Afya Limited Third Quarter and Nine Months 2024 Financial Results

Impressive Adjusted EBITDA Margin Expansion

Robust EPS Expansion

Expressive Cash Generation

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 and nine-month periods ended September 30, 2024 (third quarter 2024). Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

Third Quarter 2024 Highlights

• 3Q24 Net Revenue increased 16.3% YoY to R$841.2 million. Net Revenue excluding acquisitions grew 11.8%, reaching R$808.8 million.

• 3Q24 Adjusted EBITDA increased 25.0% YoY reaching R$347.9 million, with an Adjusted EBITDA Margin of 41.4%. Adjusted EBITDA Margin increased 290 bps YoY. Adjusted EBITDA excluding acquisitions grew 18.2%, reaching R$328.9 million, with an Adjusted EBITDA Margin of 40.7%.
• 3Q24 Net Income increased 26.4% YoY, reaching R$124.1 million, and Adjusted Net Income increased 28.8% YoY, reaching R$165.4 million. Adjusted EPS growth was 29.9% in the same period.

Nine Months 2024 Highlights

• 9M24 Net Revenue increased 14.4% YoY to R$2,455.3 million. Net Revenue excluding acquisitions grew 12.9%, reaching R$2,422.9 million.
• 9M24 Adjusted EBITDA increased 24.3% YoY reaching R$1,089.6 million, with an Adjusted EBITDA Margin of 44.4%. Adjusted EBITDA Margin increased 350 bps YoY. Adjusted EBITDA excluding acquisitions grew 22.1%, reaching R$1,070.6 million, with an Adjusted EBITDA Margin of 44.2%.
• 9M24 Net Income increased 63.0% YoY, reaching R$494.6 million, and Adjusted Net Income increased 46.9% YoY, reaching R$626.7 million. Adjusted EPS growth was 48.7% in the same period.
• Operating Cash Conversion ratio of 109.7%, with a solid cash position of R$836.9 million.
• ~326 thousand users in Afya's ecosystem.

Message from Management

We are pleased to announce another quarter of solid results, marked by strong cash generation, consistent margin expansion, and progress in our strategic initiatives. This performance underscores the differentials of Afya's business model centered on the entire physician career and the successful execution of our growth strategy, as we continue advancing our mission to integrate education and digital solutions for the medical journey, enhancing training, updating, assertiveness, productivity, and physicians' connections with the healthcare ecosystem.

Our EBITDA margin expansion was largely supported by the integration of UNIMA and FCM Jaboatão delivered in 4Q23, the ramp-up of the four Mais Médicos campuses launched in 3Q22, restructuring efforts within the Continuing Education and Medical Practice Solutions, and improved cost management in Selling, General, and Administrative expenses.

This quarter, we completed the acquisition of Unidom adding 300 medical seats, strengthening our presence in Salvador, one of Brazil's largest cities. Through dedicated efforts, we achieved a robust medical students' intake at Unidom with more than 300 students enrolled in the 2^nd half just one month after the acquisition, reinforcing the impact of our ecosystem and brand recognition throughout the country.

Additionally, we received authorization from Brazil's Ministry of Education ("MEC"), to increase 80 medical seats at UNIMA and the reconsideration of 10 medical seats at Unigranrio in Rio de Janeiro, bringing our total approved seats across all campuses to 3,593. These expansions are aligned with our commitment to providing access to quality medical education and meeting the demand for healthcare professionals.

During our Afya Day event in October, we also announced a projected 5.1% increase in tuition fees for new students in 2025, above inflation expectations for 2024, which reflect the continued strength of our value proposition and the recognition of our brand.

For the nine-month period, Net Revenue increased across all three segments. For Medical Practice Solutions we have seen a robust 15% increase in Net Revenue compared to the nine-month period of the prior year. Reaffirming the immense potential of our Solutions.

For our Undergrad segment, Net Revenue grew by 14% when compared to the same period last year. Mainly supported by medical tickets increasing above inflation, the maturation of the medical seats, in addition to the acquisition of Unidom and increase of medical seats approved. Afya has concluded a very successful intake process in 2024 with more than 6 candidates per seat considering all 32 campuses reflecting the strengthening of Afya's brand recognition and reputation among the medical community.

