Afya Limited Announces Third-Quarter and Nine Months 2022 Financial Results

Guidance On Track

Robust EPS Expansion

Afya Limited (NASDAQ:AFYA) ("Afya" or the "Company"), the leading medical education group and digital health services provider in Brazil, reported today financial and operating results for the three and nine-month period ended September 30, 2022 (third quarter 2022). Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

Third Quarter 2022 Highlights

• 3Q22 Adjusted Net Revenue increased 25.2% YoY to R$580.2 million. Adjusted Net Revenue excluding acquisitions grew 17.1%, reaching R$542.4 million.
• 3Q22 Adjusted EBITDA increased 19.5% YoY, reaching R$228.7 million, with an Adjusted EBITDA Margin of 39.4%. Adjusted EBITDA excluding acquisitions grew 10.2%, reaching R$211.0 million, with an Adjusted EBITDA Margin of 38.9%.
• 3Q22 Adjusted Net Income increased 2.7% YoY, reaching R$120.1 million, with an EPS growth of 47.4% in the same period.

Nine Months 2022 Highlights

• 9M22 Adjusted Net Revenue increased 38.2% YoY to R$1,724.0 million. Adjusted Net Revenue excluding acquisitions grew 15.6%, reaching R$1,441.5 million.
• 9M22 Adjusted EBITDA increased 28.6% YoY reaching R$719.7 million, with an Adjusted EBITDA Margin of 41.7%. Adjusted EBITDA excluding acquisitions grew 5.3%, reaching R$589.2 million, with an Adjusted EBITDA Margin of 40.9%.
• 9M22 Adjusted Net Income increased 18.8% YoY, reaching R$406.4 million, with an EPS growth of 77.5% in the same period.
• Cash conversion of 104.6%, with a solid cash position of R$715.6 million.
• ~286 thousand monthly active physicians and medical students using Afya's Digital Services, an increase of 15.7% over the same period of last year.

1. Message from Management

As we approach the end of the year, we can gladly see Afya delivering strong results again. This quarter was marked by significant increases in net revenue in our three segments, positive EBITDA, cash generation and EPS growth, and a consistent business expansion. All these factors combined enable us to reassure our 2022 guidance, reinforcing our business strategy execution.

Back in the third quarter of 2021, we were hoping to see the pandemic lose its strength. Now, in 2022, we can finally see our students, employees, and partners extracting the best from our ecosystem again. After the opening of six new Continuing Education campuses – a segment that was impacted during COVID-19 times -, we can see, for the third time this year, an incredible recovery compared to last year, with strong intake processes, new campuses and courses maturation, and our practical classes boosting again.

On the Undergrad side of the education segment, we can also see important movements. First, the successful opening of four Mais Médicos campuses – Abaetetuba, Bragança, Itacoatiara, and Manacapuru -, along with UniSL Ji-Parana campus, all of them combined totaling 228 new medical seats to our portfolio this quarter, allowing us to reach an impressive number of 2,709 medical operating seats, strengthening our consolidation as the medical undergrad leader in Brazil. Second, to further boost this leadership, on October 13rd, we announced the entering into a share purchase agreement for our largest acquisition so far, UNIT Alagoas and FITS Jaboatão dos Guararapes, adding 340 more medical seats to our base. With the conclusion of this acquisition, will increase our 2,759 approved seats to 3,099. And third, the completeness of Unigranrio's integration process also in October, one year after its acquisition, proving our commitment to extracting synergies within the operation. 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 middle terms, delivering highly predicted growth combined with strong profitability and cash generation.

On our Digital Services segment, we are proud to see another quarter of strong inorganic and organic growth. Afya's Digital Health Services is being able to help physicians' during their medical journey and now, with our 6 pillars complete after the acquisition of Glic, we will further explore the development of our ecosystem, which is being built with multiple offerings, unlocking new interactions and revenue streams that go beyond the physicians, achieving pharma players, hospitals, labs and drugstores chains, scratching the surface of a total addressable market of R$28.4 billion. Since the beginning of the year, we have been disclosing our B2P and B2B figures, breaking down our Digital Service's net revenue within these two for a better perspective.

As a reflection of our great results and actions that are being shown to the market, we are also glad to announce that, for the third time in a row, we've won the "Anuário Época Negócios 360º" award as the best Company in the Education segment. We are very proud of this achievement, as it is the recognition of the work and passion of our more than nine thousand employees around a unique vision: to transform health together with those who have medicine as a vocation.

