Afya Ltd. Q1 FY2024 earnings call

• Operational restructuring in Continuing Education and Medical Practice Solutions to enhance synergies. - Net revenue for the first quarter of 2024 reached R$804 million, a 13% increase year-over-year. Adjusted EBITDA increased more than 20% to R$398 million with an adjusted EBITDA margin of 49.5%. Adjusted net income was R$251 million, a 51% increase year-over-year. - Expanded operational medical school seats to 3,152, medical students reached over 22,000 (+8.6% Y/Y), and the physician and medical student ecosystem was 334,000 (41% market penetration). - Signed acquisition of Unidompedro and Faculdade Dom Luiz, projected net revenue R$110.5 million in 2024 (88% from medicine course) and R$267 million in 2027 (over 95% from medicine), closing on July 1, 2024.

Undergrad segment: Net revenue increased over 13% to R$705 million, medical students grew 9% to 22,600, net average ticket of medicine courses increased by 6.4% to over R$90,000. Continuing Education: Net revenue reached R$65 million, a 12% growth compared to the first quarter of 2023, with B2B students increasing and B2P and B2B net revenue up 11% and 30% respectively. Medical Practice Solutions: Active payers increased by 15%, net revenue was R$37 million, a 9% growth, with R$32 million from B2P and R$5 million from B2B.

• Adjusted EBITDA guidance for 2024 is between R$1.3 billion and R$1.4 billion. - Acquisition of Unidompedro is expected to close on July 1, 2024. - Reaffirmed M&A guidance of 200 seats per year, open to new acquisitions matching the company's profile.

• Postponement of some B2B invoice recognitions. - Margin dilution from acquisition integration. - Remote possibility of seat cancellations for Unidompedro acquisition, but protected by a 10-year payment schedule.

Q: Can you give more color on which segment most contributed to gross margin expansion and drivers behind M&A plans?

A: Segments all had margin expansion with Undergrad around 1.5 points, Continuing Education a little less than 4 points, and Medical Practice Solutions a little bit higher than 5 points. Regarding M&A, always open to assets with the right price matching the company's profile.

Q: How should we think about Undergrad revenue growth timing and B2B revenue postponement?

A: Undergrad growth came ahead of expectations, not due to seasonal factors. B2B had some invoice recognitions postponed to subsequent quarters, and if recognized in the right quarter, would show 20%-30% growth.

Q: How is the Unido acquisition funded, what's the margin impact, and likelihood of seat cancellations?

A: Funded by cash on hand and cash generation, with some potential for additional funding. There may be margin dilution initially but expected to improve from 2025. The 175 seats are likely to continue as they've been operating since 2021 and protected by a 10-year payment schedule.

Q: Progress of cost rationalization and competition?

A: Cost rationalization restructuring is complete, with growth now more related to top-line expansion. Competition for seats has been stable in terms of candidates per seat, with the company's brand and ecosystem helping attract leads.