In our Continuing Education segment, we are also proud to see another year of organic growth. Net Revenue increased over 10% in the nine-month period. Through a robust intake process, with the establishment of four new campuses in 2024 alone, we can see once more, our students, employees, and partners benefit from our constantly developing ecosystem.

It is worth mentioning that our ecosystem has reached today 326 thousand active users, adopting at least one of Afya's solutions. This achievement is complemented by a high level of satisfaction, reflecting the strong recognition and trust in Afya's brand and its ecosystem

Our commitment to high-quality education and comprehensive support for healthcare professionals remains at the core of our mission. Afya's focus on operational excellence, strategic expansions, and sustainable growth positions us for continued success. We remain steadfast in our vision to transform health together with those who have medicine as a vocation, leveraging our ecosystem to create long-lasting value for all stakeholders.

1. Key Events in the Quarter:

• On July 1, 2024, Afya Participações announced the closing of its 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 contributes 300 operational medical school seats to Afya in Salvador, one of Brazil's largest cities. The authorization request for these 300 seats was made to MEC before the Mais Médicos´ Law was enacted and MEC concluded its analysis and issued Ordinance 630/2020 ("Ordinance") in 2020 to partially authorize the operation considering 125 medical seats. In 2021, as a result of a judicial order, MEC reviewed the Ordinance to authorize the 300 seats initially requested by Unidompedro. Said decision was confirmed by a judgment in 2023. Currently, Unidompedro has 300 seats authorized, of which 125 are final and 175 are subject to a final conclusion of the aforementioned court proceedings.
  
  
  
  The aggregate purchase price (enterprise value) was R$660.0 million, and the estimated Net Debt was deducted from the down payment.
  
  
  
  The price and payment conditions are:
  
  
  • R$347.8 million, deducted from the estimated Net Debt, was paid in cash at closing.
  • 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 of 4.2x at maturity and post-synergies (2027).
• On July 12, 2024, the Secretary of Regulation and Supervision of Higher Education of MEC authorized the increase of 80 medical school seats of UNIMA, located in the city of Maceió, State of Alagoas, which will result in an additional payment of R$1.25 million per increased medical school seat, updated by IPCA since January 2, 2023 until the payment date to the selling shareholders of DelRey. With this authorization, Afya reaches 220 medical school seats on this campus.
• On August 30, 2024, has received the total disbursement of R$500.0 million under the loan agreement with International Finance Corporation ("IFC") to finance its expansion program, through acquisitions. The financing is IFC's first sustainability-linked loan based on social targets in the education sector. The pricing of IFC's loan will be linked to Afya reaching performance target levels in selected social key performance indicators encompassing free medical consultations for the community and quality of education according to Brazil's Ministry of Education criteria ("Sustainability KPIs"). According to the financing terms, the loan shall be repaid in seven equal semi-annual installments starting in April 2027. The interest rate is the Brazilian CDI rate plus 1.2%, and it may be reduced by 15 bps if the Sustainability KPIs are achieved.
• On September 6, 2024, Afya Participações announced that following the conclusion of an administrative procedure, MEC has granted the request for reconsideration submitted by Unigranrio. Per the e-MEC portal, Unigranrio reestablished 10 medical seats in the city of Rio de Janeiro, reaching 318 medical seats across both Unigranrio campuses, contributing to Afya´s 3,593 total approved medical seats.

2. 2024 Guidance

Afya reaffirms the Guidance FY2024, which was updated upward at the end of 2Q24 to encompass the acquisition of Unidom, the authorization of 80 seats in UNIMA, and the performance of the first semester.

3. 3Q24 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 – Users Positively Impacted by Afya

Users Positively Impacted by Afya represents the total number of medical students from the Undergrad segment, students from the Continuing Education and users from Medical Practice Solutions. For the third quarter of 2024, Afya's ecosystem reached 325,760 users, in line with the same period of the prior year.

Seasonality of Operations

Undergrad tuition revenues are related to the intake process, and monthly tuition fees charged to students and do not significantly fluctuate during each semester.

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) Residence journey product revenues, 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.

Medical Practice Solutions are comprised mainly of Afya Whitebook and Afya iClinic revenues, which do not significantly fluctuate regarding seasonality.

