Q4 2022 Afya Ltd Earnings Call
Speaker 1: We proudly present another year of outstanding operational and financial performance for us. Once again, we have proven the resilience of our business, the success and execution of our strategy, the commitment of our team members and the consistency of our business watch.
Speaker 1: During this presentation, I will first run through some strategic topics, such as our performance highlights, the success of this execution within our three segments, 2022 and 2023 guidance, some recent awards recognition, and at the end, Luis Blanco will explore our financial and operational review.
Speaker 1: So moving now to page number four. Let's start with our performance highlights.
Speaker 1: First, AdjustNet revenue increased 32%.
Speaker 1: reaching 2.3 billion reaiis, followed by an adjusted beta growth of more than 27% over a year, reaching 962 million reaiis, with a margin of 41.5%.
Speaker 1: We also reported a strong cash flow generation again, ending the year with 877 million REI's, a 32% increase compared to last year, with a cash flow version of 94%.
Speaker 1: With an accelerated pace during the whole year, net income reached 393 million REI in 2022, a growth of 62% year-over-year, with an EPS of 4 REI and 14 cents.
Speaker 1: 73% higher than last year, reflecting our capital location discipline, instituting our business combination and three buyback programs in our program.
Speaker 1: Moving to our operational updates of the quarter, we have reached 2.7 thousand operating seats, an increase of over 11% year-over-year, with the beginning of four MICE magical campuses, along with new seats in Japan and Itabu.
Speaker 1: In addition, our number of undergrad medical students has reached almost 18,000.
Speaker 1: representing a 12% growth compared to 2021.
Speaker 1: We also saw great results in net revenue for our continued educational business. The segment grew more than 49% year-over-year, representing a net revenue of 109 million eggs. Once again, after reported great results on the digital health services revenue.
Speaker 1: which ended the year with an increase of 25% compared to 2021.
Speaker 1: These results reinforce the opportunity ahead in digital services and is explained by the ramp-up on B2B engagement with new contracts with pharmaceutical industry companies and the continuous ramp-up in B2B contracts as we will discuss further on.
Speaker 1: Lastly, our ecosystem has 260,000 active users, representing a great penetration among physicians and medical students in Brazil.
Speaker 1: In the next slide, we'll talk about our solid business education within our three business units.
Speaker 1: Starting with our core business, the undergrad segment, we saw important movements throughout the year. First, the successful opening of four MICE magical campuses, Abayete Tuba, Braganza, Itacuachara, and Manacapuru, adding more 200 magical seats to our portfolio.
Speaker 1: Second, the completeness of the Unigran Rio integrations process in October .
Speaker 1: one year after its acquisition proving our commitment to extract synergies within the operation. Third, the increase of 92 new medical seats, 28 in Jiparana campus located in Rondonia, and 64 in Tacodaga-Champagucino in the city of Itabuna.
Speaker 1: situated in the state of Bahia. And last but not least, the announcement of our largest acquisition so far, Unichalagoz and Cid Chabuatons Guararaz, adding 340 more medical seeds to our base.
Speaker 1: reaching an impressive number of 3,163 MedCo operating seats today, strengthening our consolidation as the MedCon Degrad leader results.
Speaker 1: We are delighted to see that the most significant growth of the year in terms of revenue comes from our continued education sector.
Speaker 1: with a robust intake process, six new campuses, and course maturation. Combined with the return of our practical classes, we can finally see our students, employees, and partners distracting the best from our ecosystem again, after a challenging scenario through independence.
Speaker 1: On our digital services segment, we are also proud to see our tools being able to assist physicians during their medical journey. At the same time, we continue to explore the development of our ecosystem.
Speaker 1: unlocking new interactions and revenue streams that go beyond the decisions, achieving pharma players, hospitals, labs, and drug searching.
Speaker 1: Proof of that is the engagement on the B2B strategy growth once we have reached so far almost 100 contracts with 45 different pharmaceutical industry companies. Strengthening our land and expanding strategy.
Speaker 1: Moving on to slide number six, we can see how the company's financial results reaffirm the resilience and predictability of our business model.
Speaker 1: At least 2022 net revenue was at least three times higher than in 2019.
Speaker 1: the year of our IPO. Furthermore, we also have market expansion in profitability and cash generation.
Speaker 1: With more than 200 dips in the beta-margin expansion, the gas conversion rate has continued to perform above 90%.
Speaker 1: showing our capacity to deliver strong growth, spending our profitability and cash generation.
Speaker 1: Lastly, our EPS has increased more than two times since 2018.
