Q3 2023 Afya Ltd Earnings Call
It does feel as usual it will be something above flowers' CFO.
During this presentation or a doctor who make forward looking statements forward looking statements can be related to future events.
<unk> financial our burn rate per followers, known and unknown risks uncertainties and other factors that cause actual results to differ materially from those contemplated by these forward looking statements.
Let me restate what he just presentation includes but are not limited to statements related to the business and financial performance expectations and guidance for future periods, our expectations regarding the company's strategic product initiatives, it's related benefits and our expectations regarding the market.
These risks include those more fully described in our filings with Securities and Exchange Commission.
The Florida distinct listening to this presentation are based on information available to us as the date hereof, you should talk and rely on dentist predictions of future events and we disclaim any obligation to update any forward looking statements, except as required by law.
In addition management May reference, though my half RF measures on this call. These measures are not intended to be considered to eat isolation or as a substitute of the results prepared in accordance with Firefox.
Residential has reconciled these though as far as financial measures to the most directly comparable <unk>.
Financial measures.
I'll turn Nicole virtual machines, you won't ask a few.
Thank you Mark and thanks, everyone for joining us today.
As we approach to the end of the year, we can see argon one data strong pitch. So moving now to page number three.
Softly Barak Walker highlights.
Adjusted net revenue grew almost 25% yogurt.
Reaching 723 meeting.
Followed by adjusted EBITDA growth nearly 22% you already reaching 278.
With a margin of 39%.
We also reported a record cash flow from operating activities generation and in the nine months period with 934.
26% higher than last year with a cash conversion of 109% and.
And we were able to reduce our net debt.
118 beat on hand, when compared to December 2022.
Even with we need some pizza acquisition January as we will see on the slide 14.
Adjusted net income followed the same positive trend of less quantity and reach of $128 million.
A growth of 7% year over year with an adjusted adjusted EPS of <unk> 38.
7% higher than last year, even considering a higher net debt levels and a higher interest rate.
This result reflects August great capital allocation discipline on buybacks M&A and then an efficient capital structure in this quarter. We have reached 3130 operate seats with deposition of unit and see the beginning of the formats Medical's operations, along with the coupon on that.
Representing an increase of 15% to yogurt.
Our number of undergrad medical student has reached more than 21000, representing a 20% growth compared to the same period last year.
The continuing education segment, we continue to see great results present, and that's revenue growth of 35% year over year.
Once again after a reported great results on the digital health services revenue, which ended the quarter with an increase of more than 19% year over year, reaching more than 53 meter in the three months period.
This result, reinforces the great opportunity ahead into digital service and it's explained by the strong ramp up will be to be engagements with new contracts with pharma and <unk> companies and the continuous ramp up on the B to B concert.
Last but not least our ecosystem reaches 280005 active users what represents around 34% of the Brazil acquisition in Med school students markets.
Moving now to slide number four we will talk about our solid business execution within our three business units.
Talking with the Undergrad segment, we saw important movements throughout the quarters, such as higher kicks in medicine courses with 9% increase in medicine tuition for the nine months period, and the maturation of medical seats.
We are delighted to presents the most significant growth in terms of revenue came from the continuing education segment with 35% growth year over year due to a robust intake process, new campuses and cost much rich.
When our diesel services segment, we ended the quarter with a revenue increase of 19% compared to last year. These results reinforce the opportunity ahead in digital services and is explained by the rump Bakken <unk> engagements that boosted net revenues and grew more than 75% with new contracts with the pharma.
Industry and to continue those ramp up on the two key contracts.
And the next slide we are reaffirming our guidance for 2023, which considers the successful conclude acceptance of new match the students ensuring 100% of students in all.
All its medical foods.
Considering the above factors the guidance for 2023 is defined as shown in the shocks adjust.
Adjusted net revenues is expected to be between.
$2.750 billion and to be the 850 million that ends.
Adjusted EBITDA is expected to be between.
<unk>, one <unk> and $1 2 billion.
Excluding any acquisition that that may be concluded after the issuance of this guidance.