Net Revenue

Net Revenue for the third quarter of 2024 was R$841.2 million, an increase of 16.3% over the same period in the prior year. Excluding acquisitions, Net Revenue in the third quarter increased 11.8% YoY to R$808.8 million. For the nine-month period ending September 30, 2024, Net Revenue was R$2,455.3 million, reflecting a 14.4% increase over the same period of last year. Excluding acquisitions, Net Revenue in the nine-month period increased 12.9% YoY to R$2,422.9 million.

The revenue increase was mainly due to higher tickets in Medicine courses, the maturation of medical seats, the 40-seat expansion in the Guanambi campus, the Continuing Education intake performance, and the execution of Medical Practice Solutions. Specifically, in the third quarter, we also had the impact of 80 new seats at UNIMA and the reconsideration of 10 seats at Unigranrio (Rio de Janeiro). Additionally, on July 1, 2024, Afya acquired Unidom.

Adjusted EBITDA

Adjusted EBITDA for the three-month period ended September 30, 2024, increased by 25.0% to R$347.9 million, up from R$278.4 million in the same period of the prior year, with the Adjusted EBITDA Margin rising by 290 basis points to 41.4. For the nine-month period ending September 30, 2024, Adjusted EBITDA was R$1,089.6 million, an increase of 24.3% over the same period of the prior year, accompanied by an Adjusted EBITDA Margin increase of 350 basis points in the same period.

The Adjusted EBITDA Margin expansion is primarily attributable to: (a) gross margin expansion in the Undergrad Segment; (b) completion of UNIMA and FCM 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 three-month period ended September 30, 2024 was R$124.1 million, an increase of 26.4% over the same period of the prior year. Adjusted Net Income was R$165.4 million, which resulted in an increase of 28.8% over the same period from the previous year. For the nine-month period, Afya achieved a Net Income of R$494.6 million, 63.0% higher than the same period of 2023, and an Adjusted Net Income of R$626.7 million which was 46.9% higher than the previous period. This performance was mainly due to: (a) enhancement of operational results; (b) lower effective tax rates than last year; and (c) lower interest rates.

Adjusted EPS reached R$6.81 per share for the nine-month period ended September 30, 2024, an increase of 48.7% YoY, reflecting the increase in Net Income and capital allocation discipline.

Cash and Debt Position

As of September 30, 2024, Afya's Cash and Cash Equivalents stood at R$836.9 million, marking a 51.3% increase compared to December 31, 2023. Net Debt, excluding IFRS 16 impacts, reached R$1,894.4 million—an increase of R$106.6 million over the same period of the previous year. Despite the R$660.0 million acquisition of Unidom and the R$157.2 million earn-out payment regarding the additional seats in Guanambi and UNIMA, Afya's Net Debt (excluding IFRS 16) increased by only 4.4%, thanks to strong Cash Flow from operating activities.

For the nine-month period ended September 30, 2024, Afya reported Cash Flow from Operating Activities of R$1,167.5 million, up from R$933.8 million in the same period of the previous year, an increase of 25.0% YoY, boosted by solid operational results. Operating Cash Conversion Ratio achieved 109.7%.

The following table shows more information regarding the cost of debt for 9M24, considering loans and financing and accounts payable to selling shareholders. Afya's capital structure remains solid, with a conservative leveraging position and a low cost of debt. Considering the updated mid guidance, Afya's Net Debt (excluding the effect of IFRS16) divided by the Adjusted EBITDA is 1.33x.

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.

For the nine-month period ending September 30, 2024, CAPEX was R$316.8 million. Excluding the one-off effect in the first quarter of R$49.6 million regarding the earn-out of Guanambi, due to the expansion of 40 seats as disclosed to the market in January 2024, and the earn-out of UNIMA in the amount of R$107.6 million, due to the expansion of 80 seats as disclosed to the market in July 2024 the CAPEX/Net Revenue ratio would be 6.5%.

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 three key metrics, Governance and Employee Management, Environmental and Social.

The 2023 Sustainability Report can be found at: https://ir.afya.com.br/annual-report/

4. 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: +1 301 715 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 or +1 719 359 4580 or +1 929 205 6099 or +1 253 205 0468 or +1 253 215 8782

Webinar ID: 948 8746 2478

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

5. 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 medical practice solutions to help doctors enhance their healthcare services through their whole career. For more information, please visit www.afya.com.br.

6. 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/.

7. 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.

8. Investor Relations Contact

E-mail: [email protected]

9. Financial Tables

View source version on businesswire.com: https://www.businesswire.com/news/home/20241113502172/en/