Speaker 1: proving our capacity to combine organic and inorganic growth with strong capital location discipline and consequently great returns to our chef.
Speaker 1: We are also introducing our guidance for 2023, which considers the successful concluded acceptance of new medical students, ensuring 100% of occupancy in all of its medical schools.
Speaker 1: Considering the above factors, the guidance for 2023 is defined as shown in the charts.
Speaker 1: Adjustment revenue is expected to be between
Speaker 1: two point zero zero zero zero zero zero seven five billion meillion highres and two point zero zero zero zero zero zero eight one five billion millionah.
Speaker 1: An adjusted EBITDA is expected to be 1.1 billion yards and 1.2 billion yards, excluding any acquisition that may be concluded after the issuance of this package.
Speaker 1: Once again, we are guiding another strong round ahead, improving access resilience and the ability to keep delivering solid results with a high predictability.
Speaker 1: And now moving to my last slide, as a reflection of our outstanding results and actions that are being shown to the market, we could joyfully celebrate several awards recognitions here.
Speaker 1: such as, Amal Mario Espa naaded hesitate te stepping wrong
Speaker 1: My name is Valor, I live in Brazil.
Speaker 1: Institutional investors 2022. Great place to work.
Speaker 1: Bloomberg Gander Equality Index
Speaker 1: Buckhundert Open Corporations 2022, among others.
Speaker 1: We are very proud of all these achievements.
Speaker 1: as they reflect the work and passion of our thousands of employees around a unique reason.
Speaker 1: to transform health together with those who have medicine as a profession.
Speaker 1: I will now turn the call over to Luis Blanco, Assistant CFO , to give more color on the financial and operational matters.
Speaker 2: Thank you.
Speaker 1: Thank you, Bigelio, and good evening everyone. Starting with slide number nine to discuss the financial highlights of the fourth quarter.
Speaker 1: With much satisfaction, I present another strong quarter results for Afya.
Speaker 1: Adjusted net revenue for the fourth quarter of 2022 was 595 million REACs.
Speaker 1: An increase of 18% over the same period of the prior year.
Speaker 1: In 2022, adjusted net revenue was 2.3 billion reais.
Speaker 1: An increase of 32% over 2021.
Speaker 1: of 32% over 2021, meaning due to
Speaker 1: FYI teleconferentials.
Speaker 1: Maturations of magical seeds.
Speaker 1: The beginning of four mismatched with campuses. The continued education segment recovered after practical activities was resumed after COVID-19 pandemic.
Speaker 1: and digital service performance. The digital service segment increases 25% year over year, a combination of
Speaker 1: A great start of the B2B engagement reaching roughly 100 contracts including Parma solutions and RXPro contracts.
Speaker 1: with 45 different pharmaceutical industry companies.
Speaker 1: and expansions of active pairs in B2P, mailing in Whiteboard, Eye Clinic and Shorts.
Speaker 1: partially offset by the lower performance of Medcell due to a higher competition scenario in the residency preparatory market.
Speaker 1: Fourth quarter adjusted dividend increased 24%.
Speaker 1: to 242 million reais with an adjusted EBITDA margin of 41%.
Speaker 1: For the year, adjusted dividend was 962 million REI, an increase of 27% with an adjusted dividend margin of 41.5%.
Speaker 1: a decrease of 160 base points when compared to 2021.
Speaker 1: The adjusted dividend margin reduction in the year is mainly due to the following.
Speaker 1: Digital segments primarily due to the mat cell performance.
Speaker 1: Increase in corporate expenses in the periods
Speaker 1: and launch of the four MICE-MATCH PUS campus in the third quarter.
Speaker 1: Moving to the next slide.
Speaker 1: Adjusted cash flow generation over the year was almost 32% higher year over year, totaling 877 million REACS.
Speaker 1: Operating cash flow conversion ratio was 94% for 2022 compared to 101% in 2021.
Speaker 1: Operating cash flow ratio in 2021 was positively affected by the end of the great spirit of tuitions, regular negotiations that occurred in 2020.
Speaker 1: Adjusted net income for the fourth quarter of 2022 was 129 million REI's.
Speaker 1: An increase of 31% over 2021.
Speaker 1: In 2022, adjusted net income was 535 million REI, an increase of 22% EURO.
Speaker 1: Our EPS performs a robust expansion.
Speaker 1: For the quarter EPS grew 53% and for the year EPS reaches
Speaker 1: 4 REIs and 14 Cents reflecting an increase of 73% year over year. Our EPS performance reflected the growth in our net income and capital allocation discipline executing our business combinations and three buyback programs in a row. Moving to slide number 11.
