum. Nonetheless stream next 3 months.
And first of all our debt our curriculum.
We'll be ex.
Sales for all.
<unk> unique value community.
I think there is a lot of enhancement debt again.
Ken.
Element there in terms of technology in terms of all digital service debt, we have plug into our curriculum.
To help during the day learning process for the first of the 6 year. So theres a lot of blood gains that's a win win in terms of.
Curriculum for another day medical products.
So I don't think there will be some kind of resistance on debt.
On the other on the.
The other health problems I think there is something that we also can join with our curriculum here. They have a lot of expertise in health programs.
Our debt dentistry progress very traditional in Rio de Janeiro also from a strict sixth street, the sensor from Basra and Doctor in Prague on the alpha areas.
That will average AR, our us for faster.
Porch fall in terms of.
Doctors on Masters in our operations, so it'll be a very carefully.
Our integration very long term on the first wave of refresh or integrating our medical our curriculum and also all the handsome debt we can pro game.
For the entire our student base.
In terms of our focus.
On the digital opportunities we.
We're organizing on our M&A area almost thing E Chu.
Avenues, 1 is completely dedicated.
To analyze all the digital services opportunities.
And the other 1 leveraging our medical school opportunities. So we are sharing Disney parallel.
So it's not hurting our strategy here in terms of the opportunity cost of reducing our speeds.
To keep attracting new.
Tech companies to our operation here.
Yeah, Yeah think of issue.
Thank you all of you for final question, then, adding what's even more colorful watch the vicious SaaS first of all all of that we are very glad that we have.
Achieve surpass the goals that we provide to the market as a use of proceeds and IPO. So.
We are now with 1000 and 159 seats.
In our in our portfolio.
Having said that about a the undergrads opportunities that we have.
We're going to keep growing the market, we see that it's accretive.
Very accretive for us for keep going on on acquiring institutional debt has a portfolio.
From Madison that is over a 6% on the maturation. So we see a bad debt and.
On a much value on that we have a very fertile edge our pipeline on this undergrads.
<unk> with guidance.
Market data from 2022, we're gonna out we're going to keep adding.
More than 200 seats fair.
Barrier.
And about <unk> of the digital Ah Ah surface.
We have the <unk> strategy plays are we want to fulfill all off down were for all of service to provide our the power for the physicians in EPS in his career.
So we are keeping talking with these health tax our providers to to to see what's the best the best entrepreneurs to best serve us to aggregate in our in our in our portfolio. So the acquisitions off when you get a hit do not change.
At all in any point of our of our strategy, we can and we keep being Ah.
On a line, what's we are being sad.
Kind of a size and cutoff.
The profile of our companies and in the digital side, keeping on adding service for the physician.
Very clear thank you both.
Okay.
Okay. Our next question on accounts town.
The pay debt fell yeah right.
Right now you can.
On a go now.
Can you hear me.
Yeah. Okay. Thank you. Thank you. Thank you for the time for the questions.
Just 1 question are we see that the acquisition of whenever he was of course up a.
A very large acquisition of distinctive milestone in your history.
And and thank you for for showing the pro forma net debt.
My questions about do you do intend to go for more capital in the short term. So you can accelerate the acquisition of the specific Lee of Mats in schools.
Or do or are willing to consolidate a little bit more.
The undergrads need who before going for more acquisitions and concentrate in the tech business. Thank you.
I sat there that it's Luis here. Thank you for your question.
About the capital strategy.
What what what we have first of all it's reported Brunella that we've generated a lot of cash.
Even in these difficult times.
Adjusted cash flow generation was over a 100% needed to all our our successful I would say that's a.
Policy off of <unk> that we have implemented on.
On on the coffee that's was very very strong then.
Cash and provide us. These these cash flow strong cash flow generation.
In these in these first in first quarter. The second point is is to remember that this. This this this this number do not reflect our E. In a net debt position the operations that we've achieved.
If with Softbank as on that that we are going to receive that and cash with closer Ts.
Operations more than 800 million free IC may.
So.
We have a in.
In our pro forma base at a cost of these Ah.
This operations, we have a very strong cash flows.
Strong cash positions and supporting tools to highlight that.
We negotiate a seller financing.
With this you off on when you're going on here that suggests.
Our base <unk> 660 per Santa.
68% total AR in the moment of articles the day 40 are remaining.
Our presentation, we're going to pay in the next years through our sales assignments. So we are keep coming.
That the targets are not off the free segments. Okay.
Very clear thank you.
So on gas to remember if you're on asked question gastro anchor hands.
Last question comes from Luca banking Sal Bradesco, we can now go on long term.
Okay.
Okay can you hear me.
Yes.
Okay. So my question is regarding the continual education, we signed our first quarter debt. It was impacted by a physician's decision to postpone enrollments. So my question is.
Should we see a positive effect from pent up demand going forward in the segment and if so what.
What the magnitude of this impact and when should we start to see this.
Okay.
Yes.
Thank you Luca.
Important point on 2020, we have an impact delivering the practical problem was pro graduates.
Students.
So the second housing day was very there is very low.
And we have on impact.
On the rhythm of net revenues per condition.
On this first quarter.
Debt impact just.
From nauseous around 8 million highs when you compare to the same period last year.
But on the other hand.
On the spectacle classes resume this.
This year and also the intake debt.
Debt to be close at the end of April was a very strong as we announced during the ask ask Eddie.
We enrolled more than twice a day.
The volume on student debt, we had last year on the same the same period.
So the student base now are we past the inflection point and we will start seeing this resumed in the second half you'll still see some reduction on the second water, but on the second half, we'll see a growth on this line and we expect it to be very.
Our aggressive growth for the following.
Semesters.
We just launched more 8 units.
Last year, we have only 5 now we're operating with 11 and in the second half who have 13 centers distributing our graduate programs all symptoms of programs, we had last year.
<unk> products and now we have more than 60.
Be offered through all of this our centers. So it's a huge opportunity to leverage this operation.
Have a very good growth rates I think it's worth to mention that in this quarter, we have seen diesel services.
Growing very fast.
On a landmark only.
Because of the acquisition, but on organic that we have just gone.
Showing med sell results.
W, 15% pure organic year over year.
But for.
For the second half.
When we start a giant any net sale.
Sorry, if I imagine.
Debbie Magic and AR and the order a health tech companies, we expecting a 20% M. A ball the second half last year because of the number of the on.
All of doctors enrolling in our platform. So this is a very important.
On the future forecast on the diesel services.
Okay very clear thank you.
Okay. So we see here a question in our cash and it is do you have on EBITDA guidance. Our net E. F 2021 could you provide an EBITDA breakdown between the business units. So we have a guidance, we actually expect Smackdown, we released guidance each second quarter on quarter 4.
Volume from last year if.
If I could slop net first semester.
Yes.
On handset and 40 million killed 780 million of net revenue and EBITDA margin from 46% to 5.8%.
Regarding the EBITDA margin per business segment, we do not disclose the net.
But we can't give you.
A better understanding of that if you want please just follow up with ads and send me a mail on Investor relations Dot asset that can that be on okay.
I think that we do not have any more questions I want to thank you all for participating today and please feel free to contact Kathy if you have any doubts.
From a nice day.