Also consider the increase of <unk> contribution rate.
In other words August 2023, net revenues and adjusted EBITDA will be almost four times higher than 2019.
The year of our IPO. Furthermore, the cash conversion rate and we will continue to perform above 90% show our capacity to deliver strong growth expanding our profitability and cash generation. Once again, we are guiding another strong rather head aimed at the top of the guidance improving access resiliency and ability.
To keep delivering solid results with a high predictability.
And now moving to slide number six on October four the municipal allocation announced the rules for the Midas magical suite.
Which defined the criteria for Mexico seat expansion throughout Brazil, aiming to achieve OECD average of three three physician per 1000 inhabitants in 10 years. The new program. We allow the opening of nearly 10000, new undergrad seats of which seeks to 700 seats will be distributed through <unk>.
Define health regions across 95 seats, considering 60 seats per entity.
In addition, approximately 2000 will be allocated to existing private institutions.
Another 2000 allocated to the public system.
As stipulated in the notice from my Medical Street.
Our organization is eligible to compete for two health regions. Ikea have 18 entities, we have 70 of them offering high quality medical costs.
Mike Medical sweep presents a significant opportunity to expand <unk> medical office in Brazil and average.
<unk> need for more health care professional in underserved areas August committed to engaging the program with high quality proposals and enhancing the standards of medicine cost throughout the country now.
Now I'll turn the call over to Luis Blanco office CFO to give more color on the financial and operational metrics. Thank you.
Thank you <unk> and good evening everyone.
With slide number eight to discuss the financial highlights of the third quarter.
It is with much satisfaction that I presented another strong quarter results for Oscar.
I just the net revenue for the quarter was up almost 25% year over year to 723 million Reais.
For the nine months spirits adjusted net revenue was 2145 meter in Reais and increase of 24% over the same periods of the last year, reflecting the maturation soft medical seats higher tickets in medicine courses and the ramp up of continued litigation.
Boosted by the growth in the number of students.
Once again the digital service segment has also contributed to the revenue growth this quarter with the increase of the <unk> engagements and active payer's X patients will be <unk>.
Adjusted EBITDA for this quarter increased almost 22% to 207 to eight medium reacts while the adjusted EBITDA margin decreased 90 basis points to 38, 5%.
For the nine months adjusted EBITDA was 877 million an increase of around 22% over the same periods of the prior year with adjusted EBITDA margin decreased 80 basis points in the same period.
The adjusted EBITDA margin reduction is mainly due to.
Mix of net revenues with higher participation of the continued application segments and the consolidations off four mismatch, which accomplishes that.
Started operation on the third quarter, 2022 ads units Alagoas and Pete Schubach them.
Which are performing better than expected, but still present lower margins when compared to the integrated companies.
Moving to the next slides.
Cash flow from operating activities for the nine months was 26% higher year over year totaling 900.
34, Wheeler reaction, resulting in a strong cash conversion ratio of over.
109%.
Adjusted net income for the third quarter of 2023 was 120 million Reais.
And an increase of 7% over the same period of the prior year.
Mainly due to the increase in operational results, which was partially offset by higher financial expenses.
Adjusted net income for the nine months of 2023 was 427 million Reais and increase of 5% year over year.
Even with higher interest rates year over year.
And an increase in deaths with acquisitions off when each alagoas in feature brought down our adjusted EPS keep increasing due to operational leverage reaching.
One <unk> and 38 cents.
And for <unk> 58.
Their share in the third quarter and nine month periods, respectively.
Moving to slide number 10 for a discussion soft key operating operational metrics by business unit.
Starting with the undergrad trucks.
Our number of medical students grew 20% year over year, reaching more than 21000 students with operating medical seats, increasing 15% year over year.
With our net average tickets for the nine months of medical school increased 9% year over year, we reached 2446 meter and combined attrition piece from.
From 1970 8 million Reais.
The prior year, an increase of 24%.
Regarding the revenue mix, 79% was the rebates from medical school students and 91 from health related courses.
For the next phase I will present, our continual educational metrics.