Speaker 1: to discussions of our key operator metrics by business unit.
Speaker 1: Starting with the undergrad programs.
Speaker 1: Our number of magical students grew 12% over the year, reaching 18,000 students, with operating magical seeds increasing 14% in 2020.
Speaker 1: Due to the ankle pass of 292 medical seats related to the four most medicals and G-parana and Itabuna
Speaker 1: Seats increase.
Speaker 1: The hits increase as we've looked at.
Speaker 1: Therefore, considering our maturation and unit acquisitions, we have reached 3,163 approved seats and expected to achieve more than 2,002,000 undergrad medical students as maturity.
Speaker 1: With our net average ticket increasing 11% year-over-year, we reached
Speaker 1: 7,896 REIs compared to 7,126 REIs in 2021.
Speaker 1: The last graph shows a 32% growth in combined tuition fees reaching 2.6 billion REI's up from 2 billion REI's from the prior year. 77%
Speaker 1: which are related to medicine.
Speaker 1: All this effort means one thing, our medical education business remains and will continue to be the cornerstone of our business in the short and the middle terms, delivering high predictable growth combined with solid profitability and cash generation.
Speaker 1: On the next page I will present our continual educational metrics.
Speaker 1: As said before, we saw another year of great recovery in our continual educational segment.
Speaker 1: with an increase of more than 34% in the number of students compared to the last year, reaching 4,280 students.
Speaker 1: In addition, for the year, net revenues grew 49% when compared to 2021.
Speaker 1: This recovery is mainly due to a robust intake process due to the return of our pratcoplasts, six theob Arbitrum campuses, 6 bio-composses.
Speaker 1: and courses mix and maturation.
Speaker 1: Moving to slide number 13, I will discuss the digital service operational metrics.
Speaker 1: On the first graph you can see our total active payers, which are the ones that generate revenues in the business to physicians.
Speaker 1: With a continuous growth trend, we've reached 203,000 paying users, a 21% growth compared to the last year.
Speaker 1: As you can see in the second graph, our ecosystem grew 5% compared to the previous year. In the last year, we have seen over 260,000 monthly active users, which represents almost 40% of all medical students and physicians in Brazil.
Speaker 1: Finally, on our last graph, we can see our digital service net revenue, which increases more than 25% year-over-year, reaching 190 million reais.
Speaker 1: Since the beginning of the year, we also started to break down our digital service net revenue within B2B and B2B segments.
Speaker 1: which accounted for more than 166 million comes from B2B and more than 23 millions coming from B2B.
Speaker 1: Since the B2B strategy is still pumping up, representing a growth of 154% compared to the prior year. 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.
Speaker 1: Cash and cash equivalents at the end of the fourth quarter were a billion and 93 million REI's, an increase of 46% over the same period in 2021, mainly due to the 500 million REI's that been issued in December of 2022.
Speaker 1: In 2022, NASDAQ totaled 1,381,000,000 REI's, achieving the same level of 2021.
Speaker 1: 2022, NASDAQ totaling 1,381,000,000 REI's, achieving the same level of 2021, supported by
Speaker 1: strong cash flow generations in 2022 of 844 million REIs, which was offset by
Speaker 1: Investment activities in properties, equipment and intangible totally 297 high ofic, for armen Armenuri
Speaker 1: 99 million re-is of acquisitions of subsidiaries
Speaker 1: and 152 million REIs of share reputated products.
Speaker 1: Our capture structure remains solid with conservative leverage positions and low cost of test.
Speaker 1: Even considering unit acquisitions.
Speaker 1: and the mid guidance of 2023, Acia Net
Speaker 1: On the next slide you can see a table with the breakdown of our grass stats and total cost of tax considering our main tax.
Speaker 1: the soft bank transactions, the boundaries, accounts payable to selling shareholders and other financial obligations.
Speaker 1: These end our prepared remarks.
Speaker 1: Strong performance, consistent growth.
Speaker 1: success in all segments and public recognition.
Speaker 1: This is how we are evolving and empowering our mission to provide an ecosystem that integrates educational and digital solutions for the entire medical journey.
Speaker 1: Enhancing the development, updating.
Speaker 1: after deepness in productivity of health professionals.
Speaker 1: We are very proud of our business and what we have achieved so far.
Speaker 1: and excited about what we plan for the future. I will now open the conference for the Q&A session. Thank you.
Speaker 1: So if you want to ask a question, please just raise your hand and we'll call you. The first question comes from Marcelo Seltis from J.P. Worden.
