Afya Limited Announces First-Quarter 2024 Financial Results

Solid Organic Growth

Impressive Adjusted EBITDA Margin Expansion

Robust EPS Expansion

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-month period ended March 31, 2024 (first quarter 2024). Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

First Quarter 2024 Highlights

• 1Q24 Net Revenue increased 13.3% YoY to R$804.2 million.
• 1Q24 Adjusted EBITDA increased 20.5% YoY reaching R$397.9 million, with an Adjusted EBITDA Margin of 49.5%. Adjusted EBITDA Margin increased 300 bps YoY.
• 1Q24 Net Income increased 76.9% YoY, reaching R$208.3 million, and Adjusted Net Income increased 50.8% YoY, reaching R$251.0 million. With an adjusted EPS growth of 54.4% in the same period.
• Operating Cash Conversion ratio of 110.1%, with a solid cash position of R$ 611.1 million.
• ~334 thousand physicians and medical students in Afya's ecosystem.

Message from Management

It is with much satisfaction that I can proudly present another quarter of great operational and financial performance for Afya. Once again, we have proven the resilience of our business, the successful execution of our strategy, the commitment of our team members, and the consistency of our business model. This quarter was marked by Gross margin expansion within our three segments and Adjusted EBITDA margin in our consolidated figures, combined with solid cash generation, and robust EPS growth, showing our consistent business expansion.

Great part of our margin expansion came from the complete integration of UNIMA and Afya Jaboatão, alongside the ramp up of the four Mais Médicos campuses that started operation in 3Q22 and the operational restructuring efforts in Continuing Education and Medical Practice Solutions segments. Our idea was to integrate all the services related to the physician continuing education into one structure, so we could extract more synergies and boost our growth.

We are also excited to expand our offering in the Undergrad business with the signing of the acquisition of Unidompedro and Faculdade Dom Luiz, this acquisition will contribute with 300 operating medical seats to Afya, in Salvador capital of Bahia and the fifth-largest city in Brazil in population size. Unidompedro will be Afya´s 4th medical school in Bahia and will serve as an strategic hub for all other medical campuses in the State, besides all the synergies that we can extract from our Continuing Education campus in Salvador.

With another round of high and sustainable growth, our mission remains solid as ever: to provide an ecosystem that integrates education and digital solutions for the entire medical journey, enhancing the development, updating, assertiveness, and productivity of health professionals. We are very proud of our business and of what we have achieved so far, as well as excited about what we are planning.

1. Key Events in the Quarter:

• On January 24, 2024 the Secretary of Regulation and Supervision of Higher Education of the Ministry of Education ("MEC") authorized the increase of 40 medical seats of Faculdades Integradas Padrão (FIP Guanambi), in the city of Guanambi, located in the state of Bahia, which will result in an additional payment of R$49.6 million. With the authorization, Afya reaches 100 medical seats on this campus, and 3,203 total approved seats.
• To enhance synergies between Afya's Content and Technology for Medical Education and Specialization Courses for Physicians, Afya has restructured its structure so that all products and services related to medical education, excluding medical undergraduate courses, are now managed in the same segment. Effective from the first quarter of 2024, entities previously accounted for as Content and Technology for Medical Education (Medcel, Além da Medicina, CardioPapers, and Medical Harbour) within Digital Services are now accounted for in the Continuing Education Segment. Simultaneously, the segment formerly known as Digital Services has been renamed Medical Practice Solutions. Due to changes in operating segments, the segment information as of December 31, 2023 and for the three-month period ended March 31, 2023 have been retroactively adjusted for comparison purposes.

2. Subsequent Event

• On, May 2nd 2024, Afya announced that it has entered in 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 will add 300 operational medical school seats to Afya in Salvador, one of Brazil's largest cities. The aggregate purchase price (enterprise value) is R$ 660.0 million, the Net Debt will be deducted at the closing date and it will be paid as follows: R$ 347.8 million will be paid in cash at the closing date and 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 4.2x at maturity and post synergies (2027). With the acquisition, Afya will achieve 3,503 total approved seats.

3. 2024 Guidance

The Company is reaffirming its guidance for 2024, which considers the successfully concluded acceptances of new students for the first semester of 2024. The guidance for 2024 is defined in the following table:

4. 1Q24 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 – Physicians and Medical Students Ecosystem

Physicians and Medical Students Ecosystem represents the total number of medical students and physicians in that are positively impacted by Afya. For the first quarter of 2024, Afya's ecosystem reached 334,368 users, in line with the same period of the prior year, accounting for around 41% of all medical students and physicians in Brazil.

Seasonality

Undergrad's tuition revenues are related to the intake process and monthly tuition fees charged to students over the period; thus, does not have significant fluctuations during the period.

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 Cardiopapers 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 Pebmed and iClinic revenues, which do not have significant fluctuation regarding seasonality.

Revenue

Net Revenue for the first quarter of 2024 was R$804.2 million, an increase of 13.3% over the same period of the prior year, mainly due to higher tickets in Medicine courses by 6.4%, 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 March 31, 2024, increased 20.5% to R$397.9 million, up from R$330.2 million in the same period of the prior year, and the Adjusted EBITDA Margin increased 300 basis points to 49.5%. The Adjusted EBITDA Margin expansion is mainly due to the following: (a) gross margin expansion within the three segments; (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 first quarter of 2024 was R$208.3 million, an increase of 76.9% over the same period of the prior year. Adjusted Net Income for the first quarter of 2024 was R$251.0 million, an increase of 50.8% over the same period from the previous year, mainly due to: (a) enhancement of operational results (details above); (b) reduction in finance expenses due to a decrease in Net Debt (excluding IFRS 16) in R$ 237.2 million and lower interest rates; and (c) lower effective tax rates than last year.

Adjusted EPS reached R$2.26 per share for the first quarter of 2024, an increase of 54.4% YoY, reflecting the increase in Net Income and capital allocation discipline.

Cash and Debt Position

On March 31, 2024, Cash and Cash Equivalents were R$611.1 million, an increase of 10.5% over December 31, 2023. The Net Debt, excluding the effect of IFRS 16, totaled R$1,577.4 million compared to December 31, 2023, Afya reduced its Net Debt by R$237.2 million due to solid Operating Cashflow generation.

For the three-month period ended March 31, 2024, Afya reported Cash Flow from Operating Activities of R$429.1 million, up from R$349.4 million in the same period of the previous year, an increase of 22.8% YoY, boosted by the solid operational results. Operating Cash Conversion Ratio achieved 110.1%, slightly down from 111.9% in the three-month period that ended on March 31, 2023.

The following table shows more information regarding the cost of debt for 1Q24, 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, Afya's Net Debt (excluding the effect of IFRS16) divided by Adjusted EBITDA mid guidance for 2024 would be 1.2x.

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 three-months period ending March 31, 2024, CAPEX was R$92.9 million, representing 11.6% of Afya's Net Revenue. However, there is a one-off effect of R$ 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.

The 2022 Sustainability Report can be found at: https://ir.afya.com.br/corporate-governance/sustainability/

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: +1 719 359 4580 or +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

Webinar ID: 964 7934 7633

Other Numbers: https://afya.zoom.us/u/aON6T6YtJ

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 digital products 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

View source version on businesswire.com: https://www.businesswire.com/news/home/20240509167398/en/