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 for the future.

2. Subsequent Events in the Quarter:

• Afya announced on October 13th, 2022, that it has entered into a share purchase agreement for the acquisition of 100% of the total share capital of Sociedade Educacional e Cultural Sergipe DelRey Ltda., that encompasses the operations of Centro Universitário Tiradentes Alagoas ("UNIT Alagoas") and Faculdade Tiradentes Jaboatão dos Guararapes ("FITS Jaboatão dos Guararapes"). The acquisition will contribute 340 medical school seats to Afya, increasing Afya's total medical school seats from 2,759 to 3,099. The aggregate purchase price (enterprise value) is R$825.0 million before the deduction of Net Debt that will be calculated at the closing date, and it will be paid as follows: R$575 million in cash on the transaction closing date and R$250 million in three annual installments, respectively, of R$150 million, R$50 million, and R$50 million, adjusted by the Brazilian interest rate (SELIC). We expected an EV/EBITDA of 5.8x at maturity and post synergies (2024). With the acquisition, Afya further consolidates its presence in the Brazilian Northeast, entering a new state in the region.

3. Full Year 2022 Guidance Reaffirmed

The Company is reaffirming its previously issued guidance for FY22 including the successfully concluded acceptances of new medical students for the second semester, ensuring 100% occupancy in all of its medical schools.

The guidance for FY2022 is defined in the following table:

4. 9M22 Overview

Operational Review

Afya is the only company offering educational and technological solutions to support physicians across every stage of their medical career, from undergraduate students in their medical school years through medical residency preparatory courses, medical specialization programs, and continuing medical education. The Company also offers solutions to empower physicians in their daily routine including supporting clinic decisions through mobile app subscription, delivering practice management tools through a Software as a Service (SaaS) model, and assisting physicians in their relationship with their patients.

The Company reports results for three distinct business units. The first, Undergrad – medical schools, other healthcare programs, and ex-health degrees. Revenue is generated from the monthly tuition fees the Company charges students enrolled in the undergraduate programs. The second, Continuing Education – specialization programs and graduate courses for physicians. Revenue is also generated from the monthly tuition fees the Company charges students enrolled in the specialization and graduate courses. The third is Digital Services – digital services offered by the Company at every stage of the medical career. This business unit is divided into Business to Physician (which encompasses Content & Technology for Medical Education, Clinical Decision Software, Practice Management Tools & Electronic Medical Records, Physician-Patient Relationship, Telemedicine, and Digital Prescription) and Business to Business (which provides access and demand for the healthcare players). Revenue is generated from printed books and e-books, and is recognized at the point in time when control is transferred to the customer, and subscription fees, which are recognized as the services are transferred over time.

Key Revenue Drivers – Undergraduate Courses

Key Revenue Drivers – Continuing Education and Digital Services

Key Operational Drivers – Digital Services

Monthly Active Users (MaU) represents the number of unique individuals that consumed Digital Services content in each one of our products in the last 30 days of a specific period.

Total monthly active users reached 286 thousand, 15.7% higher over the same period in the last year.

Monthly Unique Active Users (MuaU) represents the number of unique individuals, without overlap of users among products, in the last 30 days of a specific period. Since this concept is being implemented this year, the historical metrics of MuaU could not be disclosed.

Seasonality

Undergrad's and Continuing Education tuition revenues are related to the intake process and monthly tuition fees charged to students over the period thus the Company does not have significant fluctuations during the semester. Digital Services is comprised mostly by Medcel, Pebmed and iClinic revenues. While Pebmed and iClinic do not have significant fluctuation regarding seasonality, Medcel's revenue is concentrated in the first and last quarter of the year, as a result of the enrollments of Medcel's clients period. The majority of Medcel's revenues are derived from printed books and e-books, which are recognized at the point in time when control is transferred to the customer. Consequently, the Digital Services segment generally has higher revenues and results of operations in the first and last quarters of the year compared to the second and third quarters of the year.

Revenue

As disclosed in our 2Q22 earnings release, the Company has been recovering amounts related to mandatory discounts in tuition fees previously granted by individual and collective legal proceedings and public civil proceedings related to COVID-19. For the nine months period ended September 30, 2022, this amount represents R$21.1 million, and, as Afya has excluded these mandatory discounts from Adjusted Net Revenue in 2020 and 2021, this recovery is not counted for Adjusted Net Revenue in 2022.