Speaker 3: I wanted to ask a bit about the prep course and the environment that you comment in the release. I mean, looking at the financial statements, it looks like the prep course revenue felt more than 50% over a year. So I just wanted to understand if I'm reading this correctly. So maybe it looks like, well, maybe ultimately 60% or 60%.
Speaker 3: what is happening and how do you see the outlook for this business? That's the first question and the second question is if you could share your expectations for a potential new Mysenaticus program when, how this should shape up, how are the discussions going with the government. Thank you.
Speaker 1: this year we suffered with the 2022 collections that mostly come in the first quarter of the year and we continue to see the pressure in the competitiveness of the process for the 2023 collections that started within the fourth quarter
Speaker 1: from that. The recovery is still slow and we think that we could see a more consistent result for the next cycle that will start on the fourth quarter of 2023.
Speaker 3: I just want to add a point here. It's important that under the pillar one where MedSell is located, we are also combining the offerings coming from Alenda Mipsina and also Cardio Papers.
Speaker 3: So this MedSell is just one type of the cross that we are offering under the Pillar 1. So combining all the programs that we are offering under the Pillar 1, MedSell is just one of them, the prep cross environment, quite competitive, and we're expecting to have like a resume grow under the...
Speaker 3: for your second questions about the Myosinativos program. We just saw the release of the new two normatives establishing the group that you discuss about health, education, how will be all the process of medical and also health products related.
Speaker 3: So it's very soon in the process, but what we can see is that they are following, at least the trend that we are expecting, having a lot of effort trying to incentivate more physicians and not this region and the areas that they...
Speaker 3: will define that prioritization under the new government. So it's still soon in the process, how would be the size of the next wave of the new mismatch. But I think they are trying to support the dynamic that we are having. So I think we still have some weeks to see what this...
Speaker 4: see all this effort to have physicians in the countryside of Brazil, we have the feeling that is going to follow what we saw in medicals 1 and 2.
Speaker 3: Thank you very much.
Speaker 3: Perfect, thank you very much. Of course, thank you.
Speaker 3: So the second question comes from from Mary Lynch. Thank you. Thank you, Renata. Good evening, everyone. I have two questions here as well. The first one is related to once I look at the guidance.
Speaker 5: It looks like there's a margin should be under pressure for 2023. Pretty much flat. So just wondering, that's because the continuing education should be more relevant. So anyways, we're expecting a little improvement here. And then the second one, once I look at the changing net debt.
Speaker 5: There was a cash burning of 20 million REI's, quarter over quarter, and your cash conversion is very high, like 90%. So I was just wondering why this high cash conversion is not helping to actually generate cash, and if we should expect an improvement in 2023 in this front as well. Thank you very much.
Speaker 1: Hi Francis, Luis speaking. I'll take the two questions. The first one regarding guidance we're pretty much in terms of mid-point aligned with the guidance and remember that the guidance included units and included the expansion of the mix.
Speaker 1: with the growth of digital and the continuing education that has lower margins than the undergrads focus on immense. So, included units, units is the first year we have the transition year.
Speaker 1: that the service will still be provided by the former sellers until the end of the year when we do the integration of units to our service.
Speaker 1: So it's pretty much the same in terms of margin, the guidance within our 2022 results, but we have to have in mind these units and the mix effect. Regarding net dance, it's always important to remember that we have seasonality on the
Speaker 1: the new term. So you're going to see, you're going to always see a better cash conversion in these two quarters if we compare to the second and the fourth quarter. Okay, just to add a point and also on the second half, on the fourth quarter phrase.
Speaker 5: We also have the vacations and that's in the state of payments only in December . So there's a lot of cash payments in December that reduce the cash position for all higher education sector, actually for all education sector in Brazil. Okay?
Speaker 5: Perfect, very clear, Virgilio. Blanco, thank you. Of course. So the next question comes from Lucas Nargano from Morgan Stanley .
Speaker 3: Good evening, thank you for taking our questions. We have two questions. The first one is a follow-up on regulation. The question is should another isometric program happen anytime soon after the end of the suspension or do we need to wait for a...
Speaker 3: Supreme Court's definition. And the second question is related to continuing education. How much growth can you achieve at full maturation and what are the perspectives of future expansion of campuses?
Speaker 6: Okay Lucas, I'll take the first one here.
Speaker 6: and what will happen on the continuing education here. So under the regulation, it's likely to happen this semester, another process that will release more capacity to the entire sector. So the Ministry of Education doesn't have to make any Supreme Court decision.
Speaker 6: to release the mice magical strains or any program that is similar. So the expectation is that once you have the freezing process finished in April , they will be ready to announce the new problem. The issue is that they just put this group together that we analyze.