As said before we saw another quarterly.
Great recovery in our continuing educational segments with an increase of nearly 23% and the number of students compared to the last year Richard.
4954 students.
In this quarter net revenues for the segment grew 30.
75% compared to the same periods of the prior year.
And for the nine months, we saw an increase of 43%, reaching a net revenue of 108 million branch.
Moving to slide number 12, I will discuss the diesel service operational metrics.
On the first graph you can see our total active players which are those ones that generates revenues in <unk>.
With a continuous growth trends in this quarter, we reached 217000 paying users 12% growth compared to the last year.
As you can see in the second graph our ecosystem reaches 285000 monthly active users representing around 34% of all medical students and physicians in Brazil, as we said before.
Finally, our left graph shows our additional service net revenues for the quarter, which increased more than 19% year over year.
And regarding the nine month period increased by almost 22% year over year.
The organic growth is the combination of the start of the <unk> engagements with pharmaceutical companies and the expansion of active players in the <unk>.
In addition, since 2022, we started to break down our additional service net revenue within <unk> and <unk> segments.
So from the 164 million Reais of digital service net revenue during the nine months spirit one than the.
134 million Reais gain from the <unk> and almost study meet every ice came from <unk>.
<unk> strategy holds a huge potential and issue company now.
And now moving to my three last slides I will discuss our cash and net debt positions.
Also give them, giving more color on our cost of debt.
Cash and cash equivalents at the end of the quarter were 822 million <unk>, an increase of 15% over the third quarter 2032.
And an increase of 11% over the second quarter 2023.
Net debt, excluding <unk> 16, totally a bead on 788 immune reactions compared to the net debt of 348 million Reais in the same periods of 2022.
The increases when compared to the third quarter of 2022 is meeting due to the 825 million reais of languages and <unk> acquisitions close.
The second of January of 2023, which was partially offsets by the free cash flow generation in the first nine months of 2023.
As we can look closely on the next page.
This slides I presented the net debt reconciliation for 2023.
The cash flow from operating activities was allocated to income tax and lease payments.
Activities for the service of the financial debt.
And our share buyback program.
We're able to generate 400 and E 18 meter re ice as free cash and reduce our net debt in the nine months period.
On the next slide you can see a table with the breakdown of our graph stats and our total cost of debt considering our main deck.
Subsequent to the transaction.
Other loan and finance accounts payables to selling shareholders.
Other financial obligations.
Our capital structure remains solid with a conservative leverage position and the low cost of debt.
This ends our prepared remarks.
As we approach the end of the year, even considering the challenging economic and political scenario, where can gladly see austere delivered strong results.
We've acquirer market by significant increases in net revenues in our three segments positive EBITDA.
Cash generations and EPS growth.
The consistent business expansion.
I will now open the conference for the Q&A session. Thank you.
Okay.
Sir please raise your hand.
I'm going to start our Q&A, let's look at Sangamo film Martha Paul.
<unk> can now.
Yeah.
Hello, Good evening, thanks for taking our questions we have two questions.
First one is related to my metric was three.
Is it possible to provide us some color on your plans for the program.
In terms of how many proposals you plan to submit.
Many features represents and in which regions you're targeting.
And the second question is related to treatment readjustments.
For next year. So how much are you increasing prices for 'twenty to 'twenty four.
And if it varies between schools so.
If you could give us some color on the range of tuition readjustment.
All of our shows calls thank you.
Hi, Lucas <unk>. Thanks for your question so regarding the mice magical number three we have 18 institution that all of them, it's going to proposals for additional two medical schools. So we will be allowed to sand the proposal 430.
<unk> 36, new additional schools. So the number of medical seats will be received.
Six times.
60.
At school. So this is the number that we are going.
To participate on this entire process so regarding the <unk> adjustments.
Yes.
<unk> Blanco here that will give you more color.
Hi, Lucas, it's Blanca speaker regarding the second questions.
About Korea adjustments, we have to finance the increase in tuition fees for the next year.
Specifically problem from a mezzanine courses, we are increasing most part of the courses in four points to 95.