Adjusted Net Revenue for the third quarter of 2022 was R$580.2 million, an increase of 25.2% over the same period of the prior year. Excluding acquisitions, Adjusted Net Revenue in the third quarter increased 17.1% YoY to R$542.4 million, a strong increase, mainly due to the maturation of medical seats and the beginning of the 4 Mais Médicos operations during the third quarter, higher tickets in Medicine courses, and the Continuing Education recovery, which ended the third quarter with a 72.2% year over year increase in net revenue, mainly due to the strong student base expansion during 2022.

Once again, the Digital Services segment has also contributed to the Adjusted Net Revenues growth this quarter, increasing 59.4% year over year, and 30.4%, excluding acquisitions. This organic growth is a combination of (a) a great start of the B2B engagements, reaching 61 contracts – including pharma solutions and RX PRO contracts -, with 40 different pharmaceutical industry companies, and (b) the expansion of the active payers in the B2P, mainly in Whitebook and iClinic.

For the nine-month period ended September 30, 2022, Adjusted Net Revenue was R$1,724.0 million, an increase of 38.2% over the same period of last year. Excluding acquisitions, Adjusted Net Revenue in the nine-month period increased 15.6% YoY to R$1,441.5 million.

Adjusted EBITDA

Adjusted EBITDA for the three-month period ended September 30, 2022 increased 19.5% to R$228.7 million, up from R$191.4 million in the same period of the prior year, while the Adjusted EBITDA Margin decreased 190 basis points to 39.4%. For the nine-month period ended September 30, 2022, Adjusted EBITDA was R$719.7 million, an increase of 28.6% over the same period of the prior year, with an Adjusted EBITDA Margin decrease of 320 basis points in the same period. The Adjusted EBITDA Margin reduction is due to (a) the Digital segment, mostly in the performance of Medcel in the residency preparatory market, (b) the expansion of the Continuing Education segment, which is still maturing the new campuses, and (c) the increase in corporate expenses in the period.

Excluding acquisitions, Adjusted EBITDA for the three-month period increased 10.2% YoY to R$211.0 million, while the Adjusted EBITDA Margin decreased 240 basis points to 38.9%. For the nine-month period, excluding acquisitions, Adjusted EBITDA increased 5.3% YoY to R$589.2 million, while the Adjusted EBITDA Margin decreased 400 basis points to 40.9%, mainly due to the same reasons previously explained.

Adjusted Net Income

Net Income for the third quarter of 2022 was R$80.4 million, an increase of 38.7% over the same period of the prior year. For the nine-month period ended September 30, 2022, Net Income increased 66.3%, from R$193.3 million to R$321.4 million, mainly due to: (a) the increase in operational results, as previously described, (b) the recovery of a portion of the prior granted discounts in tuition fees related to COVID-19, (c) the reduction of financial expenses related to the fx rate difference regarding the Softbank transaction that affected 2Q21, and (d) the reduction on the non-recurring M&A expenses.

Adjusted Net Income for the third quarter of 2022 was R$120.1 million, an increase of 2.7% over the same period of the prior year. Adjusted Net Income for the nine-month period of 2022 was R$406.4 million, an increase of 18.8% year over year.

Our EPS reached R$3.39 per share for the nine-month period ended September 30, 2022, an increase of 77.5% year over year, reflecting the increase in our Net Income, and capital allocation discipline executing our business combination and three buyback programs in a row.

Cash and Debt Position

Cash and cash equivalents on September 30, 2022, was R$715.6 million, a decrease of 31.1% over the same period in 2021.

For the nine-month period ended September 30, 2022, Afya reported Adjusted Cash Flow from Operations of R$743.8 million, up from R$557.2 million in the same period of the previous year, an increase of 33.5% YoY, boosted by the solid operational results.

Operating Cash Conversion Ratio was strong once again, achieving 104.6% for the nine-month period ended September 30, 2022, compared to 113.5% in the same period of the previous year. This decrease was mainly related to (a) an increase in the trade receivables, partially caused by the recovery of the mandatory discounts in tuition fees related to COVID-19 that were invoiced but not yet received, and (b) the fact that last year's cash performance was positively impacted by the recover of the special payment conditions related to the COVID-19 given to our students during 2020.