Speaker 6: of opportunities here in terms of growth. We are growing here almost 50% in terms of revenues in 2022. Just remembering that we almost stopped our operations during the pandemic, so this is a very beginning, this is a market that is very high growth.
Speaker 6: in terms of addressable market. We have 15 to 20% physicians growth that we will enter in this market looking for new continuing education. And we are outperforming the market growth here. So remember that we just launched seven new units offering 100% of graduate programs.
Speaker 6: and most of them related in capitals, located in capitals. And we have more than 60 programs offering right now in our portfolio. So today it's more than 4,000 students. We are aiming at least to reach 10,000 students by 20...
Speaker 4: 26th, that's what we are aiming as an opportunity here in three to four years. Yeah, if I can compliment Lucas. As we just said, we expand the number of units that we had during the pandemic. In 2020, two of the first year to ramp up the unit.
Speaker 4: In 2023 comes with the same trend to mature these units and we can expect 12 growth this market that's how around 20%. And just coming back to Fed's question, as we said is one of the reasons that we see stability margins as we have a different mix.
Speaker 4: of continuing education and digital services growing more top line than the undergrad services.
Speaker 6: This is also important. Remember that as we launch seven new campuses, the density of students per campus is still low. We have a lot of opportunities. So semester over semester we're going to have more students, we have more fixed costs that will be diluted and...
Speaker 6: As you can see on our financial statement, we have gross margin improvements on continual education and also in digital services 2022 over 2021. And we expect to have the same dynamic for this next year.
Speaker 6: The questions on margin is that the mixed effect will be different because we have a high growth business on digital and also on continuing education.
Speaker 7: Very clear. That thisclass.
Speaker 4: So the question comes from Luca Marchezzini from Mitalo.
Good evening.
Thank you for taking our question. Just a quick follow up on the mathematical topic. So assuming a new problem that should bring additional medical seats to the industry, how do you believe this should impact the company's ability to readjust tickets in the medical school business going forward, not only for 2023, but especially in the long run? Thank you. Hi, Lucas.
north and northeast area in an area that they want to prioritize as critical of physician for an inhabitant. I think that we really maybe...
one or two times bigger than the last portion that was in 2018, maybe 8,000, 10,000 seats. But I don't think this will change the balance between supply and demand. I think it will be more small adjustment in some areas. And I think at least on our expectations here, we have fully...
7.5% and with the maturation effect that could increase one other percentage point.
That's very clear. Thanks, guys.
So just remember if you want to ask questions, please just raise your hand. Our next question comes...
from Pedro Carabina from Crazy3.
I've been from Crazy 3. Pedro, you may go.
Hi guys, thanks for taking our questions. First of all, congratulations on the results. Most of the questions we had were already answered. Just a follow-up. On the reshaping of Metcel, how is the intake going for the first quarter and what level of ticket adjustments should we expect?
Hi Pedro, regarding Medcell, we established for the 2023 collection that started in the fourth quarter and will continue in the first quarter of 2023. We have a very important price increase.
We're talking about roughly 50% of the price increase in terms of tickets. So we put these in place for the Medcell cycle.
that started on the fourth quarter and will continue in the first quarter. So this was a part of these product restorations that we've done. We changed the teams, we changed the product, we changed how we deliver the content for the students.
we focus a lot on helping the physicians to pass the test, to have a more focused product. So we are confident that we made the right moves from that and we are confident that we...
will revert these situations for the next cycle. What's important is to change the way we were expanding the gap between the next year. We are not seeing more than that. We are closing the gap between the next year and the next cycle.
we have these March and next page notes. And remember that as you mentioned before, during 2021, we faced a lot of pressure coming from the continued educational sites and
the COVID crisis started to be released at the fourth quarter. So the fourth quarter, it was the first quarter, that's where we started to see the intakes and started to rebound the revenues of the payment of the continued education.
to the margins if you compare 4th quarter 2022 with 2022 in 2021.
In Pedro, besides that, and continued education, so the undergrad are kind of flat margins, quarter over quarter, but also have digital services because of...
although we have the the the the issue on itself, I have a strong result coming on B2B, so the the contribution margin, the gross margin, come on digital services much higher when you compare the fourth quarter 2022 to fourth quarter 2021. So overall we have this.
bits of margin increase on our fourth block.
of margin increase on our fourth quarter. Very clear. Thank you.
So as we don't have any more questions, I would like to thank you all for participating today with us. If you have any more questions, please do not hesitate to contact me or our IR team.
It was a pleasure to see you next quarter.
The recording has stopped.