Percent.
<unk> freshman sent out.
Existing students most part of our institutions were going to have this kind of this kind of career disciplines.
Okay. Thank you. Thank you very much.
Thank you Luca and the next question comes from my telephone to firms that can ride them.
You May now go.
Thank you. Thank you very much good evening, Virginia, Louisiana, but thanks for the opportunity I have two questions. The first is considering you are we are ready to meet the wharf fourth quarter could you. Please provide an uplift.
An update on the outlook of the prep business, probably already had a lot of the intake so would be interesting to see how do you see this next cycle.
The second question is if you could comment a bit on digital business.
We saw sequential a slight sequential decline in revenues.
Isn't this a business, where we should be hope before a little bit higher growth could you just comment this.
Changed from the second to the third quarter, what are the moving parts here and how do you see this moving forward. Thank you.
Hi, Marcello.
I always get the question about the course of the year. So this is basically regarding to mid sell operation. So the nine months.
We operate in below.
The trend.
When you compare to last year, the same period last year remember that the seasonality.
We have the new offer for 2024.
<unk> Destocking.
End of September October for what we are seeing from October and November that the volume intake that we had.
Had last year. So is the first model.
When you compare to the last 12 months that we are seeing a stronger intake.
Strong winter compared to the last year.
Saint Pierre intakes, so we expect to reduce.
The gap between last year and for 2024.
Resumed growth also on prep courses offerings. So regarding the diesel block will give more color for that.
And myself were blockers speaking here.
That's helpful.
For us to have to have a pushback on the depot results as a whole are met so it is not.
Our most important business in the diesel.
We are each at <unk>.
Lagging.
With white booklet flagging with a wide book, but as you notice in our release the number of students of med seller decreased more than 50% year over year.
Now we can have these new intake that started here in the fourth quarter that we can recover it and stop this.
Follow up.
From from the last year or so.
The diesel as a whole to achieve these wants to be the re ice.
Uh huh.
Net revenue that we have guided for 2028.
It has to grow.
Around 35% and Europe and row right. So we delivered a 19% in this less in the <unk> in this quarter, but these are.
Drop on the on the on the on the net revenue.
Come mostly from from from itself if you would take the main.
An important part of the practical medical business Oh, we are growing our rounds.
30% Okay.
The number of active paid users are growing are growing.
16% and the number of the B to B business is growing 75% sold.
We have these specific pushback because of our off med cell.
The all of the actions on that.
And so for the personnel numbers off the fourth quarter SBC originations. We are we saw a recovery year over year.
Just summarizing that Marcello, but the way that I like to see that that separating.
On digital the pillar one that is basically medical education medical location most of the parts come from itself operations.
And even combining mid sell operational days of business to physician type of business with other products that we have on pillar two and also pillar three.
We are growing on <unk> more than 14%, even considering the downturn coming from itself, but if youll see the digital business that we started ramping up last year, we are moving above 75% that's our.
At least aware up with our efforts here to leverage our digital operations. So this is basically medical Brexit so on digital medical practices is growing faster than expected, but when we have.
The pillar one thats more regarding to Mexico location impacted by mid sell operation is just expanding.
Expanding 14% the year over year.
If I make one lancer furlough.
First thing that's important to remember is that when you look for the same traffic a company, especially in the Batesville what comes mostly off the money comes from Dmitry <unk> part of the Vista right and to accomplish that.
We don't need the pillar one let me I don't want to make.
I don't think that that importance on that but I took a requirement of strategy here, we need to have the contactless definitions right and the product that most matter here the product pillars to between four five and folks so Mac salaries willing parties looking if we want to keep with destination, but.
I think with Matt so it doesn't make cuts.
That we cannot actually been one thanks for being on anything like that okay. Our b to B segment is going great.
Perfect. Thank you very much for all the explanation.
Both of them.
So the next question comes from PRASM ranges from <unk>.
<unk>.
Thank you thank you Dan.
Good evening, everyone I have two questions as well.
If I can just go back to my estimates was program just trying to get an understanding.