On September 30, 2022, net debt, excluding the effect of IFRS 16, totaled R$1,348.2 million, compared with net debt of R$1,108.6 million in the same period in 2021, mainly due to payments related to (a) 6 business combinations and license acquisitions executed in the last 12 months, totaling R$263.7 million; (b) shares repurchase program of R$267.5 million, executed in the last 12 months, (c) investments activities in properties, equipment and intangibles (excluding license acquisitions and goodwill) totaling R$228.1 million in the last 12 months, and (d) net financial results from the last 12 months, which totaled R$235.8 million, all partially offset by the R$818.1 million cash generation from September 30, 2021 through September 30, 2022. The following table shows more information regarding the cost of debt for the third quarter, considering loans and financing, and accounts payable to selling shareholders. It is important to mention that our capital structure remains solid with a conservative leveraging position and a low cost of debt.

CAPEX

Capital expenditures is consisting of the purchase of property and equipment and intangible assets, including expenditures mainly related to the expansion and maintenance of our campuses and headquarters including leasehold improvements, and the development of new solutions in the digital segment, among others.

For the nine-month period ending September 30, 2022, CAPEX went from R$140.7 million to R$238.4 million, an increase of 69.4% over the same period of the prior year, due to higher expenditures related to intangible assets, mainly explained by the R$24.4 million earn-out related to the 28 additional seats of Centro Universitário São Lucas, in Ji-Parana, approved in March, 2022, and R$39.1 million remeasurement of Unigranrio's business combination goodwill.

ESG Metrics

ESG commitment is an important part of Afya's strategy and permeates the Company's core values. Afya has been advancing year after year on its core pillars and, since 2021, ESG metrics have been disclosed in the Company's quarterly financial results.

In August 2021, Afya assumed a voluntary commitment to have at least 50% women in its management positions by 2030. In addition, Afya announced that it was certificated by Women on Board, an independent initiative whose purpose is to acknowledge, value and promote corporate environments in which women are part of the board of directors. The company voluntarily committed to continuing to have at least two women as board members.

On January 2022, Afya announced that it is one of 418 companies across 45 countries and regions to join the 2022 Bloomberg Gender-Equality Index (GEI), a modified market capitalization-weighted index that aims to track the performance of public companies committed to transparency in gender-data reporting. This reference index measures gender equality across five pillars: female leadership & talent pipeline, equal pay & gender pay parity, inclusive culture, anti-sexual harassment policies, and pro-women brand. Afya was included on this year's index for scoring above a global threshold established by Bloomberg to reflect disclosure and the achievement or adoption of best-in-class statistics and policies.

The 2021 Sustainability Report can be found at: https://ir.afya.com.br/ >> Corporate Governance >> Sustainability.

5. Conference Call and Webcast Information

Webcast: https://afya.zoom.us/j/92548247907

OR

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

United States: +1 646 931 3860 or +1 929 205 6099 or +1 301 715 8592 or +1 309 205 3325 or +1 312 626 6799 or +1 669 444 9171 or +1 669 900 6833 or +1 719 359 4580 or +1 253 215 8782 or +1 346 248 7799 or +1 386 347 5053 or +1 564 217 2000

Webinar ID: 925 4824 7907

Other Numbers: https://afya.zoom.us/u/abwfMV1H7z

6. About Afya Limited (NASDAQ:AFYA)

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 uses Adjusted EBITDA and Operating Cash Conversion Ratio information, 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 share of income of associate plus/minus non-recurring expenses. The calculation of Adjusted Net Income is net income plus amortization of customer relationships and trademark, plus share-based compensation. We calculate Operating Cash Conversion Ratio as the cash flow from operations, adjusted with income taxes paid divided by Adjusted EBITDA plus/minus non-recurring expenses.

Management presents Adjusted EBITDA, because it believes these measures provide investors with a supplemental measure of financial performance of the core operations that facilitates period-to-period comparisons on a consistent basis. Afya also presents Operating Cash Conversion Ratio because it believes this measure provides investors with a measure of how efficiently the Company converts EBITDA into cash. The non-GAAP financial measures described in this prospectus are not a substitute for the IFRS measures of earnings. Additionally, calculations of Adjusted EBITDA and Operating Cash Conversion Ratio may be different 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

Reconciliation between Net Income and Adjusted EBITDA

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