Do you think that eventually as it looks like the restrictions of the request.
Britain institution. They are they are more restrictive than previous programs do you think that eventually this could.
Bring an opportunity for you in terms of M&A as the I don't know maybe smaller companies gaining some of these seats and eventually they don't have the capex for the divestment any but eventually buy.
And though there.
As mentioned was driven more seats than you can request that'll be my first question on <unk>.
Second one more like a perspective.
If you have any idea or any view, where the Supreme Court with eventually.
Restart or resumed in the case of injunctions offer optimize messages as well. Thank you.
Hi, Fred as a Virginia, so about the first question.
Does this restriction about to institute to two proposals for institution Theyre also limit and allowing.
More players to beat.
Differently nothing into different cities.
Uh huh.
So thinking about the M&A opportunities here for sure.
We may have some small players.
<unk> came to the they can come to the table.
With new opportunities for M&A, but being very serious is not something that we are thinking right. Now we still have a hot buy blind for more traditional schools and see the size of our pipeline in gummy form there might some ethical Sri.
More than 30 institution, you reported new possible institutions.
Much more importantly, much more important than thinking about acquiring.
<unk> institutions that will be implemented using mismatch grocery so give us a.
But we are thinking right now.
Secondly, about the Supreme Court.
<unk> seen that the order just the other federal judges movie and having a lot of question coming to the sector. I think they are preparing to release additional votes may be we will have some additional holes that are still pending by the end of this year.
So maybe November or we can have a one or two additional judges bolting, but for.
Being very consistent with and know if they will complete this.
Fashion by the end of this year, starting 2024, so we feel a lot of speculation about that we don't have anything that would be.
More tangible for you guys right now okay.
And Fred Blanca speaking just to give more color on the first topic regarding M&A you mismatch because you.
You need to remember that.
We always keep our capital discipline and allocation okay.
So the first restrictions regarding this.
Possible new targets do with much masks.
We needed to buy that entity as a whole and as you know we have this freshwater hold off having 60% of the revenues coming from <unk>.
From from Edson business. So <unk> solution. That's doesn't have mentioned just by I I just want these mines metric was three licenses are renewed.
To see how important these are the license will be under the future operations of this company why I'm, saying that because it's important to remember that that's not that mathematical problem drug them you cannot.
Carve outs.
The license.
From the Montana, daughter.
You don't have the course recognized so it's not possible to carve out the course, the medicine course and buy these medicine of course coming from Iceman six if the course, each not recognized by Dominion sharper locational.
So I I think this will take some time to get through the table, but for sure. We four without these these kind of targets we will keep.
Keep having our capital discipline and the location okay.
Perfect typically think of as you think a bronco.
Our next question comes from will come from apparel.
Good evening, everyone and thank you for taking our question.
Regarding the digital services segments. So the release mentioned that the company had a strong increase in <unk> engagements can you. Please provide some color on this performance and also comment on what should be the next task within this vertical if you. If you have new initiatives and you expect to have strong growth in <unk> that would be very helpful. Thank you.
Hi, Luca.
So just to remember.
We start offering the beat to be offerings to the market.
First quarter of 2022.
Today, we almost have around 200 contract signed most of them with pharma companies.
To give them all kind of access to our physician ecosystem. They are spreading content new protocols.
Education and learning objects to the physicians and also typical ads using our social.
Network here. So this type of offering is getting even more use it for the pharma companies.
Kind of.
Exchanging the traditional way that they have the sales representative reaching physicians.
To do the marketing to.
To sell their their matching their drugs. So they are using even a.
The more the digital channel and with our strong off of not only reputation, but we are I.
I think the right partner to them to have the right way to reach physicians and the best time using using their time and the best way. So luxury I think is that while.
Our strategy here to reach the farmer the pharma Haynesville so yes.
On the Bto B contracts, it's more basically on landing expanding strategy.
So today, we have like the fifth the five big companies that we have more than 10 contracts with them. So it is being more recurring relationship with them and are ramping up it will be contracts. So that's the type of offer that we are offering to do.
B to B and to pharma companies and also stopped using.
This type of broad also for providers.
And the same in the same way that we're doing to pharma companies by the end of the day provided they wants are they also wants to to reach division.
To generate more demand and also.
To drive more volume for their operations for their for their hospital. So this is the type of solutions and opportunities that we are offering using our ecosystem and if I may add Luka once here.
Is that.
Two on to.
The first semester of this year, we are most of our power contracts were basically work campaign base. Okay. So the pharmaceutical companies hire us for specific campaign for a specific drugs for for a specific type of off positions.
<unk>.
The third quarter, we start the new products, we launched it as a matter of fact, our first program.
That is.
Generates recurring.
Kind of.
Revenues and recurring.
<unk> off relationship that is why it is Rx insights that provides.
Insights for a prescribed drugs.
There are our all our ecosystem. So we are moving from campaigns to judy's. These kinds of recurring revenues, that's very very very important for us in the ramp up of the business.
That's very clear thank you guys.
Just a reminder, if you want to ask a question, it's a raise of homes.
While we wait for next question I'm going to read the questions received from the Q&A.
It is regarding the life medical states named <unk>, the Capex in terms of cost per seat compassion usual M&A pursuit costs.
Properly certainly interesting.
Yes.
I'll take this.
We are seeing that these mice meds cause.
Three we will be around 25 meet an Ah.
Re ice <unk> to invest and deploy the science.
Just making a round calculations, if we consider it.
30 million Reais, just rounding with 60 seats.
We would say about.
500000 per seats that that is much much less than these are 2 million reais per seats.
Yeah.
A number of multiple that you've seen the market. So it's.
It's doing these are getting the licensing and deploying these greenfields is is it's a creative for us, yes, and $25 million to $30 million is our expectation adaptable.
So the next question comes from Luca <unk> from Morgan Stanley.
I have a follow up question on regulation.
Related to the injunction so now that.
The Ministry of education revoked that measure that basically.
Invalidated the injunctions that didn't comply with Mexico City.
The current value decision is from Humana, which orders Mac two to evaluate some of those requests.
Do you think that more medical schools could be opened a type of metrics I mean time.
Well.
The <unk> trial doesn't resume like how do you perceive this risk.
Hi, Lucas.
A very good question.
Of all our opinion here.
So if I.
My opinion, I think the minister fabrication.
We'll expect the final decision from the Supreme Court in order to evaluate and give the final words.
That being processed at the BMO either through the injections will follow or not so what if you read this new.
Yes.
Ordinance.
Expect that they will follow their process. They will visit these institutions, but by the end of the process. They still have a final world phone minutes simplification order to approve or not.
That.
That new metric institution, so I think that.
Hum.
That measure Minnesota location is.
Yes.
Is waiting for the final world coming from the Supreme Court in order to finalize what they are going to do.
This brought all this process coming from instruction.
So I.
I think that's the.
That's the main point.
We are I think we are not going to see any approval before the decision coming from the Supreme Court and if I may add my God, Yes, I don't know how much of that is at this time.
It's after what were seeing consumer Thanksgiving with vision on beginning of August and thank Dan Yod's normative has not really yet we're not seeing a slowdown seats me really because of that you know because they were not in domestic bond designation. So we don't see them be quick here as they get effect.
Yes by the end of the day, they still have to follow.
The mice medicals.
Requirements that they have to have the hospital beds. They have to fall of the social demand and how critical is for that reason for that ceded to open new medical school and also to follow all the academic.
And also the the necessity that they have to pay for the municipality ended the house.
Secretary.
In order to approve the new medical sold battles.
When we analyze that and apply for all the reasons that they.
Im trying to open this new mice that this new injections.
I think the.
Impact on overall demand will be much lower than the overall process that we are seeing be analyzed by the <unk> simplification.
That's very clear thank you Virginia.
Thank you Luca of course.
We did not see any other questions here.
I appreciate you all participating and we found Investor relations.
We have family if you feel like any follow up questions.
At this point.
Yeah.